Conseco: Bankruptcy Filing Possible
Conseco Inc. warned at press time that it might have to file for Chapter 11 bankruptcy court protection to ward off demands for the immediate repayment of $4.6 billion in debt.
The Carmel, Ind., financial services company was scrambling to improve its debt-to-capitalization ratio enough to come back into compliance with its bank credit agreement, and to make August interest payments on four series of notes by Sept. 9.
If the company fails to make the August interest payments by Sept. 9, it could face the “immediate maturity” of all of its notes, its $1.5 billion bank credit facility balance, and $1.1 billion in guarantees on loans that Conseco directors and officers used to buy Conseco stock, Conseco says in its quarterly report.
Conseco could face an acceleration of its obligations under the bank credit agreement even if it meets the deadline for the August interest payments.
A.M. Best Company, Oldwick, N.J., on Aug. 14, lowered the financial strength rating for Consecos principal insurance subsidiaries to B from A- earlier in the year.
Conseco says its bank credit agreement requires it to “take certain actions to generate liquidity and accelerate the repayment of the bank credit facility” if the Best rating falls to B.
Conseco emphasizes in its quarterly report that it must try to restructure the capital of the parent company.
“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,” Conseco says. “If we are 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.”
Conseco has a major consumer finance unit as well as large insurance operations. It admits the consumer finance unit could use cheaper cash.
But “the insurance companies are operating business as usual,” says Ellen Hostetler, Conseco spokeswoman. “They all have the cash to keep on going as they always have.”
Revenue for some insurance products actually increased in the second quarter: long-term care insurance premium revenue rose 4.1%, to $227 million, and supplemental health insurance premium revenue increased 1.6%, to $564 million.
But Conseco suggests in the quarterly report that the insurance subsidiaries deteriorating ratings could hurt their ability to get and keep new business.
Many experienced agents and brokers shifted away from Conseco products as soon as stories began appearing about its difficulties with paying off its debts.
Appleby & Brown Financial Group, Akron, Ohio, a life insurance marketing firm, was still listing Conseco products on its Web site as recently as last week. But the firm began moving to other suppliers a while ago, and now, distributing Conseco insurance “is a very small part of what we do,” says Timothy Brown, Appleby & Browns president.