Conseco Inc. (NYSE:CNO) says it plans to raise $77.9 million by selling common stock and warrants to investment funds managed by Paulson & Company Inc., and to raise $293 million with a private offering of convertible senior debentures.

Conseco, Carmel, Ind., also wants to sell $200 million in stock to the public.

Combined, the transactions involve the issuance of securities and warrants that could increase the number of Conseco shares outstanding more than 20%.

Normally, the New York Stock Exchange would require shareholder approval of the transactions, but the shareholder approval policy “provides an exception in cases where the delay involved in securing stockholder approval for the issuance would seriously jeopardize the financial viability of the listed company,” Conseco says.

The Conseco board audit committee is permitting Conseco to use the NYSE shareholder approval exception, Conseco says.

The NYSE has approved Conseco’s use of the exception, and, “in accordance with such exception, Conseco will not consummate the transactions until at least 10 days after the mailing of a letter to stockholders describing the transactions,” the company says.

Paulson, New York, a hedge fund manager, has agreed to buy 16.4 million shares of stock from Conseco, along with warrants to buy 5 million in additional shares of stock, Conseco says. After combining the new Conseco stock with Conseco stock that Paulson and its funds already hold, Paulson would end up controlling about 9.9% of Conseco’s outstanding shares, Conseco says.

The warrants the Paulson funds are getting will have an exercise price of $6.50 per share, and, except in unusual circumstances, Paulson can convert the warrants into stock only after June 30, 2013, Conseco says. The warrants will expire Dec. 30, 2016. Shares of the stock were selling today for about $6 to $6.50 per share.

Conseco will be using the stock, warrant and debenture transactions to pay down its debt.

A debenture is an unsecured debt security. Conseco is working to replace debt that pays only 3.5% but matures in 2010 with debentures that pay 7% but mature in 2016.

Standard & Poor’s Ratings Services, New York, responded to the moves by changing the outlook it has assigned to Conseco to stable, from negative, and by affirming the CCC counterparty credit rating it has assigned to Conseco and the BB minus financial strength rating it has assigned to Conseco’s insurance subsidiaries.

Conseco’s exchange of debt due in 2010 for debt due in 2016 will increase annual interest expenses by $10 million but improve short-term flexibility, S&P says.

“Conseco has temporarily improved financial flexibility from renegotiation of senior credit agreement covenants earlier in 2009 until expiry in the third quarter of 2010,” S&P says. “We consider the group’s competitive position adequate while its operating performance is improving. Offsetting these factors are the company’s weak capitalization and poor enterprise financial controls.”

The return of more-restrictive credit agreement covenants could tighten Conseco’s flexibility in the third quarter of 2010, S&P says.

“The primary sources of cash at the holding company are dividends from the operating companies, interest on surplus debentures, and management and investment fees,” S&P says. “The holding company is pressuring its operating companies to improve risk-adjusted capitalization to stay within covenants, which in turn is compelling the operating companies to minimize dividends.”