Conseco Finance Bankruptcy

Conseco's Bankruptcy leaves 137 Trusts Stilll in Limbo Since 2003

Representatives of the certificate holders filed a motion in the U.S. Bankruptcy Court for the Northern District of Illinois last week, demanding changes to the terms of various agreements relating to the future of Conseco Finance. The company, which focuses on home equity, private-label credit cards, manufactured housing and other consumer-finance business lines, could be sold to buyout firm CFN Investment Holdings LLC as soon as March 5. While some investors said the fee is excessive, U.S. Bancorp unit U.S. Bank NA, which acts as trustee for a total of 137 securitization trusts spread across Conseco Finance's areas of operation, countered that it is necessary to spare the trusts from "irreparable harm." The bank stated that it has attempted, without success, to build a consensus among certificate holders regarding the servicing arrangement. John Cerra, managing director of the public ABS group at Teachers Insurance & Annuity Association (or TIAA-CREF), expressed frustration both at what he perceives as widespread apathy among fellow noteholders and the implications of the Conseco agreement on the asset-backed market, in general. TIAA-CREF holds about $2.6 billion worth of certificates in 61 of the 68 Conseco Finance securitizations. Conseco Finance has "been unwilling to consider, in good faith, any alternatives to a permanent shift in the servicing fee to the 125 basis points," the ad hoc committee said a document filed with the bankruptcy court on Feb. 12 objecting to the servicing arrangements. "Efforts to move toward a final order without structuring a brokered process to build consensus and to cultivate the interest of experienced servicers in the MH portfolio is particularly disturbing." In court documents, the committee recommends a base servicing fee of 90 basis points and incentive fees in five-basis-point increments that would be tied to improvement in metrics such as the current net-loss rate, delinquencies of 60 days or more and repossession inventory. Conseco Finance indicated last fall that it had nearly 20,000 manufactured housing units in repossession. The committee estimates that an additional 40,000 units will be repossessed in both 2003 and 2004. The bank said the new servicing agreement protects certificate holders by "requiring CFC to account for the use of the increased fee" and provided them an opportunity to "arrive at a consensus as to how to address servicing in the future.

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