Memo to Highmark Inc. and West Penn Allegheny Health System from the state Insurance Department: Let's get this show on the road.
Highmark and WPAHS seem prepared to oblige, readying for a January "finalization" of their ever-shifting acquisition agreement and the debt reorganization that underpins the deal.
In a Thursday letter to Highmark attorneys, Deputy Insurance Commissioner Stephen Johnson said the department -- which must give its blessing to any Highmark-WPAHS alliance -- "cannot evaluate a hypothetical transaction or one that is not in final form."
The letter expressed concern that, as the nature of Highmark's fledgling provider arm has continued to evolve -- and as the deal between Highmark and WPAHS has lurched from pole to pole -- the department has been "required [to] expend considerable time and resources to evaluate a constantly moving target."
Highmark and WPAHS now hope to target early January, according to letters from each organization's top official. In a Thursday letter to his WPAHS counterparts, new Highmark CEO William Winkenwerder Jr. said, "I believe we are now ready to finalize our strategy and move forward just after the New Year in 2013 ... we have a great future before us."
WPAHS board Chairman Jack Isherwood distributed the letter to West Penn Allegheny employees on Friday morning. He added that the "board and management are absolutely focused on bringing these deliberations to a successful conclusion as soon as possible ... From the outside it may seem curious that the two parties cannot just shake hands and become partners, [but] our challenge is to work through the complex financial and structural options to consummate our partnership in a very dynamic environment."
It's been about 18 months since the deal's framework was announced, and more than a year since the deal was officially signed in November 2011. The deal would have put WPAHS and its hospitals under control of Highmark's new provider wing, in exchange for $475 million in new loans, cash and capital improvements.
But the two parties continued to haggle over details and as WPAHS' financial condition worsened, one of the major details was whether it should be pushed into some kind of debt or bankruptcy restructuring.
That push, led by Highmark and Dr. Winkenwerder, in turn led WPAHS to temporarily call off the deal this September, accusing Highmark of "breaching" the agreement between the region's No. 2 hospital system and the state's biggest insurer.
Each new twist, quarterly report and bond rating reduction has delayed the deal's consummation date. Originally, when former Highmark CEO Ken Melani first announced the merger a year ago, he said the two parties had hoped to seal the deal by the second quarter of 2012.
To delay state approval beyond mid-2012, he said at a state Senate committee hearing last December, would jeopardize WPAHS' ability to pay its bills and meet its debt covenants.
"We cannot take a year to get the transaction approved," Dr. Melani said at the time.
It's now been a year and 21 days since that committee hearing, and approval has not yet come from the state. Highmark and WPAHS, meanwhile, continue to discuss bond restructuring with major bondholders.
"We are continuing to talk with Highmark on a daily basis with the goal of finalizing our affiliation," said WPAHS spokeswoman Kelly Sorice. "We have regular meetings with Highmark and our bondholder representatives, which have been productive in moving us forward."
According to DebtWire -- an industry journal that writes about debt and bond markets -- Highmark and WPAHS are focusing on two major bondholders in particular.
As Dr. Winkenwerder suggested in his letter, an announcement on the results of those negotiations could come in early January, when "non-disclosure agreement between the bondholders and the two companies expires," according to DebtWire.
Bill Toland: firstname.lastname@example.org or 412-263-2625. First Published December 22, 2012 5:00 AM