West Penn Allegheny Looming Default No Bellwether (Bloomberg News)

November 18, 2012 – The $100 billion market for high- yield municipal debt is rallying the most in three years in the face of the potential bankruptcy of the biggest tax-exempt junk issue since at least 1990. West Penn Allegheny Health System, a hospital group in Pittsburgh with $726 million of debt below investment grade, is struggling with deepening losses and falling revenue. There is “a high likelihood” the provider will seek bankruptcy protection or restructure its bonds, even as it discusses affiliating with one of the nation’s 10 biggest health-insurance companies, Moody’s Investors Service said last week. Securities of West Penn have lost 30 percent of their value since their sale in 2007, data compiled by Bloomberg show. Meanwhile, speculative-grade munis are earning the most since 2009. With tax-free interest rates at 45-year lows, high-yield munis will extend their rally even if West Penn fails to repay investors in full, said Susan Courtney, a managing director at Prudential Fixed Income in Newark, New Jersey. “Investors in the muni high-yield space are aware of what’s going on with West Penn,” said Courtney, who helps manage $1.8 billion in tax-exempts, including West Penn bonds. “In this low-rate environment you have the search for yield, so the lower-rated credits are performing better.”

Link to Full Article: http://www.bloomberg.com/news/2012-11-19/west-penn-allegheny-looming-default-no-bellwether-muni-credit.html

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