USIU Fails to Meet Payroll as It Struggles to Arrange Bailout

Unable to meet its payroll on schedule for the second time this year, United States International University has asked all of its employees for “patience and support” while it attempts to complete a $15-million refinancing package.

Employees who expected their checks Monday will be paid “as soon as possible after April 1,” according to a memo to employees.

The financially troubled university expected to receive a $15-million loan Feb. 28, but it was delayed after the university sold its 74% interest in KUSI-TV (Channel 51), acting university President Kenneth McLennan said.

“The sale of the television station changed the university’s financial status,” McLennan said. “It required the revision of the financial data submitted to support the granting of the loan.”

The potential lenders have also asked the university to submit an environmental survey of the campus and further information about its accreditation with the Western Assn. of Schools and Colleges. The accreditation has been in doubt, partly because of the university’s financial problems.

The refinancing deal is being arranged through the Beverly Hills-based DS Financing Group. DS president Destan Seferaj didn’t return phone calls Thursday.

In January, when the deal to sell its interest in the station to minority owner Michael McKinnon originally collapsed, the university was forced to ask about 35 salaried employees to delay in picking up their paychecks. A few weeks later, the university received a $1-million advance from McKinnon for the sale of the television station, which helped it meet its payroll.

The sale of the television station, which is still pending approval of the Federal Communications Commission, calls for McKinnon, who was the minority owner, to pay the university $9 million up front, lend it $7 million and forgive about $7 million in debt.

As part of the agreement, McKinnon gave the university permission to use a small percentage of its shares in the television station as collateral to arrange short-term loans while awaiting approval of the sale from the Federal Communications Commission. But McLennan said the university has been unable use the shares to arrange a short-term loan.

As of last week, no protests had been filed with the FCC against the sale, and it could be approved within the next two weeks.

If the university is able to arrange the $15-million package, it will use the money to restructure about $12 million in secured debt and establish an endowment, McLennan said. In the past, the university, a nonprofit organization, has operated without reserves.

Last fall, Bank of America filed notice threatening to foreclose if the university didn’t repay its debt to the bank.

“The university is not a business,” McLennan said. “It’s largely tuition-driven, and tuition comes in every three or four months. There’s no steady income, which is one of the reasons we were anxious to sell the station and negotiate a loan.”