NU Online News Service, June 1, 2004, 5:46 p.m. EDT – Conseco Inc. has taken a big step back toward financial respectability.[@@]

Moody’s Investors Service, New York, has increased the credit ratings on Conseco’s bank debt to B3, from Caa1, and increased the insurance financial strength ratings on most of Conseco’s insurance units to Ba2, from Ba3.

The rating agency also affirmed the Caa1 financial strength rating on Conseco’s struggling Conseco Senior Health Insurance Company, which has talked about its efforts to overcome past problems with loose home health care insurance policy provisions and erratic claim review procedures.

Moody’s also is thinking about coming out with another rating upgrade for all Conseco units except Conseco Senior Health, according to a comment on the current upgrades by Robert Riegel and Scott Robinson, 2 Moody’s analysts who follow Conseco.

Conseco emerged from Chapter 11 bankruptcy reorganization proceedings in September 2003. During the reorganization, Conseco sold loss-ridden consumer finance businesses and focused on its life, health and specialty insurance operations.

Conseco recently raised $923 million by issuing new common stock and $690 million by issuing new preferred stock. The company also is in the process of redeeming its old preferred stock and refinancing its bank debt, Moody’s says.

The moves should reduce Conseco’s level of bank debt and the amount of cash the company must spend on making debt payments, according to Riegel and Robinson.

Conseco’s managers also have cut expenses, shifted to safer investments and worked out an arrangement deal with Florida insurance regulators that could help the company clear up the problems at Conseco Senior Health, Riegel and Robinson write.

Florida regulators have asked Conseco to offer current home health care policyholders in Florida and other states that adopt the Florida recommendations a choice between paying substantially more to keep their current benefits, paying somewhat more to keep reduced benefits or paying nothing and getting paid-up contingent benefits.

Moody’s wants to see how policyholders react to the deal before making a decision about Conseco Senior Health’s insurance financial strength rating, Riegel and Robinson write.

Managers of other Conseco units still have to keep agents, attract profitable business and maintain current risk-adjusted capital levels, the analysts write.

But, in general, Conseco’s efforts to revamp its operations should give the company “additional time to execute its business strategy and provide greater flexibility in terms of financial leverage and interest coverage,” the analysts write.

If Conseco succeeds at refinancing its bank debt, expands its capital base and generates more than $210 million in 2004 statutory operating earnings, that “would place additional upward pressure on the ratings,” the Moody’s analysts write.