Wendt's woes: Filing Suggests Deepening Woes at Debt-Laden Conseco
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Filing Suggests Deepening Woes at Debt-Laden Conseco
By Peter Eavis
Senior Writer
8/15/00 2:53 PM ET
Gary Wendt and his crack team are facing a major test of their ability to rescue battered Conseco (CNC:NYSE - news). A new company filing reveals that the company is wrangling hard with creditors to find a way to refinance $1.37 billion in debt that comes due by the end of September. If the banks don't give way, the viability of the Carmel, Ind.-based lender and insurer is in doubt.
Wendt, the ex-head of the GE Capital subsidiary of General Electric, joined Conseco as chief executive and chairman in June with the aim of restoring confidence in the firm. Until its 1998 purchase of Green Tree, which financed sales of mobile homes, Conseco was perceived as one of America's most dynamic financial services companies.
Down It Wendt
Conseco's long decline
But aggressive lending by Green Tree fueled heavy borrowing that Conseco is now struggling to repay.
Wendt's immediate challenge is to find a way of repaying the $1.37 billion. The Securities and Exchange Commission filing suggests that Conseco can avoid a life-threatening debt squeeze only if its creditor banks -- in particular the New York investment bank Lehman Brothers -- quickly agree to relax their loan agreements. The filing states that Conseco is talking with Lehman and other banks to get more lenient treatment.
Vested Interest
Lehman, which has received around $90 million in fees and warrants this year from Conseco for investment banking services, declined to comment on the discussions. Neither Conseco nor Lehman gave details on the size of Lehman's financing to Conseco, which also declined to name its other creditor banks.
As the result of Wendt's debut restructuring, announced in July, Conseco aims to raise as much as $2 billion over the next 12 to 15 months from the sale of assets at Conseco Finance, the company's new name for Green Tree.
However, Conseco's freedom to choose where to spend proceeds from the asset sales is "substantially limited by restrictions in agreements with Lehman Brothers," the filing says. Ergo: Lehman's permission would be needed for Conseco to use some of the asset-sale cash for paying off parent company debt.
Irwin Jacobs, an investor who holds nearly 5% of Conseco's shares, isn't worried by this. He thinks that Lehman and the other banks will restructure loans to aid Conseco because they stand to lose big in a default. For example, he says that if Conseco defaults, the banks' debt is relegated to equal status with $3 billion of bond debt. "It's in the banks' best interest to cooperate," Jacobs surmises. Conseco didn't comment on debt status.
Still, to gain a break from the banks, Wendt and his team first have to convince them that they will get paid back eventually. And the banks' stance depends on whether they feel Conseco can revive its fundamental businesses. Yet data in the filing show clearly that it's not only Conseco Finance that's on the ropes; the insurance businesses are also looking wobbly.
The Insurance Story
In the first half of this year, the life insurance subsidiaries registered a net loss of $2.5 million, swinging from a $140 million profit in the year-earlier period, according to statutory (or state-regulated) accounts contained in the SEC filing. "That's the most important piece of information in the filing since it shows the insurance operations are in trouble," says a New York hedge fund manager who requested anonymity (his fund has sold shares in Conseco short, a trade that allows him to benefit from any decline).
Jim Rosensteele, a Conseco spokesman, responds that the first half of 2000 was "affected by numerous short-term factors." He adds that the following remedies are being put in place: higher premiums, adjustments to underwriting standards and the company's departure from certain product lines.
Conseco's stock was down 1/8, or 1.6%, at 7 1/2 Tuesday. Testifying to the company's problems, the stock is now 73% below its 52-week high. Reflecting a raft of special charges, Conseco reported a loss of $405 million in the second quarter, more than reversing the year-earlier profit of $213 million.
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