Conseco Offers to Exchange Up to $2.54 Bln of Debt (Update5)
By Dan Lonkevich
Carmel, Indiana, March 18 (Bloomberg) -- Conseco Inc., which hired former General Electric Capital Corp. Chief Executive Gary Wendt in 2000 to turn around the company, asked bondholders for more time to repay as much as $2.54 billion of securities.
The insurer offered to replace the debt with new bonds that would have identical principal amounts and interest rates. The securities would mature one to two-and-a-half years later than the existing bonds, and have priority if the company became insolvent.
The Carmel, Indiana-based company proposed the exchange after losing money in seven of the past nine quarters, hurt by a slowing economy and rising defaults on mobile-home loans. Conseco shares, which have dropped 23 percent so far this year, fell 60 cents to $3.45.
``I don't know why bondholders would accept this exchange,'' given that it doesn't offer higher yields or cash upfront, said Bill Batcheller, who helps manage $800 million at National City Corp., which owns about 103,000 Conseco shares. ``Clearly they think the bondholders are sufficiently nervous that they'll give Conseco this extension for free.''
Moody's Investors Service said it may downgrade Conseco's debt ratings, as the proposed restructuring ``highlights the fragility of the company's financial position.'' The rating company said it may cut Conseco's senior notes to ``B3'' from ``B2.'' Conseco bonds that mature in 2006, one of the issues that would be exchanged, were unchanged at $47.49, a trader said.
`Flexibility'
The purpose of the exchange is ``to improve our financial flexibility and to enhance our future ability to refinance public debt,'' Wendt said in a statement.
The offer, which expires April 12, will be made only to ``qualified institutional buyers,'' which means the securities do not have to be registered with the Securities and Exchange Commission. Conseco expects that to speed the process and keep costs to a minimum, analysts and investors said.
CIHC Inc., a unit of Conseco, will guarantee the new securities on a senior subordinated basis, bolstering their position if the company fails.
``Bondholders don't find this a particularly compelling offer'' because Conseco hasn't offered them much in return, said David Havens, a fixed-income analyst at UBS Warburg. ``Either they're really over a barrel, or they're being shrewd and trying to buy liquidity for nothing.''
Investors' willingness to exchange the debt may hinge on when their bonds come due, with holders of long-term bonds accepting and short-term investors balking, Havens said.
Cash Squeeze
Conseco's bank credit facility is co-managed by J.P. Morgan Chase and Bank of America Corp. J.P. Morgan Chase spokeswoman Kristin Lemkau and Bank of America spokesman Timothy Gilles didn't return calls for comment.
By extending its maturities, Conseco would lower interest payments as it faces a cash squeeze. Wendt has said Conseco needs to generate about $410 million by selling assets to pay its debts. So far, the company has raised about $300 million. Conseco also has bank debt of about $2.1 billion.
The company's shares surged 14 percent, or 50 cents, to $4.05 on Friday, the biggest gain since Jan. 30, on speculation a debt restructuring was in the works.
CFO Fired
Robert Rodriguez of First Pacific Advisors Inc., who owns about 16 million Conseco shares as well as company bonds, said on Friday he had bought about $5 million of Conseco bonds in the past two days based on the speculation. He was Morningstar Inc.'s bond fund manager of the year in 2001, and his FPA Capital Fund returned 38 percent last year.
Wendt earlier this month fired Chief Financial Officer Charles Chokel, saying in a memo to shareholders that he ``did not believe (Chokel) was up to the job.'' President and Chief Operating Officer William Shea replaced Chokel.
Conseco reported $48 million of losses in the fourth quarter on debt related to Argentina, as well as Enron Corp., Kmart Corp. and Global Crossing Ltd., three companies that declared bankruptcy.
Following are the bonds that Conseco offered to exchange:
$1,000 principal amount of new 8.5 percent Guaranteed Senior
Notes due October 2003 for each $1,000 principal amount of 8.5
percent Senior Notes due October 2002;
$1,000 principal amount of new 6.4 percent Guaranteed Senior
Notes due February 2004 for each $1,000 principal amount of 6.4
percent Senior Notes due February 2003;
$1,000 principal amount of new 8.75 percent Guaranteed Senior
Notes due August 2006 for each $1,000 principal amount of 8.75
percent Senior Notes due February 2004;
$1,000 principal amount of new 6.8 percent Guaranteed Senior
Notes due June 2007 for each $1,000 principal amount of 6.8%
Senior Notes due June 2005;
$1,000 principal amount of new 9 percent Guaranteed Senior
Notes due April 2008 for each $1,000 principal amount of 9 percent
Senior Notes due October 2006; and
$1,000 principal amount of new 10.75 percent Guaranteed
Senior Notes due June 2009 for each $1,000 principal amount of
10.75 percent Senior Notes due June 2008.
8.5 percent Senior Notes due 2002 $302,299,000
6.4 percent Senior Notes due 2003 $250,000,000
8.75 percent Senior Notes due 2004 $788,000,000
6.8 percent Senior Notes due 2005 $250,000,000
9 percent Senior Notes due 2006 $550,000,000
10.75 percent Senior Notes due 2008 $400,000,000
Total $2,540,299,000 |
