Conseco's Wendt: Seeking 'Rented Equity' For Insur Ops
Dow Jones Newswires
By Allison Bisbey Colter
NEW YORK -- Conseco Inc. (CNC) is planning to hold on to the bulk of its consumer finance unit, Chairman and Chief Executive Gary C. Wendt said Thursday.
Speaking on a conference call following the announcement of a restructuring plan and second-quarter results, Wendt said that while "everything is for sale," he's not convinced it makes sense to split the unit, Conseco Finance, from its insurance company parent.
"I'm not sure I want to cut off one of my arms," he said.
Conseco spokesman Jim Rosensteele subsequently confirmed the company's position on Conseco Finance. "We would rather own large portions than sell," he said.
Earlier Thursday, Conseco said it planned to sell or run down five of Conseco Finance's business lines. In addition to sale of the credit card portfolio, which brought in $152 million in cash, Conseco Finance's asset-based lending, vendor finance, transportation and park construction units are also on the block.
The company also intends to cut 2,000 jobs at Conseco Finance as part of a program to reduce costs by more than $150 million.
The sale of these businesses, along with the disposal of Conseco's interest in the Argosy Casino & Hotel in Lawrenceburg, Ind, a stake in wireless communications company Tritel Inc. (TTEL) and the possible sale or run-down of five insurance businesses that are under review, will help the company repay debt due over the next 12 months.
Conseco must repay $1.47 billion by the end of the year.
Wendt said Conseco has more than enough cash on hand to meet the first payment due in September. The businesses that have already been sold will generate enough funds to pay off the rest of this year's debt, although it's not clear when Conseco will realize the proceeds. "We'll have to work out the exact payment dates," he said.
CEO Wendt said Conseco had lost some insurance business in the second quarter after A.M. Best downgraded the claims-paying ability of its insurance operating units to B++, but the impact "has not been serious."
He said the total book of insurance business had fallen 1% from the first quarter.
Until the rating can be restored, Conseco will explore some form of reinsurance, which Wendt termed "rented equity," from other insurers that can be used in conjuction with its policies to create a higher-rated product.
Wendt also said Conseco is developing a pay-for-performance scheme to help stem defections at Conseco Capital Management, the company's financial services arm. Rather than rely entirely on stock options to reward performance, the CEO wants to link pay to specific operating goals.
He said this kind of compensation scheme would eventually in place throughout the company.
-Allison Bisbey Colter; Dow Jones Newswires; 201-938-5298
email: allison.bisbey-colter@dowjones.com
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Wendt is sure cleaning house.
Jack |
