Conseco's winding path to Chapter 11
Conseco — mired in debt from 1990s acquisitions that backfired, including a $6 billion purchase of a mobile-home lender that proved disastrous — late Tuesday became the third-largest U.S. company to file for bankruptcy protection.
Conseco Finance has several offices in the Seattle area, including Bellevue, Mountlake Terrace, Federal Way and Fife.
Conseco spokesmen couldn't be reached for comment.
The Carmel, Ind.-based company, which employs about 14,000 people and had $8.1 billion in revenues last year, expects to emerge from Chapter 11 protection during the second quarter next year, if not earlier, the company's lead attorney told a bankruptcy court in Chicago
The story of Conseco's road to bankruptcy protection predates the failures of WorldCom and Enron, whose bankruptcies are the only two that are larger.
Conseco was known for accounting shenanigans, lavish perks and bullying Wall Street analysts long before Enron, WorldCom and Tyco became bywords for such wayward corporate ethics.
Conseco was the fiefdom of founder Stephen Hilbert, a former encyclopedia salesman, who acquired a taste for the high-life, traveling by company jet and wooing Wall Street with questionable numbers.
The dream ended in 2000, when Conseco was forced to restate earnings to remove inflated profits. Wall Street lost its faith in Hilbert, and he quit shortly after.
Conseco then hired GE Capital star Gary Wendt to rescue the firm, but he gave up the job in October when it became clear the company could not pay its debts and survive intact.
Hilbert, 56, was one of the highest-paid executives in the go-go 1990s, giving himself multimillion-dollar bonuses most years and rafts of stock options. In 1997, he earned almost $20 million in salary, bonus and stock grants.
In the late 1990s, Hilbert was on a roll, entertaining friends at his Indiana mansion, once hiring Kool & The Gang to provide the music, and commuting by helicopter or jet and breeding thoroughbred horses.
He reportedly chartered a jumbo jet to go to St. Martin for a party for his sixth wife, Tomisue, a former dancer.
The company he formed in 1979 was one of the leading U.S. life and health insurers after swallowing 40 or so smaller firms. Conseco was a household word through its sponsorship of the Indiana Pacers basketball arena, Conseco Fieldhouse.
With Chief Financial Officer Rollin Dick at his side, Hilbert was a Wall Street hero, with Conseco expanding every year with more acquisitions and a stock price to match.
But Hilbert's ambition hit the skids in 1998, when he forked over more than $6 billion to buy Green Tree Financial, a mobile-home lender, to push his way into the lucrative consumer-finance market.
Before long, the deal was looking like a major misstep as Conseco found itself swamped with debt and facing mounting bad loans.
Salomon Smith Barney analyst Colin Devine was the first at a major Wall Street brokerage to turn sour on Conseco, downgrading the firm in 1999.
Hilbert met Devine for lunch at New York's fancy Four Seasons Hotel, according to a Wall Street Journal article, and demanded to know why the firm had been downgraded, reminding Devine that Conseco gave Salomon a lot of business.
Devine did not back down and became Conseco's sharpest critic. Last year, Conseco still was publicly attacking Devine's reports predicting a messy end for the firm.
Billionaire investor Carl Icahn, who has publicly stated that he shorted some 13 million shares in Conseco, blamed most Wall Street analysts for failing to warn investors about Conseco's shaky prospects.
"A lot of shareholders suffered because of the faulty analysis of Wall Street," Icahn told Reuters. "The only analyst who would stand up and say what was self evident was Colin Devine." Devine did not return a call for comment.
Throughout Conseco's growth, most of Wall Street turned a blind eye to the company's creative financial techniques.
The firm pioneered off-balance-sheet financing deals, like Enron used so famously, and regularly issued financial reports that were so complicated it was hard to see what was happening at the company.
Matters came to a head early in 2000 with a $350 million write-down charge and the news that the firm would restate the previous year's profits, as it abandoned the controversial "gain-on-sale" method of accounting for profits from securitizations before they are fully earned.
By then, the damage was done. Hilbert quit and the firm later settled a shareholder lawsuit for $120 million that accused it of misleading accounting during that period.
Conseco is holding the bag for about $230 million in loans to Hilbert and Dick that they used to buy Conseco stock.
Neither can repay the loans, as Conseco shares are now almost worthless, from a high around $58 in 1998.
Neither Hilbert nor Dick could be reached for comment.
Conseco Finance has tentatively secured $125 million in debtor-in-possession financing so it can operate during bankruptcy.
Conseco's bankruptcy filing does not include Conseco's insurance operations, which the company and insurance regulators say remain financially sound. Conseco is the nation's seventh-largest insurer.
Conseco is the third-largest company to file for bankruptcy protection in the United States. The company and its subsidiaries had $61.4 billion in assets at the end of 2001.
In its filing yesterday, which excluded its profitable insurance subsidiaries, the company listed $52.3 billion in assets and $51.1 billion in debts.
WorldCom's assets at its July filing totaled $104 billion. Enron had $64 billion when it filed last December.
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