INDIANAPOLIS, Dec. 18 (UPI) -- Insurance giant Conseco Inc. filed for Chapter 11 bankruptcy protection and arranged to sell subsidiary Conseco Finance Corp., the company announced Wednesday.
The $6.5 billion filing was the third-largest such action in U.S. history, behind only Enron and Worldcom. The filing came shortly before midnight Tuesday in Chicago.
"I have always believed in the strength of Conseco's operating life insurance companies and the strength of Conseco's associates," co-founder Stephen C. Hilbert said in a prepared statement. "I remain confident Conseco will emerge from Chapter 11 and deliver solid returns to all stakeholders. I wish Bill Shea and his management team the best."
The company said it has worked out financing arrangements with banks and bondholders but it was not immediately clear whether the court would approve its restructuring proposal or send it into Chapter 7 liquidation. it is also not known how the filing with affect the federal investigation into to company's accounting practices.
Conseco has $1.5 billion in bank debt, including $500 million in loan guarantees to directors and officers, owes bondholders $2.5 billion and owes trustholders $2 billion. In its last quarterly report, Conseco, the nation's seventh-largest insurance company, listed total assets of $52.2 billion.
CFN Investment Holdings LLC agreed to buy Conseco Finance Corp. for its secured debt.
Conseco has been working to avert bankruptcy since Aug. 9 when it stopped making short-term payments on its debt. That sent its credit rating plummeting.
Conseco has two insurance subsidiaries, Conseco Insurance Group of Carmel, Ind., and Bankers Life & Casualty of Chicago. Both continue to sell life and health insurance as well as annuities. Conseco Finance, based in Minnesota, however, has been shut out of capital markets since August when it missed a multimillion-dollar payment to Lehman Brothers.
Conseco stock hit a high of $58 in 1998 following a spate of acquisitions engineered by Hilbert. It closed at 34 cents Monday.
Both Hilbert and Chief Financial Officer Rollin Dick were forced out in 2000 and former GE Capital chief Gary C. Wendt took over after receiving a $45-million signing bonus. At the time, Conseco had $8.2 billion in debt and Wendt pledged to cut that by $3.5 billion by 2003, projecting profitability by 2005.
Though Wendt did cut $2.7 billion, massive losses in mobile home loans and investments along with a $4 billion second-quarter write-off worsened Conseco's position.
Wendt resigned in October.
"We believe we have achieved a major step toward what we set out to do in August," current President and Chief Executive Officer William J. Shea said.
"We have reached an agreement in principle with the bank and bondholder representatives to reduce the company's leverage to a level that, together with our targeted operating performance, will support the efforts by the company's insurance subsidiaries to reclaim an 'excellent' financial strength rating from A.M. Best following the restructuring.
"While we recognize the hardship that has been placed on our employees and many of our constituencies during this period, we believe we have made the hard decisions necessary to position Conseco for future success."
Conseco lost nearly $1.8 billion in the quarter ending Sept. 30, up from a $401.6 million loss in the same quarter of 2001.
The bankruptcy filing does not involve Conseco's insurance companies, Conseco Services LLC and Conseco Capital Management, which are separate legal entities. Additionally, Mill Creek Bank, Green Tree Retail Services Bank and Conseco Agency were not included in the Chapter 11 filing.
