Conseco's (CNC) - Get Report bankers have slightly extended two loans to the company that fell due Friday, indicating that the cash-strapped firm's urgent efforts to avoid default are making progress.
reported that Conseco's debt negotiations were nearing a conclusion.
The Carmel, Ind.-based insurer and lender was scheduled to pay back two loans totaling $300 million Friday. But
Bank of America
( CMB) have agreed to extend them until Sept. 22, according to a Conseco release Thursday evening. They are a $155 million loan and $145 million of bank loans to senior company employees to buy Conseco stock. Conseco has guaranteed the latter.
These two loans now mature at the same time as a $766 million credit, also led by Bank of America, taking the total that Conseco needs to immediately restructure to $1.07 billion. Chase declined to comment and Bank of America didn't return a call.
A Struggle, Then Signs of Life
Conseco appointed Gary Wendt, the highly-regarded ex-
exec, as CEO in
June. He quickly announced a
plan to raise $2 billion through asset sales to meet the firm's debt obligations. The company recognized that these sales could not take place fast enough to meet the debt repayments that fell due this month. It therefore
notified investors that it was in debt restructuring talks with its bankers.
"Although formal arrangements on the larger debt package with our banks are not final, we are gratified with the progress of our negotiations and are optimistic that a successful restructuring of our bank debt can be completed prior to Sept. 22, 2000," the company statement said. A spokesman added in an interview that Conseco has repaid $250 million of notes that the lender had demanded early repayment on, in August.
Conseco stock was off 8 cents Friday, or 1%, to $8.38. Due mainly to the belief that Wendt can turnaround this sickly company, Conseco's shares have soared nearly 90% from their 52-week low. But, reflecting continued skepticism, they're still 70% down from their 52-week high.
Conseco's release didn't say what concessions Chase and Bank of America extracted in return for the extensions. These could be expensive and extremely restrictive, judging by a May agreement struck with
( LEH) for financial assistance that netted the New York investment bank over $90 million in cash and warrants. The spokesman said that Conseco intends to release extensive details of any wider debt restructuring.
Conseco's banks probably want to get as much of their money repaid as possible without crippling the company. In fact, the banks may have to extend up to half of the $1.07 billion. However, it's hard to see the banks going beyond a nine-month extension, because they'll likely want full repayment before $670 million in bond debt comes due in June 2001.
Conseco's parent company, the focus of the concerns about cash-flow, has obligations totaling $8.6 billion, including a further $2 billion in debt guarantees, according to Colin Devine, an insurance analyst with
Salomon Smith Barney
. (He rates Conseco a hold, and Salomon has underwritten Conseco securities.) Devine remarks in a recent research note that, absent a big injection of capital, Conseco "can struggle through" to the end of 2001's first quarter, after which a "crunch will come."
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