CNO to buy back $200 million of 7% convertibles under recapitalization

By Angela McDaniels

Tacoma, Wash., Sept. 4 - CNO Financial Group, Inc. plans to repurchase roughly $200 million of its 7% convertible senior debentures due 2016, according to an 8-K filing with the Securities and Exchange Commission.

The convertibles will be repurchased from Paulson Credit Opportunities Master Ltd. and Paulson Recovery Master Fund Ltd., both of which are managed by Paulson & Co. Inc., for about $334 million.

The repurchase price is a 2.8% discount to a theoretical value for the convertibles that is meant to represent their market value. It is the sum of their conversion value plus the present value of the remaining interest payments through June 30, 2013 plus the option value of the convertibles based on a reference stock price over an averaging period.

The repurchase price assumes an $8.90 reference stock price, which is equal to the company's closing share price on Aug. 31. A $0.25 increase in the share price would increase the total purchase price by about $8 million.

The company's stock closed at $8.96 (NYSE: CNO) on Sept. 4.

The repurchase is conditioned on the completion of financing transactions resulting in at least $900 million of proceeds.

Recapitalization plan

The repurchase is part of a recapitalization plan that also includes entering into a new $250 million four-year term loan and $400 million six-year term loan facility, pricing $250 million of new senior secured notes due 2020 and entering into a $50 million three-year unfunded revolving credit facility to be available for contingent capital purposes.

CNO plans to use the proceeds of the new term loans and notes to fund the repurchase of the convertibles, repay all $224 million outstanding under its existing senior secured credit agreement and repurchase up to $275 million of its 9% senior secured notes due 2018 for about $323 million.

The components of the recapitalization are expected to close in late September.

CNO is a holding company for insurance subsidiaries including Bankers Life and Casualty Co., Washington National Insurance Co. and Colonial Penn Life Insurance Co. It is based in Carmel, Ind.

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