Conseco Inc. (CNCE) became the third-largest U.S. bankruptcy in history Wednesday, as the insurance and loan company sought protection from creditors while it sells its finance unit and tries to restructure.
Conseco, which grew from a small company set up in 1979 to become one of the largest U.S. home lenders and personal insurers by the late 1990s, collapsed under the weight of debts caused by ambitious expansion and mounting bad loans.
The move, which analysts and rating agencies have expected for some time, comes after months of negotiations between Conseco and its banks and bondholders, triggered by defaults on its loans and bond payments earlier this year.
Conseco's filing, made in bankruptcy court in Chicago, is the third largest in the U.S. ever, after WorldCom Inc. and Enron Corp. Conseco listed $52.3 billion of assets and $51.2 billion of debts in its latest financial report.
Conseco's battered shares were up 51 percent, or about 2 cents a share, to 6 cents in Wednesday morning trade.
The bankruptcy filings cover holding company Conseco Inc.; its troubled loan unit, Conseco Finance; and some affiliates. Conseco's insurance units, under the close watch of state insurance regulators, are not affected.
All Conseco creditors have not agreed upon the bankruptcy and restructuring plan, a company spokesman told Reuters, and it has yet to be finalized.
The Carmel, Indiana-based company has struggled since piling up massive debts in a 1990s acquisition binge under flamboyant founder and Chief Executive Stephen Hilbert, capped by a disastrous purchase in 1998 of loan firm Green Tree Financial, now called Conseco Finance.
That deal exposed Conseco to a mountain of bad loans — largely on mobile homes and manufactured housing — which worsened as the economy turned sour.
Conseco piled on even more debt and made problems for itself in the late 1990s by aggressively accounting for gains from securitizing its loans. It later abandoned that practice under pressure from investors, which led to a restatement of several years' profits. That shook Wall Street's confidence in the company, and eventually led to Hilbert quitting in 2000.
Gary Wendt, former boss of General Electric's GE Capital unit, was brought in two and a half years ago to rescue the firm, picking up a $45 million signing bonus. However, he quit as CEO in October, admitting that his turnaround plan had failed.
By then, Conseco was laboring under more than $6 billion in bank and bond debt, with less money coming in from insurance and loan operations to keep up repayments, and facing huge write-downs in its investment portfolio.
Conseco's stock was delisted from the New York Stock Exchange this summer. Conseco's unsecured bonds due in 2004 last traded at about 7 cents on the dollar.
As part of the restructuring, Conseco said it would sell Conseco Finance to a group of investors, in an effort to pay down debts. It did not say how much it would receive for the sale. The unit was originally put up for sale by Hilbert in 2000.
The buyer, CFN Investment Holdings — a joint venture between Fortress Investment Group, J.C. Flowers & Co. and Cerberus Capital Management — will buy the loan unit's assets and operations at a price equal to the unit's secured debt when the deal closes, Conseco said.
"We believe we have achieved a major step toward what we set out to do in August (when talks with creditors began)," Conseco Chief Executive William Shea said in a statement.
The bankruptcy was filed to the United States Bankruptcy Court for the Northern District of Illinois.