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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. Cramer agrees...says don't buy it and sell it if you own it! Their "pay to play" cost is this issue. As long as they charge customers, they never will attain the critical mass needed to be a successful on company...Jim Cramer quote.

  2. My responses to some of the comments would include the following: 1. Our offer which included the forgiveness of debt (this is an immediate forgiveness and is not "spread over many years")represents debt that due to a reduction of interest rates in the economy arguably represents consideration together with the cash component of our offer that exceeds the $2.1 million apparently offered by another party. 2. The previous $2.1 million cash offer that was turned down by the CRC would have netted the CRC substantially less than $2.1 million. As a result even in hindsight the CRC was wise in turning down that offer. 3. With regard to "concerned Carmelite's" discussion of the previous financing Pedcor gave up $16.5 million in City debt in addition to the conveyance of the garage (appraised at $13 million)in exchange for the $22.5 million cash and debt obligations. The local media never discussed the $16.5 million in debt that we gave up which would show that we gave $29.5 million in value for the $23.5 million. 4.Pedcor would have been much happier if Brian was still operating his Deli and only made this offer as we believe that we can redevelop the building into something that will be better for the City and City Center where both Pedcor the citizens of Carmel have a large investment. Bruce Cordingley, President, Pedcor

  3. I've been looking for news on Corner Bakery, too, but there doesn't seem to be any info out there. I prefer them over Panera and Paradise so can't wait to see where they'll be!

  4. WGN actually is two channels: 1. WGN Chicago, seen only in Chicago (and parts of Canada) - this station is one of the flagship CW affiliates. 2. WGN America - a nationwide cable channel that doesn't carry any CW programming, and doesn't have local affiliates. (In addition, as WGN is owned by Tribune, just like WTTV, WTTK, and WXIN, I can't imagine they would do anything to help WISH.) In Indianapolis, CW programming is already seen on WTTV 4 and WTTK 29, and when CBS takes over those stations' main channels, the CW will move to a sub channel, such as 4.2 or 4.3 and 29.2 or 29.3. TBS is only a cable channel these days and does not affiliate with local stations. WISH could move the MyNetwork affiliation from WNDY 23 to WISH 8, but I am beginning to think they may prefer to put together their own lineup of syndicated programming instead. While much of it would be "reruns" from broadcast or cable, that's pretty much what the MyNetwork does these days anyway. So since WISH has the choice, they may want to customize their lineup by choosing programs that they feel will garner better ratings in this market.

  5. The Pedcor debt is from the CRC paying ~$23M for the Pedcor's parking garage at City Center that is apprased at $13M. Why did we pay over the top money for a private businesses parking? What did we get out of it? Pedcor got free parking for their apartment and business tenants. Pedcor now gets another building for free that taxpayers have ~$3M tied up in. This is NOT a win win for taxpayers. It is just a win for Pedcor who contributes heavily to the Friends of Jim Brainard. The campaign reports are on the Hamilton County website. http://www2.hamiltoncounty.in.gov/publicdocs/Campaign%20Finance%20Images/defaultfiles.asp?ARG1=Campaign Finance Images&ARG2=/Brainard, Jim

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