Conseco Plunges Early Before Recovering

Updated from 11:41 a.m. EST

Conseco (CNC Quote) plunged 24% early Thursday after a Wall Street analyst put a rare sell rating on the insurer and lender, but the stock recovered to end down just 4% after the company said it had fired an executive who departed Wednesday.

Conseco shares fell 15% Wednesday after rating agency Moody's questioned the debt-heavy company's ability to raise enough cash to continue operating, and Conseco's financial chief left without explanation following just a year on the job. The stock dropped 92 cents Thursday morning to $2.83 after earlier hitting a 52-week low, but ended down just 16 cents at $3.59.

Merrill Lynch analyst Edward Spehar cited the departure of CFO Chuck Chokel in a note Thursday that cut his rating to sell from neutral. He said the timing of Chokel's departure to "pursue other interests" raises "serious questions" about the Carmel, Ind., company. But Conseco later issued a press release saying it had fired Chokel because he wasn't up to the job. That appeared to ease some investor worries about the timing of the CFO's departure, feeding a rebound in the stock.

Still, worries about Conseco's future continue to swirl. In its statement Wednesday morning, Moody's said there "remains little room for error" regarding the company's plans to meet 2002 obligations, which total some $1.4 billion. The rating agency said Conseco would face a debt downgrade if it doesn't receive an unqualified auditor's opinion on its 2001 financial statements; to receive such a thumbs-up, Conseco will have to lay out "a viable plan" showing that it can pay all its bills, Moody's said. On that front, Moody's indicated that "the fragile economic environment" could easily keep Conseco from raising all the cash it has said it needs.

Conseco has said it needs to raise between $300 million and $410 million this year through various noncore business alternatives, including asset sales and capital markets activity.

TheStreet.com's Peter Eavis has contended that the company could easily miss its cash-raising targets, a view the debt-rating agency essentially endorsed Wednesday. And if Moody's does indeed downgrade Conseco's debt, the higher borrowing costs can only tighten the cash squeeze the company is already feeling.

Conseco shares rallied Monday and Tuesday as the company completed a $76 million debt tender offer, lightening its debt burden. But the stock has lost more than 80% of its value over the last year, as CEO Gary Wendt's turnaround plan has failed to satisfy investors that the company can free itself of its mountainous obligations.