Continental Leads Horace Mann Credit

Horace Mann Educators Corp., just taken public through an initial stock offering, also closed late last week on a new $150 million revolving credit from a group of five banks led by Continental Bank.

Missing from the bank group was First Chicago Corp., which led the bank financing for the $462 million leveraged buyout of Horace Mann two years ago.

The Springfield, Ill., insurer was acquired from Cigna Corp. in 1989 by an investor group led by Gibbons Green van Amerongen.

Question of Timing

George Zock, treasurer of Horace Mann, said recommendations about a new bank credit were solicited from both Continental and First Chicago.

Continental was selected, he said, because the company agreed with the bank that the new credit should be completed simultaneously with the stock offering, rather than later, as First Chicago proposed.

First Chicago had no immediate comment.

Quartet of Coagents

Joining Continental as coagents were the banking units of Chase Manhattan Corp., Bank of Boston Corp., Bank of New York Corp., and Canadian Imperial Bank of Commerce.

Continental and Chase each provided $37.5 million, and the other three banks provided $25 million each.

The original buyout loan was classified as a highly leveraged transaction, but the new credit does not carry the HLT tag.

Deleveraging Accomplished

Horace Mann raise $252 million from the stock offering, and used the proceeds to pay off high-cost debt, thus deleveraging its balance sheet.

The company's debt-to-equity ratio is now under 40%, compared with over 80% after the buyout, according to Mr. Zock, Horace Mann's treasurer.

Role for Revolver

Under the new credit agreement, the company could pay as little as 75 basis points over the London interbank, offered rate, or as much as 200 basis points over Libor, depending on various financial tests.

It's expected that the company will start out paying 100 to 112.5 basis points over Libor.

Initial borrowings under the new credit agreement are expected to be fairly minimal, but the company may use the revolver later to redeem subordinated debt on future call dates, according to a banker who worked on the credit.

Other Continental Action

Separately, Continental is also leading a new credit for National Reinsurance Corp., another reverse LBO.

Continental was agent bank for a group of investors, including Robert M. Bass Group, that acquired National Re from Lincoln National Corp. in early 1990 for about $400 million.

Bank financing for the buyout amounted to $210 million.

HLTs Enumerated

The new credit for National Re is in the form of a $150 million, six-year revolver.

National Re's existing bank loans are classified as highly leveraged transactions, and the new credit will carry the same designation initially.

However, it's expected that National Re will get delisted as an HLT at the end of April.

If the credit is delisted, pricing will drop to 150 basis points over Libor from the initial rate of 250 basis points over Libor.

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