Lumbermens Mutual bondholders reject tender offer as "inadequate"

By Carlise Newman

Chicago, March 31 - Lumbermens Mutual Casualty Co.'s tender offer to purchase all of its outstanding surplus notes at $100 per $1,000 amount of notes tendered was rejected by bondholders as "inadequate."

Holders of all three series of surplus notes issued by Lumbermens formed an ad hoc committee last week to evaluate Lumbermens' tender offer and consent solicitation related to the surplus notes. The committee said it plans to enter into discussions with Lumbermens concerning the terms of the offer and has retained law firm King & Spalding LLP to represent the committee.

"Clearly 10 cents on the dollar is an inadequate offer," an attorney with the law firm told Prospect News. "They just won't get a transaction out of this."

The committee consists of American United Life Insurance Co., Calvert Group, MacKay Shields LLC and Elliott Management Corp. Together they hold more than $330 million out of the $700 million principal amount of surplus notes issued by Lumbermens. The committee members hold more than 50% of the principal amount of at least one series of surplus notes.

"We don't have enough information to make a reasonably informed decision," added the attorney.

In addition to the tender offer, Lumbermens, a Long Grove, Ill.-based insurance company is seeking the consent of surplus noteholders to an amend to terms of the surplus notes and related documents. The total purchase price offered includes a consent payment of $5 per $1,000 principal amount. A tender offer and consent solicitation statement was being distributed to all holders of the notes.

The notes total $700 million in principal.

The tender offer was launched after Lumbermens, the lead member of the Kemper Insurance Co. group, received a notice from the director of the Illinois Insurance Department denying the company's request to make the interest payments on its surplus notes on June 1 and July 1.

The expiration date for the tender offer is 9 a.m. ET on May 1, unless the deadline is extended by the company.

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