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Conseco shares fall on weak profit forecast

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Conseco Inc. hopes that an amendment to its bank loans announced today helps it fetch a higher price in an upcoming public offering of stock.

But the company’s 2010 profit forecast, also announced today, is sending its shares in the opposite direction.

The Carmel-based life and health insurer expects profit next year in a range of $145 million to $170 million, or 55 cents to 65 cents per diluted share.

Those totals, which exclude investment gains or losses, are far lower than the 86 cents per share expected by Wall Street analysts, according to a survey by Thomson Financial Network.

The news sent shares of Conseco tumbling Tuesday morning as much as 7 percent to as low as $4.80 apiece.

Conseco plans to sell at least $200 million in new shares by mid-January.

Since Conseco’s investment assets plunged in value a year ago, investors have been concerned that the company is operating with slim margins on the terms of its bank loans.

To alleviate those concerns, the company is now negotiating for looser restrictions on its bank loans, which total $817.8 million.

For example, Conseco’s current loan agreement requires it to have at least $1.27 billion by June 30 in reserves at its insurance company units, something called statutory capital and surplus. But Conseco wants its lenders to step up those requirements gradually, from $1.1 billion now to $1.2 billion in 2011 and $1.3 billion in 2012.

Conseco is asking for similar breathing room on the amount of total capital it must have beyond the levels required by insurance regulators, as well as the amount of its earnings compared with the size of its interest payments.

In exchange, Conseco has agreed to pay $150 million of the proceeds of its stock offering toward its bank loans. If Conseco sells more than $200 million in stock, it will pay its lenders 50 cents of every dollar above $200 million.

Those payments would excuse Conseco from making its normally scheduled principal payments in 2010. But Conseco also would begin paying about $8 million a year in interest that it had been deferring until the end of the life of its loans.

In order to make these changes, Conseco would incur $2.3 million in fees.

It is the second time this year that Conseco has amended its bank loans. In March, when the company was facing a cash crisis, it agreed to make higher interest payments in exchange for looser requirements for its capital reserves.

The new agreement, if approved, would maintain those higher interest payments, which are costing the company $45 million a year.

But since March, Conseco has received a $78 million investment by a New York hedge fund, Paulson & Co., and has refinanced some of its bonds, making its capital position much more secure.

Tom Barta, Conseco’s senior vice president of financial planning and analysis, said Conseco does not mind paying down its debt and said the looser loan restrictions—also called covenants—should reassure investors.

“The market has always kind of undervalued our stock because of how tight everybody thought we were with our covenants,” he said.

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  1. PJ - Mall operators like Simon, and most developers/ land owners, establish individual legal entities for each property to avoid having a problem location sink the ship, or simply structure the note to exclude anything but the property acting as collateral. Usually both. The big banks that lend are big boys that know the risks and aren't mad at Simon for forking over the deed and walking away.

  2. Do any of the East side residence think that Macy, JC Penny's and the other national tenants would have letft the mall if they were making money?? I have read several post about how Simon neglected the property but it sounds like the Eastsiders stopped shopping at the mall even when it was full with all of the national retailers that you want to come back to the mall. I used to work at the Dick's at Washington Square and I know for a fact it's the worst performing Dick's in the Indianapolis market. You better start shopping there before it closes also.

  3. How can any company that has the cash and other assets be allowed to simply foreclose and not pay the debt? Simon, pay the debt and sell the property yourself. Don't just stiff the bank with the loan and require them to find a buyer.

  4. If you only knew....

  5. The proposal is structured in such a way that a private company (who has competitors in the marketplace) has struck a deal to get "financing" through utility ratepayers via IPL. Competitors to BlueIndy are at disadvantage now. The story isn't "how green can we be" but how creative "financing" through captive ratepayers benefits a company whose proposal should sink or float in the competitive marketplace without customer funding. If it was a great idea there would be financing available. IBJ needs to be doing a story on the utility ratemaking piece of this (which is pretty complicated) but instead it suggests that folks are whining about paying for being green.

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