Haywood County commissioners this week gave their blessing to a $10 million line of credit for the MedWest-Haywood hospital, ending a delicate dance in the finer points of contract law that has spanned the past three months.

The loan was needed to solve a serious but short-term cash flow crunch brought on by a concatenation of unexpected costs. MedWest-Haywood had turned to the powerhouse of Carolinas HealthCare System, a network of 34 hospitals that Haywood is part of, to help bridge the gap.

The status of the loan has been in limbo, however, as county commissioners wrestled with whether to allow MedWest-Haywood to put up the hospital building as collateral. While highly unlikely, if the hospital failed to pay back the loan it could be foreclosed on. The worst-case scenario concerned county commissioners, preventing them from initially signing off on the loan.

Without commissioners’ blessing, the loan was in limbo. The county’s measure of control over the hospital building dates back to its original status as a public hospital — a status county commissioners felt compelled to protect.

Commissioners finally arrived at a series of caveats that would allow the loan to go forward.

“It protects the county’s interest but allows for a way forward for the hospital,” County Commission Chairman Mark Swanger said.

Commissioner Mike Sorrells agreed.

“We wanted to provide the hospital with the means to get over get over this bump in the road, as it is being called, but continue to maintain a viable county hospital,” Sorrells said.

MedWest-Haywood CEO Mike Poore said the hospital is not in dire financial straits, but it is operating under austerity measures and has been forced to lay off some employees as it regains its footing from a series of set-backs.

Poore pointed out that the $10 million loan is the only debt the hospital has — compared to its annual operating revenue of $110 million and a building worth $70 million.

“To have an organization with that little debt ratio in today’s world is really amazing,” Poore said.

 

Collateral with caveats

Swanger stressed that the process has in no way been adversarial between the county and the hospital.

“I think I can speak for everyone up here when I say we want the hospital to succeed and thrive,” Swanger said at a county meeting this week. “We have an obligation to protect the county’s interest and taxpayers’ interests, but the process of doing that has not been adversarial.”

Poore said he would “echo that.”

“The commissioners have been asking the right questions and doing their fiduciary responsibility, but the whole time the interest is how can we help our hospital along,” Poore said.

Specifically, the county agreed to let the hospital put its building up as collateral if the county is given the first right of refusal, so to speak. Should the hospital default on its loan, Carolinas HealthCare System could not foreclose without coming to the county first.

The county would be given the option of paying off the loan itself. The hospital would then be on the hook with the county to pay back the loan rather than to Carolinas.

“Should there be a default rather than just a normal foreclosure, they first have to give the county notice,” explained Haywood County Attorney Chip Killian. “The county has six months after that notice to kind of figure out what they are going to do — to decide whether they want to purchase the note and in fact be the lender instead of Carolinas.”

If the county indeed decides to bail the hospital out, it would have another 12-month window to put together a financing deal to “satisfy and cure the default.”

The caveats written into the loan drew on the best contract-writing skills Haywood County Attorney Chip Killian could muster.

“There is a lot of legalese in this document, but I had to craft this out of whole cloth because I had never seen anything like this before,” Killian said.

 

A ‘perfect storm’

Poore said that the need for a loan isn’t a sign of financial insecurity.

“We had several events that were what I would describe as a perfect storm of cash issues,” Poore said. “The clock ran out on us. There were too many things that hit us at the same time.”

MedWest-Haywood had to spend $1 million to replace a broken generator, $1.6 million on a wrongful firing lawsuit by group of emergency doctors and $8 million on a new computer system to handle electronic medical records.

The hospital also spent an undisclosed sum in the past year buying up private doctors’ practices that were being courted by Mission Hospital in Asheville. MedWest-Haywood feared long-term repercussions of a patient drain if it didn’t make a competing offer.

“It is a lot more complicated than ‘the hospital is in some economic trouble,’” said County Commissioner Kirk Kirkpatrick said. “There have been a lot of hurdles we have had to get over. I hope we are at the point we are making that turn.”

Meanwhile, however, the hospital has already spent $7 million of the $10 million loan. Carolinas Health System had already extended the loan to MedWest-Haywood — and Med-West Haywood had begun spending it — before they realized the county’s blessing was needed for the collateral.

Carolinas could have retrenched and frozen the line of credit when the county didn’t promptly sign off. Instead, Carolinas allowed MedWest-Haywood to keep spending against the line of credit, allowing the balance to grow to its $7 million mark.