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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. John, unfortunately CTRWD wants to put the tank(s) right next to a nature preserve and at the southern entrance to Carmel off of Keystone. Not exactly the kind of message you want to send to residents and visitors (come see our tanks as you enter our city and we build stuff in nature preserves...

  2. 85 feet for an ambitious project? I could shoot ej*culate farther than that.

  3. I tried, can't take it anymore. Untill Katz is replaced I can't listen anymore.

  4. Perhaps, but they've had a very active program to reduce rainwater/sump pump inflows for a number of years. But you are correct that controlling these peak flows will require spending more money - surge tanks, lines or removing storm water inflow at the source.

  5. All sewage goes to the Carmel treatment plant on the White River at 96th St. Rainfall should not affect sewage flows, but somehow it does - and the increased rate is more than the plant can handle a few times each year. One big source is typically homeowners who have their sump pumps connect into the sanitary sewer line rather than to the storm sewer line or yard. So we (Carmel and Clay Twp) need someway to hold the excess flow for a few days until the plant can process this material. Carmel wants the surge tank located at the treatment plant but than means an expensive underground line has to be installed through residential areas while CTRWD wants the surge tank located further 'upstream' from the treatment plant which costs less. Either solution works from an environmental control perspective. The less expensive solution means some people would likely have an unsightly tank near them. Carmel wants the more expensive solution - surprise!

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