Conseco Announces Investment by Thomas H. Lee Company and Others

11/30/99 - Conseco, Inc. (NYSE: CNC) today announced several strategic initiatives to increase the company’s financial strength and flexibility, enhance its cash flow, and reduce its funding costs by achieving improved debt ratings:

Conseco has agreed to sell to Thomas H. Lee Company $500 million (2.6 million shares) of Series F Common-Linked Convertible Preferred Stock. These shares will be convertible into Conseco common stock at a common equivalent rate of $19.25 per share.

As part of its plans to strengthen its capital structure, Conseco will reduce the cash dividend on its common stock to a quarterly rate of 5 cents per share, beginning in April of 2000. As previously announced, Conseco will pay a quarterly cash dividend on Jan. 3, 2000, of 15 cents per share, to holders of record Dec. 20, 1999.

Conseco Finance will manage the growth of its finance receivables at levels consistent with Conseco’s goal of seeking improved credit ratings. Conseco expects total managed receivables to grow to approximately $49 billion by the end of 2000, approximately $20 billion of which will be receivables held on its balance sheet.
Conseco Chairman Stephen C. Hilbert said, “Collectively, these moves will lower our cost of funds and increase our earnings power over the long term by helping us to more quickly improve our debt ratings. The current operating environment has shown that building a high-quality, sustainable capital structure is critical to support our long-term growth objectives,” Hilbert said.

“Conseco is pleased that Thomas H. Lee Company, with its record of investing in successful growth companies, particularly in the financial services industry, has chosen to make a substantial investment in Conseco,” Hilbert said. “We believe all Conseco shareholders will, over time, benefit from this transaction and the other steps announced today.”

“We are excited to be investors in, and partners with, Conseco and its highly capable management team, led by Steve Hilbert,” said David V. Harkins, president of Thomas H. Lee Partners, who will be joining Conseco’s board. “After an extensive review, we became tremendously impressed with Conseco’s insurance and consumer finance operations and we decided to make our largest-ever equity investment. We look forward to participating in the continuing development of this outstanding organization.”

“Our targets for holding company leverage are the low to mid-30 percent range at year-end 2000 and 30 percent at the end of 2001,” Hilbert said. (Pro forma for this transaction, holding company leverage will be 43 percent.) “Our target ratios for financial leverage at Conseco Finance (adjusted debt-to-equity) are 15X at year-end 2000 and 14X at year-end 2001. We expect to achieve these targets without the need for an additional equity offering by carrying out the program announced today and by using our internally generated cash flow.”

“Our decision to alter our dividend policy was driven by our desire to strengthen the balance sheet and the importance of attaining higher ratings,” Hilbert said. “As a growth company, we believe our shareholders will be better off if we reinvest the earnings. We plan to maintain the new dividend level.

“After implementing these steps, we expect that our 2000 operating earnings per share will be approximately $2.80,” Hilbert said. “We expect, however, to generate EPS growth of 20 percent per year or more, beginning in 2001.”

Issuance of the Series F Stock is subject to customary conditions, including Hart-Scott-Rodino filings. The Series F Stock will have a 4 percent dividend, of which an amount comparable to the common dividend will be payable in cash, and the remainder payable in additional Series F shares. Net proceeds to the company from the sale of the Series F Stock of approximately $478 million will be added to funds available for general corporate purposes.

Thomas H. Lee Company is a Boston-based private equity firm focused on identifying and acquiring substantial stakes in growth companies. Founded in 1974, the firm currently manages approximately $6 billion of committed capital. Notable recent transactions include Metris Companies, Fisher Scientific, Rayovac, HomeSide Lending, PriCellular and Experian.

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