Judge OKs Conseco's Reorganization Plan
Sep. 09, 2003
INDIANAPOLIS (AP) _ A judge on Tuesday approved Conseco Inc.'s bankruptcy reorganization plan, clearing the way for the company to pursue its goal of emerging as a profitable insurer after nearly nine months under Chapter 11 protection.
The plan cuts Conseco's debt load to $1.4 billion from the $7 billion it owed Dec. 17, when it became the third-largest U.S. company to file for bankruptcy.
Bondholders, who were owed $1.5 billion, will assume majority control as Conseco casts off unprofitable consumer finance operations. The reorganized Conseco will focus on restoring improved credit ratings to the traditional insurance business that made the firm a Wall Street darling through most of the 1990s.
At a hearing in Chicago, U.S. Bankruptcy Judge Carol Doyle approved Conseco's exit plan, as well as a separate plan for the consumer finance unit the parent company is selling.
Conseco, based in the Indianapolis suburb of Carmel, offered no firm date by which it expects to formally emerge from bankruptcy. But a company statement said that would occur soon.
``To have completed such a large and complex restructuring in less than nine months is truly a remarkable achievement,'' said William J. Shea, who took over as Conseco's president and chief executive last fall. He is the only current company director who will remain on Conseco's board.
Shea said Conseco ``will emerge as a re-energized company with greatly reduced debt and a single business focus.''
Doyle's approval of the sixth version of Conseco's plan came about a month after the company reached agreements with the plan's primary objectors: a dissident investor group, the government trustee overseeing the case and Gary Wendt, the company's former chief executive and outgoing chairman.
Those parties dropped their objections in exchange for concessions over how much holders of trust-preferred securities can expect to recover from their losses, and over legal protections that protect many company insiders from liability for bad business decisions.
Delays over those issues forced the company to abandon its initial hopes of emerging from bankruptcy as early as June.
Conseco sought a quick exit to cast off inferior credit ratings that hurt its ability to attract and retain insurance customers.
If Conseco doesn't regain an A- rating from the ratings agency A.M. Best by Aug. 15, 2005, it risks a return to bankruptcy court and a possible liquidation of its remaining assets.
Conseco's ratings dropped as debt piled up from risky acquisitions, including Conseco's 1998 purchase of St. Paul, Minn.-based Green Tree Financial Corp., which specialized in mobile home loans. That unit, which became Conseco Finance Corp., burdened its parent company as foreclosures piled up.
That unit has been sold at a bankruptcy auction for about $1 billion, or one-sixth of what Conseco paid for it.
Conseco still faces a heavy debt burden, with obligations for annual payments ranging from $53 million to $153 million through 2008. The obligation rises to $785 million by 2009.
A default could jeopardize the company's future. Meanwhile, state regulators will closely watch to ensure Conseco has enough assets to pay policyholders' claims.
Most investors will be granted newly issued Conseco stock, with bondholders holding nearly 90 percent equity and a new board led by former ING Americas chief executive R. Glenn Hilliard.
Common shareholders are not expected to recover any of their losses. Those shares reached $58 each in 1998, but now trade at 3 cents apiece.
The company listed $52.3 billion in assets and $51.2 billion in debts in its bankruptcy filing. Conseco now has about 3,950 employees, including 2,400 at its Carmel headquarters. It once employed more than 10,000.
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