Allegheny Health, Education and Research Foundation reached a settlement with creditors of its Philadelphia operations Friday, clearing a major obstacle to the merger of its Pittsburgh hospitals with Western Pennsylvania Healthcare System.
The deal, worth $25 million, according to MBIA Insurance Corp., a major creditor, was announced by four-hospital Allegheny University Hospitals-West and two-hospital West Penn. Neither system would confirm the amount or discuss payment terms.
Specifically, the agreement releases one-time AHERF flagship Allegheny General Hospital and Allegheny University Medical Centers, both in Pittsburgh, from liability for creditor claims under the Chapter 11 bankruptcy filing by AHERF's Philadelphia operations.
In a written statement, West Penn President and Chief Executive Officer Charles O'Brien Jr. said the agreement represents a major step toward the creation of a 2,220-bed system. "We are now working diligently toward finalizing the formal settlement agreement, which is the next important step in this complex transaction," he said.
William Hanna, a healthcare consultant based in Wexford, Pa., said the agreement is a "positive milestone" for West Penn.
The sale of AHERF's Pittsburgh hospitals to West Penn, expected to be completed by the end of May, requires approval by the U.S. Bankruptcy Court in Pittsburgh.
Highmark Blue Cross and Blue Shield, which is lending West Penn $125 million to acquire AHERF's bankrupt Pittsburgh operations, including 569-bed Allegheny General, would not say whether the loan will be tapped to pay creditors. "That is for West Penn to decide how to use that money," said Michael Weinstein, a Highmark spokesman.
An MBIA executive also declined to discuss specific payment terms. It remains unclear how much the Armonk, N.Y.-based bond insurer will receive toward its $298 million commitment on the Philadelphia bonds.
AHERF's settlement does not apply to creditors of its Pittsburgh operations, including MBIA, which insured $70 million of the bankrupt system's debt. Those negotiations continue.