Municipal Bond Market, Mired in Its Past THE $4 trillion market in municipal bonds, which finances American life where it gets lived, is stuck in the Dark Ages. It has been for decades. In yet another attempt to pull this market into modern times, regulators put states, cities and municipal issuers on notice three years ago. No longer would they be allowed to stint on disclosing basic financial information - the kind that investors in, say, public corporations, have long relied on. With an expanded and accessible Web site designed by regulators, municipal bond investors could finally find out what was going on. Or not. Some issuers of municipal bonds don't seem to have gotten the message. More disturbing, regulators don't seem to care. Consider the West Penn Allegheny Health System, a struggling hospital system in Pittsburgh that is one of the nation's larger issuers of tax-exempt debt. It sold $750 million in revenue bonds in May 2007. West Penn has had its share of problems. It restated earnings in 2008, prompting an inquiry from the Securities and Exchange Commission. The investigation is continuing but seems moribund. The system's financial standing is deteriorating. For the nine months that ended on March 31, the most recent figures available, West Penn Allegheny posted an operating loss of $88 million. Its cash is dwindling: it had enough to cover 50 days of operations in the most recent quarter. But this slow bleed threatened to become a hemorrhage with the recent collapse of a proposed partnership with Highmark, a nonprofit insurer with five million health plan customers in Pennsylvania, Delaware and Virginia. In that deal, announced in November, Highmark promised to invest $475 million in West Penn. At the time, the deal was viewed as a lifeline. Highmark has already funneled $200 million into West Penn. But in a terse filing posted with regulators on Sept. 28 and at a news conference that day, West Penn said it was terminating the Highmark deal. Its partner had breached the agreement by changing its terms, West Penn said. To move forward, Highmark told West Penn that the hospital system would have to file for bankruptcy. It advised West Penn of the bankruptcy idea on Aug. 30. "Bankruptcy was not part of the deal," said Jack Isherwood, the chairman of the West Penn board, at the news conference announcing the end of the partnership. We need to operate this health system in a prudent way. Bankruptcy has risks that if you can avoid you do. Conceding that it didn't have many options, West Penn said it would seek other partners. Highmark, which contended that it had not breached the agreement, immediately sued to stop West Penn from talking with other suitors. Not surprisingly, this contretemps has hurt West Penn's bonds. Before the Sept. 28 announcement, most West Penn bonds traded at around 85 cents on the dollar. After, they traded in the mid-to-low 70s. THIS brings us back to the disclosures that West Penn made about the troubled deal and when it made them. Given that Highmark told West Penn in late August of its push for a bankruptcy filing, why did the system wait almost a month before telling bondholders? Ordinary folks who bought West Penn bonds might want to know the answer. After all, they have lost money. I asked West Penn this question, and a spokesman, Dan Laurent, replied that the system had complied with its disclosure obligations. "This prompt disclosure occurred as soon as the West Penn Allegheny board concluded that it was in the best interest of the system to notify Highmark of its anticipatory breach and termination," Mr. Laurent said in a statement. Any disclosure prior to that time was not required and would have been premature. Still, this hospital system has not been a model of disclosure. Last February, West Penn did not disclose the existence of a Justice Department inquiry into its proposed deal with Highmark. And William P. Smith, a partner at McDermott Will & Emery who acts as trustee for the bonds, said in a recent call with institutional holders that "getting any information out of West Penn, much less reliable information, has been a burden." Perhaps another suitor will come along to shore up West Penn. But if there is a restructuring or bankruptcy, it will be the hospital system's second in less than 15 years. Its predecessor, the Allegheny Health, Education and Research Foundation, filed for bankruptcy in 1998. Some $555 million in debt was affected by the filing, the largest among nonprofit health care entities rated by Moody's Investors Service. It is unclear what will transpire at West Penn and what that will mean for its bondholders. Many of them are big institutions. But some are individuals, and they are people whom the S.E.C. said it wanted to protect with its latest disclosure initiative. Demanding full disclosure does not appear to be enough. If the S.E.C. wants to protect municipal bond investors, it needs to put some bite behind the bark.