Fitch Rates Conseco's Debt Issuance.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. today assigned a 'BB-' rating to Conseco, Inc.'s (Conseco) proposed issuance of $300 million of senior unsecured convertible notes due 2035. At the same time, Fitch has assigned a 'BB+' rating to Conseco's senior secured bank debt, and affirmed the company's 'BB' long-term (issuer) rating and 'B+' preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. rating. The Rating Outlook for all ratings is Stable. (See below for a complete list of rating actions.) Fitch believes that the new convertible debt issuance, which will be used to reduce the company's outstanding senior secured debt and provide relief of certain financial covenants and restrictions, will improve the company's debt capital structure and lower overall funding costs. The new convertible debt issue receives zero equity credit based on Fitch's criteria. On a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma basis, Fitch calculates Conseco's debt to total capital at 18%, debt plus preferred to total capital at 33%, and equity adjusted debt to total capital at 21%. Conseco relies on insurance company dividends, surplus note interest payments, fees for services, tax-sharing payments, and non-insurance subsidiary dividends to fund holding company cash needs. Fitch projects Conseco's GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). earnings-based interest coverage to be in the 10-11 times range in 2005. Conseco's ratings reflect the company's improved statutory capitalization, good market position in the Medicare supplement and long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. (LTC LTC abbr. lieutenant colonel ) market, strong asset quality, and improved earnings profile. Offsetting these positives are the continued challenges following bankruptcy related to the organization's ability to successfully rebuild long-term operating fundamentals in its independent distribution channel, thin annuity margins, and the profitability drag on statutory earnings of the LTC business. Fitch views the Bankers Life segment, which continues to generate favorable operating margins and stable revenues, to have solid franchise value. In contrast, Fitch views the other insurance operations of Conseco as having less inherent stability and sustainable profitability. Statutory capitalization of Conseco's insurance companies has improved significantly over the past two years, with a combined risk-based capital (RBC RBC red blood cell. RBC or rbc abbr. red blood cell RBC, n See red blood cell count. RBC red blood cells; red blood (cell) count (see blood count). ) ratio of 318% at March 31, 2005. Conseco's exposure to below-investment-grade fixed-maturity securities has been reduced to under 4% of the company's combined fixed-maturity security portfolio at June 30, 2005. Before Conseco, Inc. or its subsidiaries can be considered for further upgrades of its long-term (issuer) rating, or subsidiary Insurer Financial Strength ratings, the company must demonstrate improved operating fundamentals, statutory and GAAP profitability, and successful execution of its strategic plan. The level of notching between the ratings of Conseco's secured bank debt and unsecured senior debt reflects Fitch's view on the relative recoveries available to the two classes of creditors in a default scenario. The bank debt is secured by essentially all of Conseco's assets, which Fitch believes would result in above-average recoveries for the secured debt, and below-average recoveries for unsecured creditors, under the current capital structure. Should Conseco continue to reduce secured bank debt with proceeds from new unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. issuance, Fitch would ultimately expect the unsecured senior debt ratings to be notched up to align with the long-term (issuer) rating, and the secured bank debt rating to be further notched up from the long-term rating to reflect improved collateralization In medicine, collateralization, also vessel collaterlization and blood vessel collateralization, is the growth of a blood vessel or several blood vessels that serve the same end organ or vascular bed as another blood vessel that cannot adequately supply that end organ levels, and higher expected recoveries. Conseco, Inc. New ratings assigned with a Stable Outlook -- $300 million senior unsecured convertible debt due August 2035 'BB-'; -- Secured bank credit facility 'BB+'. Ratings affirmed, with a Stable Rating Outlook -- Long-term issuer at 'BB'; -- Preferred stock at 'B+'. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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