Case Study

The Bankruptcy of The Loewen Group:

Too Much Debt, Too Little Death
The Loewen Group (HBS Case 9-201-062)

In June 1999 the Loewen Group, the second largest funeral company in North America, filed
for Chapter 11 bankruptcy simultaneously in the United Sates and Canada. The information
that follows describes the filing and provides some background on the company.

Loewen Files for Bankruptcy Protection

June 1, 2001
VANCOUVER, BC -- June 1, 1999 -- The Loewen Group Inc. (NYSE,TSE,
ME:LWN) announced today that, in order to ensure time to implement a new
strategic plan while concurrently reducing its debt structure to compete
more effectively in the marketplace, the Board of Directors has authorized
the Company to file a voluntary petition to reorganize under Chapter 11 of
the U.S. Bankruptcy Code, as well as an application for creditor protection
under the Companies' Creditors Arrangement Act (CCAA) in Canada.

The Loewen Group Chairman, John S. Lacey said, "The filings will
enable
the Company to move forward with the implementation of its strategic plan
while it restructures its burdensome debt load. During the past three
years,
the Company has experienced increasingly intensive working capital needs
primarily as a result of its aggressive pursuit of cemetery acquisitions
versus its historical emphasis on funeral home operations. We must focus
our energy on correcting our balance sheet and implementing a solid
business
plan."

Mr. Lacey said that the plan or "vision" is to return to the original
focus of The Loewen Group as a funeral service company with strategically
located ancillary cemetery operations. "In recent years, we have lost that
focus as the Company has concentrated more on cemetery sales and less on
funeral home operations that are our most profitable, core assets."
In conjunction with the filings, the Company's U.S. subsidiaries have
received a commitment for up to US $ 200 million in debtor-in-possession
(DIP) financing from First Union National Bank. The post-petition
financing,
which is subject to court approval, is expected to provide adequate funding
for all post-petition trade and employee obligations as well as the
Company's ongoing needs during the restructuring process. The Company's
Canadian subsidiaries have sufficient liquidity to fund daily operations
and
do not anticipate the need for additional financing.

Company Background
(From a Company statement issued at the time of the bankruptcy filing)
The Lowen Group, Inc., and its hundreds of affiliated entities operates the
second-largest number of funeral homes and cemeteries in North America
(Service Corporation International is number-one). In addition to
providing
services at the time of need, the Company also makes funeral, cemetery and
cremation arrangements on a pre-need basis. Today, the Company operates
1,116 funeral homes and 429 cemeteries throughout North America. During
1997, the Company expanded into the United Kingdom and now operates 32
funeral homes there. As of March 31, 1999, the Company also operated three
insurance subsidiaries that principally sell a variety of life insurance
products to fund funeral services purchased through a pre-need arrangement.
The Loewen Group, Inc., serves as the holding company for all operations of
the Company, which are contained in subsidiary and associated companies.
Loewen was incorporated under the Company Act of British Columbia on
October
30, 1985.

GROWTH BY ACQUISITION. Loewen pursued an aggressive growth strategy based

primarily upon acquisitions. In the past three years the Company's growth
strategy emphasized cemetery acquisitions, as compared to the historical
emphasis on funeral home acquisitions. Since 1995, the Company has grown by
651 locations to 1,701 at December 31, 1998, including 348 additional
cemeteries.

RECENT DIFFICULTIES. Loewen's recent financial results have been

disappointing. Beginning in the second half of 1998, as part of its
strategy to improve its results, liquidity and financial condition the
Company virtually eliminated its acquisition program in order to
concentrate
on improving existing operations. This strategy focuses upon emphasizing
cash flow from operations and, in particular, cash flow from cemetery
operations. Also, efforts to reduce costs have been made, including the
closure of the Company's Cincinnati and Trevose offices and consolidation
of
substantially all management functions in Burnaby.

MANAGEMENT CHANGES. Significant management changes occurred beginning in

the fourth quarter of 1998. On October 8, 1998, Robert L. Lundgren was
appointed President and Chief Executive Officer replacing Raymond L. Loewen
who resigned on the same date. On December 17, 1998, the Company named
three new outside directors, Thomas M. Taylor, John S. Lacey and William R.
Riedl, to the Company's Board of Directors, replacing three inside
directors
who simultaneously retired from the Board. On January 22, 1999, the
Company's Board of Directors appointed John S. Lacey as Chairman, replacing
Co-Chairmen Robert L. Lundgren and Raymond L. Loewen. Through actions
taken
on March 30, 1999 and April 12, 1999, the Board of Directors was reduced
from 14 to seven members.

RECENT ASSET SALES. On March 31, 1999, the Company completed the sale of
124 cemeteries and three funeral homes for gross proceeds of $193 million,
of which $126.5 million was required to be paid to certain lenders, to an
investor group led by McCown De Leeuw & Co., a private investment firm. The
Company has two smaller groups of properties which are considered probable
for sale.

BUSINESS OPERATIONS. The Company's operations are comprised of three

businesses: funeral homes, cemeteries and insurance. The Company maintains
a
regional management structure for both funeral home and cemetery businesses
that is organized in several geographic regions in the United States,
Canada
and Europe. Management believes that this recently implemented
organizational structure will enable the Company to better manage local
profit centers.

(1) FUNERAL HOMES. The Company's funeral homes offer a full range of
funeral services, including the collection of remains, registration of
death, professional embalming, use of funeral home facilities, sale of
caskets and other merchandise, and transportation to a place of worship,
funeral chapel, cemetery or crematorium. To provide the public with the
opportunity to choose the service that is most appropriate from both a
personal and financial perspective, the Company offers complete funeral
services (including caskets and related merchandise) at prices averaging
approximately $3,400.

Substantially all of the Company's funeral homes provide basic

cremation services, and the Company has proprietary programs designed to
provide a full range of merchandise and services to families choosing
cremation. In 1998, cremations accounted for approximately 26% (27% in
1997)
of all funeral services performed by the Company. As a percentage of all
funeral services in the United States, cremations have been increasing by
approximately 1.0% annually over the past five years and, in 1997,
accounted
for approximately 24% of all funeral services performed in the United
States.

Funeral operations accounted for approximately 56% of the

Company's
consolidated revenue for 1998. Amounts paid for funeral services are
recorded as revenue at the time the service is performed. Payments made
for
pre-need funeral contracts are either placed in trust by the Company or are
used on behalf of the purchaser of the pre-need contract to pay premiums on
life insurance polices under which the Company is designated as the
beneficiary. At the date of performing a pre-arranged funeral service, the
Company records as funeral revenue the amount originally trusted or the
insurance contract amount, together with related accrued earnings retained
in trust and increased insurance benefits.

(2) CEMETERIES. The Company's cemetery operations assist families in

making burial arrangements and offer a complete line of cemetery products
(including a selection of burial spaces, burial vaults, lawn crypts,
caskets, memorials, niches and mausoleum crypts), the opening and closing
of
graves and cremation services.

The Company's cemetery operations comprised approximately 36% of

the Company's consolidated revenue for 1998, the majority of which was
derived from pre-need sales of cemetery products and services. The pre-need
sale of interment rights and related products and services is recorded as
revenue when customer contracts are signed. At that time, costs related to
the sale are also recorded and an allowance is established for future
cancellations and refunds, based on management's estimates in light of
actual historical experience and trends. A portion of the proceeds received
by the Company from pre-need merchandise and service sales is generally set
aside in trust funds to provide for the future delivery of the cemetery
products and services.

In addition, the Company provides for the long-term maintenance

of
its cemetery properties by placing a portion, typically 10%, of the
proceeds
from the sale of interment rights into a perpetual care trust fund. The
income from these funds is used to offset the maintenance costs of
operating
the cemeteries. At December 31, 1998, the Company's cemeteries had
approximately $270 million in perpetual care trust funds, which are not
reflected on the Company's balance sheet because the principal is required
to stay in trust in perpetuity.

(3) INSURANCE. The Company operates three insurance subsidiaries

licensed in 29 jurisdictions to principally sell a variety of life
insurance
products to fund funerals. Revenue from the Company's insurance operations
totaled approximately $97 million in 1998, or 8% of the Company's
consolidated revenue.

--------------------------------------------------------------------------
[00002] COMPANY'S CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 1999
--------------------------------------------------------------------------

THE LOEWEN GROUP INC.

CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 1999
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
(UNAUDITED)

ASSETS

Current assets
Cash and term deposits................................... $ 78,611
Receivables, net of allowances........................... 204,481
Inventories................................................ 32,522
Prepaid expenses......................................... 18,032
------------
333,646
Long-term receivables, net of allowances................... 546,596
Cemetery property.......................................... 1,193,846
Property and equipment..................................... 796,931
Names and reputations...................................... 743,489
Insurance invested assets.................................. 269,567
Future income tax assets................................... 10,720
Prearranged funeral services............................... 413,846
Other assets............................................... 158,092
------------
$ 4,466,733
============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Current indebtedness..................................... $ 48,782
Accounts payable and accrued liabilities................. 137,877
Long-term debt, current portion.......................... 742,248
------------
928,907
Long-term debt, net of current portion..................... 1,395,987
Other liabilities.......................................... 370,035
Insurance policy liabilities............................... 171,795
Future income tax liabilities.............................. 200,961
Deferred prearranged funeral services revenue.............. 413,846

Preferred securities of subsidiary......................... 75,000

Shareholders' equity
Common shares............................................ 1,274,163
Preferred shares......................................... 157,146
Deficit.................................................. (534,996)
Foreign exchange adjustment.............................. 13,889
------------
910,202

------------
$ 4,466,733
============