NU Online News Service, Dec. 29, 2003, 1:44 p.m. EST – Conseco Inc., Carmel, Ind., has received a preliminary B- rating from Standard & Poor’s Ratings Services, New York, on senior unsecured debt it hopes to issue through a $3 billion universal shelf registration.[@@]
S&P assigned a CCC rating to Conseco’s subordinated debt and a CCC- rating to its preferred stock.
Conseco emerged from Chapter 11 bankruptcy reorganization proceedings in September. The company sold its consumer finance operations and now is focusing on selling insurance.
Conseco filed the shelf registration with the U.S. Securities and Exchange Commission Dec. 5. Once the registration takes effect, Conseco will have the authority to issue new securities but no obligation to do so. If Conseco does issue securities, it will use the proceeds to beef up capital levels at the parent company.
“If a recapitalization does occur, Standard & Poor’s will analyze the resulting structure to determine if any rating actions are warranted,” S&P says in a comment on the new Conseco debt ratings.
Although Conseco’s managers have succeeded at restructuring the company, the restructuring “has left the company with little margin for error and susceptible to any economic or business downturns,” S&P says. “The debt-servicing requirements associated with the current capital structure clearly serve as an impediment to any upward movement in the ratings.”
The new Conseco also suffers from the lack of an earnings track record, S&P says.
“It will take 3 to 5 quarters of actual results to determine how effective management has been at re-attracting the independent agent force to sell Conseco products and if the products are priced appropriately to deliver a stream of statutory earnings sufficient to generate the capital needed to fund additional growth,” S&P says.
The rating agency adds that the major weakness in Conseco’s insurance operations is the long term care business at the Conseco Senior Health Insurance Company subsidiary.