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Conseco Inc., the troubled Carmel, Ind., insurance and finance company, filed for Chapter 11 late Tuesday in U.S. Bankruptcy Court for the Northern District of Illinois in Chicago. The filing is the third-largest bankruptcy in U.S. history. Until debtor-in-possession financing is approved, Conseco’s secured lenders have agreed to allow the use of cash collateral to fund operations. The filing does not affect Conseco’s insurance business, which remains profitable. The company’s Mill Creek Bank, Green Tree Retail Services Bank and Conseco Agency units are also not part of the bankruptcy. The move came after Conseco reached agreements with two of three groups of creditors owed $6.5 billion. Conseco has a deal with bondholders that are owed $2.5 billion and banks that are looking for $1.5 billion to be repaid. About 500 investors holding close to $4.5 billion in preferred securities were not part of this agreement. In its filing, Conseco listed assets of about $52.3 billion and debts of about $52.2 billion as of Sept. 30. Bank of America National Trust, owed just under $1.5 billion, is Conseco’s largest unsecured creditor. Conseco was hurt by crushing debt that accumulated after a series of failed acquisitions during the 1990s. Conseco’s troubles escalated after the insurer paid $6 billion for Green Tree in 1998, a move it hoped would make it a financial services giant. But the deal quickly backfired and triggered a massive stock price slide. At one time, Conseco’s stock was worth $58 per share. It was trading for as little as a nickel this week. Now the company will try to undo this flop when its St. Paul, Minn.-based Conseco Finance Corp. division sells Green Tree along with other consumer finance lines to CFN Investment Holdings LLC. CFN Investment is a joint venture of Fortress Investment Group, J.C. Flowers & Co. and Cerberus Capital Management. Earlier this month, Conseco did not make $4.7 million in guarantee payments. The company said it halted such payments related to manufactured housing trusts until it restructured its manufactured housing business. On Dec. 4, Standard & Poor’s and Fitch Ratings both cut Conseco Finance’s credit rating to default, the bottom of their bond rating scales. It was barely a month ago when Conseco said its lenders had agreed to extend the company’s forbearance agreement through Jan. 11. The pact covered the insurer’s $1.5 billion credit facility and loans made to Conseco executives since 1997. Terry Savage of Lazard was advising Conseco, and its outside counsel was Kirkland & Ellis. Eric Siegert of Houlihan Lokey Howard & Zukin and Fried, Frank, Harris, Shriver & Jacobson were advising Conseco’s bondholders. Copyright �2002 TDD, LLC. All rights reserved.

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