8-29, 19:00:TheStreet.com:Conseco Near a Deal to Extend Loans
thestreet.com
By Peter Eavis Senior Writer
8/29/00 7:58 PM ET
Conseco (CNC:NYSE - news) is getting a break from its lenders.
The troubled insurance and finance firm is close to
finalizing an agreement with its bank creditors that allows
it to extend half of the $1.4 billion in debt that falls due by the end of September,
according to a person familiar with the situation. This person said the banks will get paid back
around $700 million by the end of September, and they have agreed to extend
their deadline on the remainder. Conseco declined to comment on its negotiations with its bankers.
Boost for CEO
The purported debt workout would be a boost to Gary Wendt,
the ex-GE Capital exec appointed as Conseco's CEO in June to head up
restructuring efforts. But it wouldn't mean Conseco's troubles are over.
The person with knowledge of the debt talks declined to say
what concessions the banks, which include Bank of America (BAC:NYSE - news)
and Chase (CMB:NYSE - news), have demanded in return.
If these turn out to be harsh, investors would likely conclude that the Carmel,
Ind.-based company has only won a temporary reprieve from its creditors.
This person also didn't say how Conseco had raised the $700 million for repayments.
He says the company could make an announcement about its debt by the end of next week.
Neither Bank of America nor Chase returned calls seeking comment.
Conseco alluded to its negotiations with bankers in a recent Securities
and Exchange Commission filing. That filing also gave details of an agreement
with Lehman Brothers (LEH:NYSE - news) that requires Conseco to get Lehman's permission
before it spends the proceeds from planned asset sales by Conseco Finance,
Conseco's lending arm. Lehman insisted on the restriction after it agreed in May
to provide financial assistance to the company and help its restructuring.
As part of the recent debt negotiations, Lehman, which didn't comment,
has agreed to relax these restrictions,
according to the person familiar with the talks.
Conseco hopes the asset sales will raise $2 billion
over the next 12 to 15 months.
Optimism
Conseco's stock soared Tuesday, closing up 69 cents, or 9.1%, to $8.25.
Optimism over Wendt's leadership has lifted the stock over 80% from its 52-week low of $4.50,
though it languishes about 70% below its 52-week high.
It was unlikely that the banks would force Conseco into default so soon after Wendt's arrival,
but their tolerance for further exposure will be revealed in the terms of the supposed $700 million
in new loans, if the company chooses to reveal them.
"I always thought they would sort this thing out," says Kathy Shanley, analyst at Gimme Credit,
which doesn't do underwriting. To properly assess the banks' stance, it's necessary to know
the term of the new loans, their interest rates, whether the banks obtained collateral for their loans
and whether the banks have been paid large fees for the extensions.
Lehman received a massive $90 million in fees and warrants for its efforts.
The $1.37 billion of debt that could fall due by the end of September include:
a $155 million bank credit facility due on Sept. 2000;
a $766 million bank facility due on Sept. 22;
$50 million of commercial paper due on Sept. 22;
$144 million in employee stock purchase loans;
and $250 million of notes that the lender could have demanded be repaid in August.
Pricey Deal
Conseco got into trouble under the stewardship of Stephen Hilbert,
the flamboyant CEO who left in May. In 1998, Hilbert decided to purchase
the big mobile home lender Green Tree, renamed Conseco Finance,
at a price many felt exorbitant. High growth at Green Tree was fueled by
increased borrowings, which the company is now struggling to pay off.
Conseco's insurance operations also have problems. Conseco reported a loss of $405 million
in the second quarter, more than reversing the year-earlier profit of $213 million.
It also faces around $700 million in debt repayments in 2001. |
