Conseco Bankruptcy Among Largest in U.S. History
December 19, 2002
Finance unit to be sold
By Christy Robinson
After four years of heavy losses and deep debt, Conseco, Inc. filed chapter 11 bankruptcy Tuesday night, and its finance unit has entered an agreement to sell its assets, according to federal court documents.
The filing is hardly a surprise within the mortgage industry, with the company's decline being played out in its quarterly earnings reports. In the past several months, mentions of imminent reorganization has dominated press about Conseco.
In terms of assets, the filing would be among the largest in U.S. corporate history, behind WorldCom Inc.'s $107 billion and Enron Corp.'s $63.4 billion, according to the Wall Street Journal online.
Conseco listed $52.2 billion in assets as of Sept. 30.
The list of debtors included in the filing are CIHC Incorporated, CTIHC, Inc., Partners Health Group, Inc., Conseco Finance Corp., and Conseco Finance Servicing Corp., according to Bankruptcy Management Corporation.
In addition to the filing, Conseco's finance unit announced that it has reached an agreement in principle to sell its assets and operations to CFN Investment Holdings LLC. The proposed purchase price would be equal to the outstanding amount of the finance unit's secured debt as of the closing date, subject to adjustment.
Conseco's finance leg is the largest originator of manufactured housing loans and also originates home equity mortgages, home improvement loans, and private label credit cards, according to Bankruptcy Creditors' Inc.
CEO William J. Shea said the company has achieved a major step toward what it set out to do in August, and the agreement in principle should significantly speed up the restructuring process.
Conseco's woes began in when it acquired Green Tree Financial Corp., the predecessor of Conseco Finance, in 1998 -- just before the subprime bubble triggered by Russian bond defaults burst. The $6.44 billion price tag became a cinderblock, sinking Conseco fast.
Conseco's first quarter operating earnings this year were $39.9 million, which then took a major tumble to $1.3 million during the second quarter after a write-down. The company delayed filing its third quarter earnings, which ended up as a $1.77 billion loss because of asset charges.
Conseco obtained temporary bank waivers from its senior lenders in September. Moody's Investors Service cut Conseco's already low junk senior debt rating the following month, in addition to stating that it expected Conseco to seek prepackaged bankruptcy reorganization.
Conseco's shares have been delisted from the New York Stock Exchange, and the company faces investigations by the Securities and Exchange Commission and the Alabama Securities Commission, the Wall Street Journal online said.
Conseco's insurance companies Conseco Services, LLC and Conseco Capital Management are separate legal entities and were not included in the filings and would continue to honor obligations to policyholders, Conseco announced.
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