Master trustee UMB Bank has sent a notice of default to West Penn Allegheny Health System because the health system failed to furnish audited financial statements by the Dec. 28 deadline. The notice, delivered to WPAHS on Thursday, states that unless the audited statement is provided in 30 days, the health system will be considered in default on its $726 million Series 2007 bond offering.
The health system notified bond holders last week that the financial statements were not available, but added that "the system intends to continue to work with its independent auditors to finalize the same."
An unaudited report released Oct. 29 showed the region's second largest health system had a $112.5 million operating loss for the year, and a net loss of $37.8 million.
An audited report involves a review by an outside, independent accounting firm. KPMG, which audited West Penn Allegheny's fiscal 2011 financial statement, stated in that report that in performing the audit it was required "to obtain reasonable assurance about whether the financial statements are free of material misstatement."
It is not known why this year's report has been delayed, although West Penn Allegheny has been through a tumultuous period in which it tried to sever its affiliation agreement with Highmark Inc. after health system officials said the Pittsburgh insurer tried to pressure them to undergo financial restructuring and a possible bankruptcy filing.
Highmark then successfully filed suit to block WPAHS from talking to other possible affiliation partners.
In the event of a default, terms of the original West Penn Allegheny bond offering state that the bond trustee "may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause WPAHS ... to comply with its obligations" under its disclosure agreement in the event of a default.
Officials at West Penn Allegheny and Highmark say they are finalizing documentation for the Pennsylvania Insurance Department, which would have to sign off on the two parties' proposed affiliation agreement.
Steve Twedt: email@example.com or 412-263-1963.