SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 21, 2003
-------------
UICI
(Exact name of registrant as specified in its charter)
Delaware 001-14953 75-2044750
--------------------------------------------- ---------------- -------------------
(State or other jurisdiction of incorporation (Commission File (IRS Employer
or organization) Number) Identification No.)
9151 Grapevine Highway, North Richland Hills, TX 76180
------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 255-5200
--------------
Not Applicable
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS
On July 21, 2003, UICI announced the discovery of a shortfall
in the type and amount of collateral supporting two of the securitized
student loan financing facilities entered into by three special
financing subsidiaries of Academic Management Services Corp. ("AMS"),
UICI's wholly-owned subsidiary. The three special financing
subsidiaries involved are EFG-III, LP, EFG Funding LLC and AMS-1 2002,
LP. In addition, all seven special financing subsidiaries of AMS and
AMS may have failed to comply with their respective reporting
obligations under the financing documents.
AMS (based in Swansea, MA) is engaged in the student loan
origination and funding business, student loan servicing business, and
tuition installment payment plan business. AMS finances its student
loan origination activities through the seven special financing
subsidiaries, each of which issues debt securities, including
commercial paper (through EFG Funding LLC), auction rate notes (through
EFG-II, LP, EFG-IV, LP, AMS-1 2002, LP, and AMS-3 2003, LP), and
floating rate notes (through EFG-IV, LP and AMS-2 2002, LP). The
commercial paper issued by EFG Funding LLC is supported by a liquidity
facility provided by Bank of America and Fleet Bank and the underlying
variable funding note issued by EFG-III, LP has the benefit of a
financial guaranty insurance policy issued by a monoline insurer rated
AAA/Aaa. The notes issued by each of EFG-II, LP, EFG-IV, LP and AMS-1
2002, LP also have the benefit of a financial guaranty insurance policy
issued by a monoline insurer rated AAA/Aaa.
The problems at EFG-III, LP and EFG Funding LLC are of three
types: insufficient collateral, a higher percentage of alternative
loans (i.e., loans that are privately guaranteed as opposed to loans
that are guaranteed by the federal government) included in the existing
collateral than permitted by the loan eligibility provisions of the
financing documents and deficiencies with respect to reporting
requirements. Specifically, it is believed that certain reports
concerning the collateral were misstated, that as of June 30, 2003, the
variable funding note underlying the commercial paper issued by EFG
Funding LLC (approximately $440 million outstanding) was under
collateralized and $59 million (exclusive of accrued interest) of the
existing collateral was not in compliance with the loan eligibility
requirements. The under collateralization will be partially addressed
by the transfer by AMS to EFG-III, LP of approximately $190 million of
federally-guaranteed student loan and other qualified assets that meet
loan eligibility requirements under the financing documents (which
transfer will reduce the under collateralization from $263 million to
$73 million) and the possible transfer by AMS to EFG-III, LP of $34.4
million of uninsured student loans that do not meet loan eligibility
requirements under the financing documents. These transfers will not
fully resolve the shortfalls in type and amount of collateral.
The problems at AMS-1 2002, LP consist primarily of
approximately $17 million of alternative student loans (exclusive of
accrued interest) in excess of the loan eligibility requirements for
such loans in the financing documents as of June 30, 2003, and a
deficiency in various reporting requirements.
UICI has no obligations with respect to the indebtedness of
the special financing subsidiaries or with respect to the obligations
of AMS relating to such financings. UICI believes, based on its ongoing
investigation, that the previously published consolidated financial
statements of AMS, as incorporated in UICI's consolidated financial
statements, are accurate and fairly presented. However, UICI will
assess the impact of the events at AMS on the carrying value of UICI's
investment in AMS, which, at March 31, 2003, was approximately $65.0
million. Any impairment in UICI's carrying value may be reflected as a
charge to UICI's earnings in the second quarter of 2003.
UICI is committed to working with all of the financial
institutions involved to develop a plan to assess and resolve all of
the issues associated with AMS' securitized student loan financings.
There can be no assurance, however, that such a plan can be effectuated
and that the required waivers and agreements by all of the interested
parties can in fact be obtained. UICI is prepared to invest additional
capital into AMS under appropriate circumstances as part of the effort
to avoid losses to any party and to protect UICI's investment in AMS.
The former president of AMS has been put on leave and relieved
of all responsibilities pending the completion of the ongoing
investigation. Gregory T. Mutz, Vice Chairman of UICI, has been
authorized by the Board of Directors of UICI to personally manage for
the indefinite future the situation and to address the issues
and matters at AMS. A failure to resolve the collateral and reporting
issues discussed above in a timely manner could have a material adverse
effect on AMS.
A copy of the Company's July 21, 2003 press release is filed
as an exhibit hereto, the terms of which are incorporated herein by
reference thereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 99.1 Press Release dated July 21, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
UICI
------------------------------
(Registrant)
Date July 21, 2003 By /s/ Mark D. Hauptman
------------- ------------------------------
Mark D. Hauptman
Vice President and Chief
Financial Officer