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Fitch placed Conseco's ratings on Rating Watch Negative on March 3, 2009. The current affirmation and Watch removal reflect the company's recently announced capital transactions, which:
--Remove 2010 refinancing risk by replacing Conseco's 3.5% convertible debentures that are puttable in September 2010 with a new debenture maturing in 2016;
--Provide additional equity capital.
Fitch expects that by addressing its refinancing risk, Conseco will avoid an audit opinion for 2009 financial statements with a 'going concern' qualifier. Inclusion of such an opinion would be considered a covenant violation under Conseco's secured credit agreement.
The Negative Outlook reflects Fitch's concern regarding the potential for higher than expected investment losses and its impact on Conseco's capital, earnings, and ability to stay in compliance with the financial covenants in Conseco's secured bank facility. Temporary covenant relief granted under the bank facility expires and covenants revert back to previous levels in the third quarter. Based on Conseco's financial position on June 30, 2009, the company is very close to a covenant violation under the previous levels. The covenants of immediate concern are those related to statutory capital and risk based capital ratio.
Based on a detailed analysis of Conseco's investment portfolio using Fitch's stress testing methodology, Fitch's base case projection for investment losses is in the range of $200-$250 million for the remainder of 2009-2010.
Fitch notes that the company is currently working on various initiatives, such as a public equity offering of at least $200 million, which Fitch believes are important in the effort to improve statutory capital. Fitch also expects continuation of the progress the company has made in improving operating performance in its business lines.
Fitch has affirmed the following ratings with a Negative Outlook and removed the ratings from Rating Watch Negative:
Conseco, Inc.
--Issuer Default Rating (IDR) at 'B+';
--Senior secured bank credit facility at 'B+/RR4';
--Senior unsecured debt at 'B-/RR6'.
Bankers Life and Casualty Company
--Insurer Financial Strength (IFS) at 'BBB-'.
Conseco Life Insurance Company
Bankers Conseco Life Insurance Company
Conseco Insurance Company
Conseco Health Insurance Company
Colonial Penn Life Insurance Company
Washington National Insurance Company
--IFS at 'BB+'.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 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 ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
SOURCE: Fitch Ratings
Fitch Ratings, New York Bruce E. Cox, +1-312-606-2316 (Chicago) Julie A. Burke, CPA, CFA, +1-312-368-3158 (Chicago) Douglas A. Meyer, CFA, +1-312-368-2061 (Chicago) Media Relations: Brian Bertsch, +1-212-908-0549 brian.bertsch@fitchratings.com
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