Welcome to the October 21 Monday Business Briefing.
This is your private business intelligence briefing, with Insider Louisville staff and contributors vetting tips collected during the past few days, hours and minutes before we post at 7 a.m.
As we prepare for our Insider’s Meetup this afternoon at Vincenzo’s, we’ll have multiple topics for discussion. Including our Mark Coomes telling us how U of L could – up three touchdowns at home – lose to Central Florida.
This is the “life goes on” edition of MBB ….
• Remember a year ago when Catholic Health Initiatives and the University of Louisville signed that big operating agreement, that mini-merger that was going to save the day financially for U of L?
Well, a lot can change in a year.
A few weeks ago, we started hearing about staff cuts due to huge losses at U of L’s partner, KentuckyOne, the Kentucky operations of Denver-based hospital system Catholic Health Initiatives. It turns out our sources were not only correct, they were low-balling the CHI losses at $20 million per quarter. Try about $70 million.
An insider passed on New York-based rating agency Standard & Poor’s latest analysis of CHI dated Oct. 9. We’ll have a longer summary this morning, and to be fair, CHI is a large and financially healthy health care network.
That said, shocking details jumped out at us as we got deeply into the 14-page report, and it’s clear the system is going to have far less operating income this year, which will have a dramatic impact on its local partners University of Louisville Hospital and Jewish Hospital & St. Mary Healthcare.
• In the fiscal year ended June 30, 2013, CHI’s operating income declined by over $400 million to a $274 million loss, from a $155 million profit.
• Of CHI’s 12 key regions, six had generated an operating loss in fiscal 2013. Of these, the largest loss was at KentuckyOne, which was created in early calendar 2012.
• Standard & Poor’s Ratings Services lowered its long-term and underlying (SPUR) ratings to ‘A+’ from ‘AA-‘ on debt issued by and on behalf of Catholic Health Initiatives (CHI), Colo., due to weak operating performance and increased debt.
Very quietly, executives at parent CHI fired the KentuckyOne CFO in August after only a few months on the job. Then, they fired the chief visioning officer.
KentuckyOne was created last January out of the merger of the Kentucky operations of CHI’s Lexington-based subsidiary, U of L hospital and Jewish Hospital & St. Mary’s HealthCare. CHI agreed to a joint operating agreement with JHSMH and University Medical Center in which CHI would inject $173 million over five years, as well as loaning UMC $40 million to pay down debt.
When announced one year ago, the deal was hailed by U of L officials including President James Ramsey as the only way U of L could staunch the bleeding, so to speak, at University Hospital, both a safety net hospital for Louisville’s uninsured, and the training facility for U of L’s medical school.
Earlier this year, CHI executives announced they’d spend more than $5 million to refurbish Jewish Hospital Medical Plaza at 100 E. Liberty St. into the KentuckyOne headquarters. Then, mysteriously, they said they wouldn’t.
As a result of CHI’s losses here and in other states, our sources say, Dr. David Dunn, executive vice president for Health Affairs at U of L, will get the news this week that U of L is getting millions less from CHI than planned for 2014. We’ll get into the numbers in greater depth later today.
• Speaking of U of L, the top executive at University of Louisville Physicians is leaving.
Mike Bukosky has handed in his notice as U of L Physicians CEO, with his duties to be transferred to a management committee. We don’t know exactly how this fits into the total picture. But Diane Partridge, U of L Physicians vice president of Marketing and Communications, said Bukosky announced his departure to employees several weeks ago, and will stay through the end of the year.
Partridge was kind enough to issue a statement yesterday afternoon:
In June 2010, Mike Bukosky accepted the challenge to integrate the clinical practices of University of Louisville’s School of Medicine into a unified group practice, UofL Physicians. In January of 2012, the integration process was finalized and UofL Physicians became the largest and most progressive physician practice in the state of Kentucky. UofL Physicians can now better serve the community and face the ever-changing challenges of the health care industry.
With the conclusion of the integration, Mike will step down as the CEO of the organization in December of 2013. Mike will remain available to the UofL Physicians board as he increases his focus on his role as board chair of the American Medical Group Association working on national health care reform issues. The UofL Physicians board will not fill the CEO position and will permanently share the responsibilities. Dr. Greg Postel, chairperson of the board, will lead the overall initiatives and strategies.
We first met Bukosky when he was the always-available spokesman for U of L Physicians during their long standoff with Humana. The dispute began in December 2009 when Humana officials notified the doctors group it wouldn’t renew their 2008 contract unless the doctors agreed to a 10-percent cut in reimbursements.
The doctors’ group demurred, a standoff that resulted in more than 12,000 Humana customers having to request Humana waivers to see the 600-plus specialists in the University of Louisville Physicians group, or paying out of network fees. That dispute didn’t end until September 2011.
Our insiders say Bukosky’s prowess, which they say is formidable, may have run up against the egos of doctors who head various practice groups, and the CEO decided to go where he could do his job.
• During the past six months, we’ve heard endless – though not terribly detailed – chatter about the sputtering effort to get casinos in Kentucky. Now, we are hearing Churchill Downs has hired a number of top national consultants and is in the middle of a final push to try to get casinos at race tracks. And maybe even a downtown casino. Imagine Louisville competing for conventions and corporate meetings with new hotels, retail, our restaurant scene, urban bourbon distilleries/tourism attractions and a small casino.
Of course, Churchill lobbyists have to persuade the Kentucky General Assembly to change the laws to allow casino gambling. Gov. Steve Beshear has done the heavy lifting, moving the main gambling opponent, former Sen. David Williams, to a judgeship in southern Kentucky. But Insider Louisville sources say if Churchill Downs executives are thwarted, they’re inclined to just move on and drop an effort that would be a big plus for Louisville’s tourism package.
More as we talk to more people involved in this effort.
• There’s an interesting trend going on with large companies trying to hook up, so to speak, with entrepreneurs. Bring them in and let the focus be fresh thinking – thinking that can’t be punished by institutional politic – technical issues gigantic corporations have a tough time solving. Exhibit A: General Electric is holding an open house for entrepreneurs Thursday at Appliance Park. We don’t know if we’re invited, but we’d love to be there ….
From the invitation:
The Entrepreneur Open House on October 24th at the General Electric Monogram Experience Center, GE Appliance Park 5:30 pm will highlight the innovation opportunities and unsolved challenges in home appliances. In addition, GE will also present the partnership models that it uses to engage with entrepreneurs and start-up companies, followed by a Q&A. This meeting will provide the opportunity to interact with the R&D teams in GE and provide contacts for future opportunities
• We told you last month about Doc Crow’s partners, including Chip Hamm, opening in Nashville. Hamm, the attorney/investor with Brett Davis in Doc Crow’s Southern Smoke House and Raw Bar and other Ton Brothers restaurants pitched investors at the Real Estate Venture Exchange on a plan by DC Management Corp. DC Management is opening a steakhouse concept called Union Common in an affluent section of Nashville.
Now, Eater.com has more on that effort, including a rendering.
Here’s more detail via Eater.com’s Nashville site:
Construction is going full steam on Union Common, a “non-traditional steakhouse concept” from Louisville-based restaurant group DC Management, in Midtown. Brett Davis, a partner with DC Management, describes the restaurant as a “steakhouse with European sensibilities,” offering a variety of cuts along with a roster of small plates for sharing.
• Ken Berryman and CapitalSouth Partners have gotten very quiet lately in Louisville. But we did receive this recently, a release about a new CSP investment vehicle, Capitala Finance Corp.
On September 30 2013, publicly traded Capitala (NASDAQ under the symbol “CPTA”) announced it closed its initial public offering of 4 million shares of common stock at a $20 per share IPO.
From that email:
Capitala will provide a variety of financing structures, including subordinated debt, first and second lien loans, one-stop and uni-tranche structures, and equity co-investments. Capitala will invest in lower middle-market companies with EBITDA in excess of $5MM, and will invest between $5MM and $30MM in each transaction.
It appears Capitala will take over CapSouth’s funds. Before the Great Recession, CapSouth and other private equity/mezz fund lenders were chasing mid-sized companies in second-tier, Midwestern markets such as Louisville, knowing that a growing number of successful, mature family-owned companies were ready to sell.
CapSouth invests a few million in subordinated debt, helps focus management, then finds a buyer for the new and improved business.Unfortunately, the recession kicked most deals into neutral. Now, it appears they’re back on the hunt as the equity markets hit historic highs. Let the deal making begin!
Actual MBB briefs:
• Our commercial real estate insiders say look for major changes at Mall St. Matthews now that the reconfiguration of Oxmoor Center is nearly complete. One of the biggest problems at Louisville’s original mall is insufficient parking, a problem that’s about to be addressed. Chicago-based REIT General Growth Property owns both Shelbyville Road malls.
• We reported last spring that Standard Country Club, founded as a club for Louisville’s once-vibrant Jewish community, was struggling. At the time, Standard Country Club’s 200 members were looking at rising club debt of about $4 million. That debt led members to at least consider forming their own real estate investment trust and redevelop the 150-acre parcel at Brownsboro Road in eastern Jefferson County. Now, we hear there is a new plan … to take the club and create a suburban hub for the landlocked Jewish Community Center at Dutchmans and Cannons lanes. More if we can get anyone to talk to us.
• Look for the effort to take Louisville government workers out of the state’s public employee pension funds heat up with a new piece of legislation … all we’re cleared to say at the moment. Kentucky’s pension funds under the Kentucky Retirement Systems are about $30 billion underfunded, among the worst in the United States.