Highmark outlined financing and governance plans for its acquisition of West Penn Allegheny Health System in a regulatory filing made public today (PDF).
Highmark shares details of West Penn acquisition plans
The Pennsylvania Insurance Department filing includes financing conditions and contingency plans in the event of a default by West Penn Allegheny Health System. Highmark funding must be used first to absorb operating losses and prevent or cure a default, the agreement says. Otherwise, any cash infusion from Highmark will be spent according to plans drafted jointly by Highmark and West Penn Allegheny, the filing said.
“We have not defaulted,” said Kelly Sorice, a system spokeswoman said in an e-mail. The 60 days cash on hand in West Penn Allegheny's annual report was “well above the default level,” she said.
A $50 million grant from Highmark in June, along with investment income, helped to erase the system's $51.8 million operating loss for the fiscal year that ended June 30. Highmark awarded another $50 million grant and a $50 million loan when the partners announced a definitive agreement last week.
A schedule for financing contained in the regulatory filing says that $50 million will be awarded to West Penn Allegheny 180 days after the agreement is executed, provided the system has not defaulted on its debt. Two $100 million loans will follow on April 1, 2013, and one year later.
A newly created not-for-profit company will include Highmark's operations and a provider group, under which West Penn Allegheny will operate, the filing said. The governing board for the newly created company will be members of Highmark's board of directors and will have oversight of certain decisions for the insurer and West Penn Allegheny.
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