Conseco Inc. plans to seek Chapter 11 bankruptcy protection if the insurance and finance company can strike a restructuring pact with creditors owed billions of dollars, executives said Tuesday as they reported a hefty $1.8-billion quarterly loss.
Debt holders could at any time file a petition to force Conseco into bankruptcy or refuse to extend a debt-repayment waiver that expires next Wednesday, possibly leading to the same fate.
Conseco, saddled with $6.5-billion in debt from 1990s acquisitions that soured, has said it hoped to reach a so-called pre-packaged bankruptcy plan that would be submitted for a judge's review.
Such a filing would allow the company to continue operating, likely with debt holders gaining control. The chief lawyer for bondholders said last month that his clients, who are owed $2.5-billion, had submitted a proposal in the talks to take full ownership of Conseco.
Representatives of banks and holders of preferred securities also are taking part in the talks, which began in mid-August. Common shareholders are not expected to recover any of their investments.
While the parties entered the talks saying they hoped to reach a quick agreement to avoid further deterioration of Conseco's consumer finance and insurance subsidiaries, the company offered no information Tuesday on how soon a deal might be reached.
"The company is not currently in a position to predict the outcome of these discussions," Conseco, based in the Indianapolis suburb of Carmel, said in a statement.
Citing earlier disclosures that it is in default on bond payments, Conseco also said debt holders could "at any time" file a petition against it under bankruptcy laws. But Conseco said it was unaware of "any current efforts to do so."
Lawyers representing debt holders in the talks either declined to comment Tuesday or did not return phone calls.
The uncertainty about the negotiations' status left one observer surprised.
"At the time the talks started, I expected there would have been an agreement by now," said David Erb, managing director of Merrion Group LLC, a New Jersey investment firm. "The sooner it happens, the better."
Conseco entered the talks after Gary Wendt abandoned a turnaround plan begun on his arrival at Conseco in 2000 to gradually reduce debt. Wendt resigned as chief executive and president on Oct. 3, but remains board chairman.
Conseco has since been led by William Shea, the president and chief operating officer. On Tuesday, Conseco said its board had elected Shea to become CEO, while retaining his two existing executive titles. Shea's temporary tenure in the role of chief financial officer will end with the election of Eugene Bullis to that post.
The $1.77-billion, or $5.11 per share, net loss that Conseco reported Tuesday for the three months ended Sept. 30 brings its losses for the year to more than $6-billion. The loss for last year's third quarter was $410-million, or $1.21 per share. Revenue shrank to $853-million from $1.5-billion a year ago.
Tuesday's earnings were released four days after Conseco filed for an extension with the SEC, saying it needed more time to finish its books. At that time, the company said it expected a $1.8-billion loss.
Conseco reported quarterly charges of $701-million for a decline in the value of securities transactions at Conseco Finance Corp., a subsidiary in St. Paul, Minn., that has suffered from high delinquency rates on mobile home loans. Conseco also reported a $500-million goodwill writedown reflecting a decline in the value of assets, and investment losses of $278-million.
The 24-year-old company grew rapidly in the 1990s under founder Stephen Hilbert. He was ousted in early 2000, in part because of the fallout from Conseco's costliest acquisition, Green Tree Financial Corp. That unit, specializing in high-risk mobile home loans, became a burden as loan default rates rose.
Conseco shares were removed from the New York Stock Exchange in August. In over-the-counter trading Tuesday, Conseco shares declined 21 percent to close at nearly 6 cents a share.