NU Online News Service, May 28, 10:29 p.m. – Moody’s Investors Service, New York, is downgrading the credit ratings of Conseco Inc., Carmel, Ind., and also lowering the credit ratings and insurance financial strength ratings of many of Conseco’s affiliates.
Conseco acted earlier this year to restructure its debt by offering holders of its old notes new, more senior notes with extended maturity dates.
Moody’s says it is cutting the rating on Conseco’s original senior debt two notches, to Caa1 from B2, because of the creation of the new, more senior notes and Conseco’s weak first-quarter earnings.
“Moody’s had indicated on March 18, 2002, that a one-notch downgrade of the old senior debt was likely as a result of the company’s planned exchange offer,” Moody’s says in a release explaining the ratings actions. “However, since then, Conseco’s slower than anticipated progress in generating cash from reinsurance and other transactions and its continued weak net income performance from its finance and insurance subsidiaries leads Moody’s to believe that the possible risks of bankruptcy for Conseco are more problematic.”
The note exchange did give Conseco more flexibility, but the fragility of the economy has increased the level of uncertainty about Conseco’s ability to come up with cash, Moody’s says.
Conseco must make a $193 million bank payment in September, or else the payments due in 2003 will increase to $1.8 billion, from $600 million, Moody’s says.
Conseco is projecting about $1 billion in cash flow for the year and total 2002 obligations of about $912 million, Moody’s says.
Gary Wendt, Conseco’s chairman, responded with a statement objecting to Moody’s ratings actions and ratings release.
Wendt notes in the statement that Moody’s left the ratings for the new notes that Conseco issued through the recent note swap unchanged.
Wendt also charges that Moody’s is basing its ratings actions on first-quarter earnings figures that are now more than four weeks old, and he argues that Moody’s comments about Conseco’s efforts to raise cash are misguided.
“The need to raise cash quickly was alleviated by the amendments that we negotiated with our banks,” Wendt says. “That new bank agreement gave us much greater flexibility than we anticipated at the beginning of this year.”
Conseco’s efforts to raise cash are going well, but, if the company had rushed to raise even more cash more quickly, it would have paid dearly for its haste, Wendt says.
“We do not need to rush, and we have no intention of minimizing value for our shareholders in order to meet artificial deadlines imposed by observers with no stake in the outcome of the turnaround,” Wendt says.