Moody's Investor Service has downgraded the bond rating for the West Penn Allegheny Health System to B1 from Ba3, citing "significant" volume declines, lagging operating performance, risk posed by its downsizing strategy and a pension obligation "that requires a sizable payment in September 2010."
The downgrade affects $758 million of Series 2007 fixed-rate bonds. Moody's says the outlook remains negative.
In its release, Moody's said "it is unlikely the system will come close" to meeting its budget this fiscal year ending June 30, primarily due to a 7.5 percent decline in admissions through the first nine months of the current fiscal year and $12 million in unbudgeted restructuring costs. While saying it believes WPAHS is trying to develop a credible plan to downsize and restructure operations, Moody's says "this initiative will take 18 months to have the supporting systems in place and we believe there is risk in being able to retain and recruit productive physicians during this process."
It described the health system's cash position as "weak," saying it only has 51 days cash on hand when project funds are excluded. Meanwhile, Moody's says WPAHS is projected to make a $43 million pension payment in September.
Earlier this week, West Penn Allegheny reported net profit of $200,000 last quarter, and a $7.2 million net profit through the first three quarters of the current fiscal year.
But it also had an operating loss of $5.2 million during those three months, with an $11.6 million operating loss through three quarters of the current fiscal year.
WPAHS spokeswoman Kelly Sorice said in a statement Wednesday that "we are disappointed with Moody's decision regarding our bond rating; however, we appreciate their acknowledgement that West Penn Allegheny's comprehensive, strategic plan is a credible one."
She added that "while there will certainly be short-term costs associated with transforming our health system, we believe our restructuring will yield long-term benefits that are meaningful to the people of Western Pennsylvania."
Steve Twedt: firstname.lastname@example.org or 412-263-1963.