Business Context and Reporting Period
This Form 8-K was filed by Conseco, Inc. (now CNO Financial Group, Inc.) on March 30, 2009. The report details the entry into a Material Definitive Agreement, specifically Amendment No. 2 to the Second Amended and Restated Credit Agreement with Bank of America, N.A., as administrative agent.
Key Financial Metrics and Debt Terms
- Outstanding Debt: $911.8 million under the credit facility.
- Interest Rate Change: The effective annual interest rate increased from approximately 2.6% to 7.5%.
- New Interest Rate Structure: LIBOR plus 4.00% (with a 2.50% floor) or Base Rate plus 3.00% (with a 3.50% floor), plus an additional 1% added to the principal balance payable at maturity.
- Debt to Capital Ratio: Increased to 32.5% through June 30, 2010 (returning to 30% thereafter).
- Interest Coverage Ratio: Decreased to 1.5x through June 30, 2010 (returning to 2.0x thereafter).
- Risk-Based Capital Ratio: Decreased to 200% through June 30, 2010 (returning to 250% thereafter).
- Statutory Capital Minimum: Decreased to $1.1 billion through June 30, 2010 (returning to $1.27 billion thereafter).
Material Changes Versus Prior Period
The amendment significantly relaxed financial covenants regarding leverage, coverage, and capital ratios for the period ending June 30, 2010. However, this relief came with a substantial increase in borrowing costs. The filing notes that the amendment places additional restrictions on the Company's ability to incur certain additional indebtedness. No changes were made to the principal amount borrowed, the repayment schedule, or the collateral pledged.
Outlook, Risks, and Management Commentary
The filing does not provide specific forward-looking guidance or management commentary beyond the terms of the amendment. The primary risk highlighted is the increased cost of capital and the tightening of restrictions on future indebtedness. The additional 1% interest added to the principal balance represents a contingent liability that will increase the total debt obligation at the facility's maturity.
Investor Verification Checklist
- Verify the impact of the 7.5% interest rate on the company's quarterly and annual net income.
- Confirm the company's ability to meet the new, lower interest coverage ratio of 1.5x.
- Assess the sufficiency of the reduced statutory capital minimum of $1.1 billion against regulatory requirements.
- Review the specific restrictions on incurring additional indebtedness to understand future financing flexibility.
- Calculate the total principal increase resulting from the 1% add-on payable at maturity.