Center for Open Government: UofL secured "fallback" financing from a private lender while lobbying legislature for taxpayer-backed loan

There was a time - June 2019 to be exact - when University of Louisville President Neeli Bendapudi believed pursuing the purchase of Kentucky One Health’s Jewish Hospital was too much of a risk.  According to the Courier Journal,  UofL officials said they “must do what is fiscally responsible” for the school. Bendapudi said, “Without a viable partner, we do not have the resources necessary to make the acquisition a reality.”

Fast forward to August 2019, UofL’s challenge in securing a “viable partner” to help fund the purchase was solved when state leaders committed to providing a $50 million taxpayer-backed loan. Still, Bendapudi called it “the most difficult decision” she ever faced and said the loan was “vital” to move forward with the acquisition of the failing hospital. 

At least that was what the public was told. 

One of the more interesting (and curious) nuggets of reporting during that time came from WDRB’s Chris Otts. In a September 2019 story, Otts revealed that UofL Health CEO Tom Miller told a group of physicians that “the university can in fact ‘be successful’ with the takeover even without the $50 million from state government.” No doubt surprised his private thoughts on the loan had been shared with WDRB, Miller said UofL Health was “exploring several scenarios that would position us for success.” 

Over the past year the Bluegrass Institute’s Center for Open Government has obtained more than a thousand pages of documents related to UofL’s decision to purchase Jewish Hospital. From those records, we have pieced together one scenario - referred to as a “fallback” in one document - contemplated by UofL officials involving a $30 million line of credit from PNC Bank.

The effort to secure a line of credit from private financial institutions was unfolding while Bendapudi and Miller were telling the public and members of the Kentucky General Assembly the taxpayer loan was essential to make the deal work. 

A timeline interlacing the public facing statements from UofL with documents revealing what was happening under the radar is helpful in understanding the totality of the university’s activities to secure the taxpayer loan — and its fallback plan.

August 14, 2019. University of Louisville announces its intent to acquire Kentucky One’s Louisville-based assets. The Courier Journal reported that “university and state officials spent the past few weeks working out a way to give the university the financial backing it needed to make such a massive acquisition on its own.” UofL documents showed the Kentucky Economic Development Finance Authority was recommending a 20-year loan of $50 million with no principal payments or interest accrued for the first five years.

September 9, 2019. Miller told the joint Medicaid Oversight and Advisory Committee that the takeover of KentuckyOne and the proposed $50 million loan from the state are vital to protecting jobs, the school's medical school and medical access in underserved areas of Louisville. (Louisville Business First)

September 11, 2019. WDRB reports on a recording of Miller telling a group of physicians “whether (the state loan) happens or not, we have a plan associated with that on how to be successful.” Miller continued, “It’s great to have that as a backup; it’s just a great resource to have.”

The WDRB story referred back to comments made by Bendapudi when the deal was announced. She called (the state loan) “vital” and said there was “zero chance” the university would have agreed to take on the KentuckyOne Health properties without outside funding – primarily, the promise of $50 million from the state.

September 20, 2019. At a Finance Committee meeting of the University Medical Center (UMC) Board of Directors, UofL Health Chief Financial Officer (CFO) Michael Douzuk “summarized conversations” with the University of Louisville’s CFO, Dan Durbin, which resulted in a request “to establish a fallback line of credit for UofL Hospital.” The minutes of the meeting indicate “the members present agreed that although the request was for $30 million, they support up to $50 million if deemed appropriate.” 

September 24, 2019. At a UMC Board of Directors meeting, chaired by Bendapudi, Durbin reported “the (Finance committee) had, at his request, discussed opening a $30 million line of credit…to generate working cash if needed.” The UMC Board voted unanimously to authorize the solicitation of offers to open a new line of credit. 

October 18, 2019. Douzuk reported to the UMC Finance Committee that he had met with representatives of Old National Bank, Republic Bank, and PNC Bank regarding a $30 million line of credit. The committee, chaired by Durbin, voted unanimously “to authorize UMC’s CEO and CFO to finalize terms on a line of credit.” 

November 1, 2019. UofL closes on the deal purchasing Jewish Hospital and other KentuckyOne health assets in the Louisville area. Bendapudi calls it “an exciting and historic day for the University of Louisville.” Responding to a question about Miller’s statements that the state loan wasn’t necessary, Bendapudi said, “I think he might not have said it well … (he) was trying to make sure that people were not panicking.” She also said, “We really, really need that loan; we truly do.” In addition, it was reported UofL CFO Dan Dubin “implored the board members of the university’s nonprofit foundation to ‘influence the proper people’ to support the loan.” 

November 8, 2019. Douzuk sent an email informing UofL Health CEO Tom Miller he had “received three bank proposals for a $30.0m line of credit for UMC.” Douzuk continued, “I recommend based on borrowing cost and no unreasonable operating terms, PNC is my bank of choice.” 

November 15, 2019. The pre-filed version of HB 99 is introduced. On the same day, meeting minutes from the UMC Finance Committee reveal Douzuk briefed the committee on the decision to obtain the line of credit as was authorized by the Board last month. Durbin chaired the meeting. 

November 19, 2019. At the November meeting of the UMC Board, Douzuk “reviewed the decision, after consideration of three proposals, to obtain a line of credit with PNC Bank.” The Board unanimously approved the recommendation. Bendapudi, the board chair, was absent from the meeting. 

January 7, 2020: UMC executes the $30 million line of credit loan agreement with PNC Bank. Douzuk signs the agreement on behalf of UofL Health. On the same day, HB 99 is filed and assigned to the House Appropriations and Revenue Committee. 

By the end of the 2020 session, UofL had convinced the General Assembly to have the taxpayers step up as the “suitable partner” Bendapudi said her university needed to purchase Jewish Hospital. 

Behind the scenes - shielded from members of the legislature and the public - it appears UofL’s so-called fallback plan was secured much earlier than that.