Conseco Inc. shares continue to recover now that the company has cleared away the biggest clouds hanging over it.
Shares of the Carmel-based life insurer rose another 12 percent in morning trading after surging 35 percent yesterday. They traded at $1.03 late this morning.
Investors have bid up the shares after Conseco renegotiated $912 million in bank loans so it’s not as close to violating the debt restrictions of the loans. Conseco will pay higher interest rates for that flexibility.
The company also reaffirmed yesterday the preliminary financial results it had reported on March 2, except for an additional $45 million accounting charge.
And perhaps most importantly, Conseco also got a clean bill of health from its auditor, PricewaterhouseCoopers, which had threatened to issue a warning about Conseco’s ability to stay in business.
Conseco is a holding company that owns insurance subsidiaries in multiple states. Due to large investment losses, Pricewaterhouse worried that state regulators would not allow Conseco’s insurance companies to forward capital to the holding company, starving it for cash.
But Conseco won approval in March for $46 million in payments from its insurance subsidiaries, CEO Jim Prieur said yesterday.
“I’m pleased to report that after a tremendous amount of time and effort spent over the last month, we have resolved the auditors’ concerns regarding liquidity and debt covenant margins,” Prieur told analysts during a conference call last night.
In the fourth quarter, Conseco moved perilously close to violating terms of its bank loans because of heavy investment losses and charges taken to shift its money-losing senior health policies to an independent trust.
Those charges ballooned Conseco’s fourth-quarter loss to $452 million, according to final 2008 financial results released yesterday. On March 2, Conseco reported preliminary results showing a quarterly loss of $407 million.
Not counting extraordinary charges, Conseco’s fourth-quarter income from operations hit $48.7 million, up 79 percent from the same quarter a year ago. On that basis, Conseco earned 26 cents per share, missing analysts’ expectations of 29 cents per share.
Conseco will have to pay about $12 million more in interest this year in exchange for the breathing room on its bank loans, which are administered by Bank of America.
The cash interest rate Conseco is paying on the $912 million in loans will rise from 2.6 percent to at least 6.5 percent, with a payment equal to 1 percent of the principal balance tacked on when the loans mature.
The amendment makes the following changes in Conseco’s senior credit facility:
– An increase in the maximum debt-to-capital ratio to 32.5 percent until June 30, 2010, then returning to 30 percent;
– A decrease in the minimum risk-based capital ratio to 200 percent until June 30, 2010, then returning to 250 percent;
– A decrease in the minimum level of statutory capital to $1.1 billion through June 30, 2010, then returning to $1.27 billion;
The amendment also places additional restrictions on the company’s ability to add certain kinds of debt.
“Renegotiating our debt gives us greater financial flexibility during times of market volatility, as we focus on the continued growth of our core insurance businesses,” Prieur said in the statement.