Levels for Conseco's $1.5 billion in bank debt, which matures in December 2003, dropped from the low 70s to the mid-60s over fears the company has hit a wall with its ongoing restructuring efforts. "The company is falling short of its targets," one dealer said, adding that market players are wondering if Conseco can avoid bankruptcy. Dealers said the paper traded in the 66 1/2-67 1/2 range, down from the 84 1/2 - 85 level where it had been moving in April.
The Carmel, Ind., insurance company has been working on a turnaround plan since 2000. Most recently, however, investors became wary when A.M. Best downgraded Conseco's primary subsidiaries from A- to B++. Some are concerned that Conseco will lose business as a result of the downgrade and be unable to operate. Yvonne Bernard, managing senior financial analyst at A.M. Best, noted that the company also was downgraded to the B++ level in 2000. As a result, they lost some business, but it was not enough to impact the company's ability to operate, she explained. On the other hand, she added, "This is a different market today, clearly."
Mark Lubbers, spokesman at Conseco, said the downgrade is not necessarily a bad thing. "We know this is perverse, but the downgrade has the prospect of being marginally positive in the near term," he said. "The reason is that the downgrade is more harmful to first-year sales, and the commission on those sales is very high...Hopefully, there won't be a long term."
The company currently is concerned with extending $540 million in director and officer loans maturing at the end of 2003. The loans were arranged by a consortium of banks including Bank of America and J.P. Morgan and are guaranteed by the company. "If we could extend the maturity out two years, then all of our troubles go away," Lubbers said. With banks currently up to their ears in loan losses and squeamish of extending credit, the task has not been easy. "We are swept up in all these external events," he said. "Its like the end of Casablanca...when they say 'round up all the usual suspects'."