NU Online News Service, Aug. 14, 10:59 p.m. – Conseco Inc., Carmel, Ind., is reporting a $1.3 billion net loss for the second quarter on $1.5 billion in revenue, compared with a $30 million net loss on $2.1 billion in revenue for the second quarter of 2001.
The latest net results include $1 billion for a deferred income tax valuation allowance, $260 million in investment losses, $71 million losses on reinsurance transactions and asset sales conducted to raise cash, $65 million in provisions for losses on loan guarantees, $15 million in venture-capital losses, and $8 million refinancing costs.
Conseco is writing off the income tax valuation allowance because it doubts it will ever earn enough taxable income in the future to use the allowance, according to a discussion in the quarterly report on the company’s accounting policies.
Conseco executives were expressing optimism about the company’s chances until recently, but the company has had trouble raising cash in such an unforgiving economic climate and in making sales in the face of skepticism about its prospects.
The company acknowledged Friday that it would postpone payments on four bond issues.
If the company cannot make the payments and cannot come back into compliance with its bank credit agreement, it could end up facing an immediate obligation to make up to $4.6 billion in payments on its bank credit agreement and notes, Conseco says.
Moreover, A.M. Best Company, Oldwick, N.J., says it is lowering the financial strength ratings of Conseco’s principal insurance subsidiaries to B, from B++. Conseco says in its quarterly report that its amended bank credit facility agreements requires the company to “take certain actions to generate liquidity and accelerate the repayment of the bank credit facility” if the A.M. Best insurance subsidiary ratings fall to B.
Conseco conceded in a note to its quarterly financial statement that a bankruptcy filing is one of the alternatives under consideration.
“We cannot predict whether any restructuring will be effected out-of-court or through a Chapter 11 bankruptcy proceeding, nor can we predict how long any restructuring of our debt will be required to implement,” the company says in the statement. “If we were unable to achieve a consensual restructuring, we will be unable to satisfy all of our debt obligations and we will be forced to petition for relief under the U.S. Bankruptcy Code.”
The company also reported that the U.S. Securities and Exchange Commission is looking into its accounting practices.
Gary Wendt has signed a statement attesting to the accuracy of the company’s latest financial statement.
Conseco has emphasized that its problems are due largely to debt carried by the parent company, and that the insurance subsidiaries have been solvent.
But Conseco’s balance sheet shows that cash and cash equivalents on hand at its subsidiaries, including its consumer finance subsidiaries as well as the insurance subsidiaries, fell to $1.2 billion on June 30, from $2.9 billion six months earlier.
The company contends in the notes to its financial statement that its insurance subsidiaries have more than enough cash and liquid investments to handle their cash needs.
Revenue from the insurance unit fell to $803 million in the second quarter, from $1.2 billion, in part because the unit accounted for $260 million in investment losses.
Operating revenue from the sale of life insurance fell to $133 million, from $209 million, but revenue from the sale of annuities increased to $45 million, from $33 million, and revenue from the sale of supplemental health insurance increased to $564 million, from $555 million.
Long-term care insurance premium revenue increased 4.1%, to $227 million.
Conseco’s official quarterly financial statement is available on the U.S. Securities and Exchange Commission Web site, at http://www.sec.gov/Archives/edgar/data/719241/000071924102000010/0000719241-02-000010.txt