Highmark begins move to buy West Penn debt

Highmark has moved to buy out investors in West Penn Allegheny Health System, a Pittsburgh health system that has faltered under significant debt and continued operating losses.

Highmark, an insurer, said its offer to buy West Penn Allegheny's outstanding $709.7 million in bonds at 87.5 cents on the dollar would be open until April 26. Already, investors have agreed to unload bonds that total more than three-quarters of the outstanding debt.

The move comes as Highmark waits for approval from Pennsylvania insurance regulators for the insurer's increasingly costly plan to acquire and turnaround West Penn Allegheny.

Regulatory review of the deal was complicated by West Penn Allegheny's failed attempt to break it off last October as its finances deteriorated. A court rejected the breakup and Highmark pledged to buy the health system's bonds as well as increase its offer of cash and loans to $525 million from $400 million.

Highmark will finance the bond purchase from its own cash or use a committed bank loan, said Aaron Bilger, a spokesman for the insurer, in an e-mail.

The insurers' growing financial commitment to West Penn Allegheny—and the risk that more aid will be necessary—has unsettled analysts. Meanwhile, state regulators pressed Highmark to produce revised projections for the health system's revenue and demand from patients after a state senator questioned the insurers' turnaround strategy for the distressed system.

Highmark, if successful, will inherit a health system with a history of operating losses. Since West Penn Allegheny was formed in 1999, the health system has turned an annual operating profit just once, according to Moody's Investors Service.

Nonetheless, Highmark has pressed forward with plans to build an integrated delivery network. The insurer acquired its first hospital last month.