West Penn Allegheny's bond rating holds: Moody's

Analysts with Moody's Investors Service did not change the Caa1 bond rating for West Penn Allegheny Health System, the distressed Pittsburgh health system in line to be acquired by insurer Highmark.

That deal with Highmark—which includes $400 million in grants and loans for West Penn Allegheny and $75 million for medical education— likely saved the health system from restructuring and a possible default, said analysts.

It may also not be enough, apparently.

“While Highmark has not currently committed more funding beyond $475 million, we believe (West Penn Allegheny) will need more capital and/or operating support over the next two years and our current rating incorporates our belief that Highmark will be willing and motivated to provide further support,” analysts said in a credit report.

West Penn Allegheny's losses have accelerated this fiscal year to $87.8 million through the first nine months, which ended in March. That's compared with $35.1 million for the same period the prior year.

Moody's analysts Lisa Goldstein and Lisa Martin noted that West Penn Allegheny's operating losses through March exceeded losses for all of the prior year ($75 million).

West Penn Allegheny's losses are draining its cash, Moody's said. As of the end of March, West Penn Allegheny's cash had declined $38 million from the prior June “even though the system received $100 million of payments from Highmark during this period,” the report said.

West Penn Allegheny's rating outlook is negative, Moody's said.

You can follow Melanie Evans on Twitter: @MHmevans.