Conseco's bank debt popped up from the mid-60s into the low 70s after the company filed for Chapter 11 bankruptcy last week. Market players said the filing indicated that the aggressive reorganization, which the company has been pursuing since August, will be completed expeditiously. Dealers said small pieces changed hands as high as 70-73. In conjunction with the bankruptcy filing, the company announced that it has secured an agreement in principle with holders of almost $1.5 billion in bank debt and $2.2 billion in bonds. Repeated calls to company officials were not returned by press time.
Conseco is currently pursuing a plan that leaves bank lenders with $1.3 billion senior debt and $750 million of preferred convertibles, explained a banker close to the situation. Bondholders will receive most of the equity and will have 27 months to take out the convertible notes before the banks step in to convert the securities and claim an equity stake, he added. The 27-month time frame gives bank debt holders extra security because if the bondholders can run the company well, they will have no problem taking out the convertibles. Director and officer loans, which total about $480 million, will be treated similar to the bank debt. According to the company's bankruptcy filing, the company's 30 largest unsecured claims total approximately $6.4 billion.
A prepackaged bankruptcy plan was not completed because the owners of about $2 billion in trust preferred securities, whose recovery from reorganization will be minimal under the current plan, would not commit the necessary votes required, explained the banker. The company is looking to emerge from bankruptcy in the first or second quarter of next year.
The company's insurance assets will remain untouched during the bankruptcy process, as there is a firewall between the insurance companies and Conseco's holding company. According to a written statement issued by Jose Montemayor, Commissioner of the Texas Department of Insurance, "No Conseco insurance companies are included in the bankruptcy filing...they are governed by state laws that are designed, first and foremost, to protect policyholders."