The inevitable finally occurred the Friday before last, when Conseco Inc. announced that it would miss a coupon payment, adding, the "gradual financial restructuring that was the goal of the turnaround plan is no longer the best course," in its statement. While the company's stock dipped to $0.34 before being de-listed and long-dated unsecured bonds headed to single-digit levels on the dollar, spreads for Conseco manufactured housing paper were all over the map last week, as some investors exited the sector altogether. Others, however, saw some good value on the triple-A classes from older vintages.

While Conseco's stated intent is to restructure in order to avoid bankruptcy, the general market sentiment is that, following the $1.5 billion debt restructuring this March, and given its current debt load, "both equity and debt (markets) appear to be anticipating bankruptcy," Merrill Lynch researchers noted. The good news in this mess is that lending unit Conseco Finance has no outstanding debt, and could emerge from any restructuring, notes Credit Suisse First Boston researcher Rod Dubitsky in last week's Market TABS.

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