Conseco Criticizes Moodys Ratings Action, Says Cash-Raising Is Going Fine
Executives at Conseco Inc. are urging credit analysts to focus on the companys prospects for the future, rather than harping on the losses the company reported for the first quarter.
Moodys Investors Service, New York, made the headlines last week by cutting its credit ratings on certain senior Conseco notes two notches, to Caa1.
Moodys predicted in March that it would probably cut the ratings on the senior notes one notch.
“However,” Moodys says, “since then, Consecos 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 lead Moodys to believe that the possible risks of bankruptcy for Conseco are more problematic.”
Conseco must make a $193 million optional bank payment in September, or else the payments due in 2003 will increase to $1.8 billion, from $600 million, Moodys says.
Conseco is projecting about $1 billion in cash flow for the year and total 2002 obligations of about $912 million, Moodys says.
Gary Wendt, chairman of the insurance and consumer finance company, responded by issuing a statement of his own questioning the timing of the Moodys ratings action and the language it used in its release.
“The basis cited for todays action was information that is between four and six weeks old,” Wendt says in the statement. “And, to the extent the action is based on reported first-quarter earnings, it is based on information that is now two months old.”
Wendt reports that Conseco is taking awhile to raise cash because it has negotiated a new bank agreement that gives it more time to pay its bank loans.
Conseco has been using the extra time to raise cash in a sensible, deliberate fashion, 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.
Conseco grew rapidly through acquisitions in the 1990s, then ran into trouble when some operations performed poorly.
Conseco has been working hard since then to raise the cash it needs to pay off its debts.
The company acted earlier this year to restructure some of its remaining debt by offering holders of its senior notes a chance to swap the notes for new, more senior notes with extended maturity dates.
Moodys says it cut its ratings on the old notes partly because their holders will now come after holders of the new notes if Conseco ever has trouble making its payments.
Fitch Inc., New York, made a similar move in April, shortly after Conseco completed its note swap.
Fitch analysts in Chicago cut their rating on Consecos old senior notes one notch, to CCC+, simply because the old notes are now subordinate to the new notes.
But Fitch and Moodys both gave the new senior notes issued through the note swap the same ratings they had previously given Consecos old senior notes.
Wendt emphasizes that Moodys has left the rating it gave Consecos new senior notes unchanged.
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 10, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.