Business Context and Reporting Period
Company: Conseco, Inc. (Note: Metadata references CNO Financial Group, Inc., but the filing text identifies the registrant as Conseco, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: December 8, 2009
Event: Entry into Amendment No. 3 to the Second Amended and Restated Credit Agreement.
Key Financial Metrics and Debt Structure
This filing details modifications to the Company's senior credit facility rather than reporting period-end financial results. Key metrics include:
- Current Principal Balance: $817.8 million.
- Maturity Date: October 2013.
- Accrued PIK Interest: Approximately $6 million (to be converted to cash payment).
- Transaction Costs: Expected fees and expenses of approximately $2.3 million; write-off of approximately $1 million in unamortized debt issuance costs.
Material Changes to Credit Agreement
The Amendment modifies financial covenants and repayment schedules contingent upon the closing of a proposed public offering of common stock:
- Capital Requirements:
- Risk-based capital ratio: Remains at 200% through 2010; increases to 225% (2011) and 250% (2012).
- Statutory capital and surplus: Remains at $1.1 billion through 2010; increases to $1.2 billion (2011) and $1.3 billion (2012).
- Interest Coverage Ratio: Remains at 1.5x through 2010; increases to 1.75x (2011) and 2.0x (2012).
- Debt to Total Capital Ratio: Remains at 32.5% through December 31, 2009; decreases to 30.0% thereafter.
- Principal Repayment Schedule:
- 2010: No principal payments required.
- 2011: $35 million.
- 2012: $40 million.
- 2013: $40 million.
- Equity Proceeds Sweep: The Company must pay $150 million of the first $200 million of net proceeds from the stock offering to lenders, plus 50% of any proceeds exceeding $200 million.
- Interest Payment Change: The 1% payment-in-kind (PIK) interest accrued since March 30, 2009, will be replaced with a cash payment of approximately $6 million upon effectiveness.
Outlook, Risks, and Management Commentary
Effectiveness Condition: The Amendment becomes effective on the date the Company makes the required principal payment from the net proceeds of the public offering, which must occur on or before January 15, 2010 (unless extended by the agent).
Impact on Expenses: Management states that the deletion of the 1% PIK interest and the corresponding cash payment will not impact reported interest expense.
Risks: The filing does not explicitly list new risks, but the effectiveness of the debt restructuring is contingent on the successful completion of the proposed public offering of common stock.
Investor Verification Checklist
- Confirm the closing date and net proceeds of the proposed public offering of common stock.
- Verify the actual cash payment of the ~$6 million accrued PIK interest upon amendment effectiveness.
- Monitor compliance with the new risk-based capital and statutory capital surplus requirements for 2010-2012.
- Review the final allocation of equity proceeds to lenders versus retained capital.
- Check for any extension of the January 15, 2010 deadline for the amendment to become effective.