Conseco takes Chapter 11 route

Conseco, the insurance and lending firm, yesterday became the third-largest bankruptcy in US corporate history, capping a miserable year which has seen some of the biggest names in American business go under.

The filing for Chapter 11 protection from creditors also represents a failure for the former GE Capital boss Gary Wendt, who was hired in June 2000 to reverse the company's decline.

Mr Wendt collected a $45m (£30m) signing-on bonus but quit in October, admitting that his turnaround plans were not being fulfilled.

The insurer listed $52.3bn in assets in the filing; only WorldCom and Enron, both of which collapsed over the past 12 months, were bigger.

Conseco grew from a small company set up in 1979 to become one of the largest US insurers and home lenders by the late 1990s. But the debts built from the company's ambitious expansion, fuelled by acquisitions and increasing bad loans, proved too heavy. Investments were also eroded by the falling stock market.

The company filed for bankruptcy with $6.5bn in outstanding debts.

The deal that proved the turning point for Indiana-based Conseco was the $6bn acquisition of a loan firm called Green Tree Financial in 1998, now operating under the brand name Conseco Finance. The takeover exposed Conseco to a welter of bad loans, largely made on mobile homes and manufactured housing, which worsened as the economy turned sour.

The filing covers only the home loan business and some affiliates. Conseco's insurance division is not affected.

Analysts and rating agencies had been forecasting the bankruptcy for some months after the company defaulted on bank and bond debts.

The company was delisted from the New York stock exchange in the summer and is the subject of an investigation by the securities and exchange commission.

Shares in the company, which were priced at $58 in the late 1990s, traded for six cents yesterday.

Conseco's problems were worsened by the adoption of aggressive accounting methods for the gains from securitising its loans.

It later ditched the policy under pressure from investors and was forced to restate several years' profits.

The reversal led to the resignation of the then chief executive and founder, Stephen Hilbert, in 2000.

Mr Wendt, who remains as chairman, slashed costs and sold assets including Mr Hilbert's art collection and the company's riverboat casino.

He reduced debts by $2bn but was unable to stem the company's losses.

In the third quarter, Conseco reported a loss of $1.8bn.

As recently as May, Mr Wendt had reassured investors that Conseco's short-term debt problems had been put behind it and he was confident about prospects for the business in 2003.

Those comments led to the filing of a string of shareholder lawsuits against the company.

Mr Wendt gave up on the attempts to stave off bankruptcy in August and began work on a financial restructuring.

A plan is expected to be submitted to the bankruptcy court within four to six weeks.

The company has obtained a $125m line of credit so that it can continue to operate during the reorganisation process.