Analyst: Conseco still facing credit problems-WEB ONLY

An analyst cut his 2009 earnings estimate for Conseco Inc. yesterday and said the Carmel-based insurer still faces a real threat of bankruptcy if it can’t renegotiate its credit agreement with debt holders.

Credit Suisse analyst Thomas Gallagher slashed his earnings estimate after projecting an extra $45 million per year in costs associated with a revised credit agreement. Last month, Conseco reached a new deal on its main credit line. In exchange for looser restrictions on the company’s debt-to-capital levels, Conseco agreed to pay a higher interest rate, leading to the rising costs Gallagher is now projecting.

Conseco shares slid 26 cents, or 17 percent, yesterday, closing at $1.29 each. They were up one penny today in mid-morning trading. Shares have traded between 26 cents and $12.34 during the past year.

Gallagher cut his annual earnings estimate to 82 cents per share from $1.20 per share. Analysts surveyed by Thomson Reuters, on average, forecast earnings of 89 cents per share for the year.

Conseco also faces payments on a senior-note agreement with the state of Pennsylvania, which will reduce profitability, Gallagher wrote in a report. He said Conseco faces a $25 million fourth-quarter payment on that note.

There is a 50-percent chance Conseco will not be able to negotiate a deal with debtholders to prevent them from cashing in $291 million in bonds in September 2010, Gallagher said.

If Conseco is unable to renegotiate the bonds, it might have to seek bankruptcy protection, Gallagher wrote. The insurer, like many others, has been dogged by liquidity concerns amid the credit crisis and ongoing recession.

Gallagher maintained a “Neutral” rating on the stock, but cut his price target to $4 from $7 to represent uncertainty surrounding its ability to cover the bond payoff next year.