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Updated from 12:55 p.m. EDT


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1999 annual report shows that two large creditors have demanded early repayment of their loans, which is expected to deepen investors' fears that Conseco's cash flow is


The annual report, filed with the

Securities and Exchange Commission

Friday, also contains details that are leading one insurance analyst to question the value of assets held by Conseco's lending arm,

Conseco Finance

, which the company recently said it plans to sell for as much as $4.7 billion. The analyst, Colin Devine of

Salomon Smith Barney

, reckons Conseco will only be able to get $1.5 billion for Conseco Finance, which was acquired for $6.7 billion two years ago when it was called

Green Tree Financial


Conseco didn't return two calls.

Conseco has been beset by worries lately. It filed its annual report late, something it notified the SEC of on March 31. That was the same day it said it intended to offload Conseco Finance and added that it was going to take a $350 million charge against 1999 earnings, reducing them by a third, because it had overvalued some securities held on its balance sheet.

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The annual report says that this month Conseco bought back from an unnamed buyer $250 million of preferred securities that were scheduled to mature in May 2002. The securities, called Rhinos (Redeemable Hybrid Income Overnight Shares), resemble bonds but are actually equities in a trust owned by Conseco. They were issued in August, and

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bought all of them, according to a Conseco press release at the time. Bank of America declined to comment.

In the section referring to the Rhino repurchase, the annual report also says Carmel, Ind.-based Conseco got a $125 million bank credit facility, but doesn't state from which bank. The annual report also doesn't say whether the loan was made to give Conseco the funds to buy back the Rhinos.

Warburg Dillon Read

, the securities arm of Switzerland's

Union Bank of Switzerland

, is the other large creditor that has achieved early repayment -- of what was effectively a $90 million loan that had Conseco stock as collateral. Warburg in June 1999 essentially paid Conseco around $29 each for 3.1 million Conseco shares. This transaction had been extended to June but was paid off in full in March, according to the annual report. Warburg didn't comment.

Conseco has $2.6 billion in short-term debt maturing in 2000 and $154 million in longer-term obligations, calculates Kathy Shanley, credit analyst at

Gimme Credit

, which doesn't perform underwriting. Conseco "has access to a variety of funding sources, but it also has significant financing needs," she wrote in a research note Monday.

Conseco shares fell 13/16, or 11%, Monday, to 6 3/4 and are now over 80% off their 52-week high.

The annual report also raises questions about how much the company's Conseco Finance unit will fetch. Stephen Hilbert, the company's chairman and CEO, said in March that he wanted to sell it for around $4.7 billion. But after examining the annual report, Salomon Smith Barney's Devine says Conseco may be able to get only around $1.5 billion in cash proceeds. (Salomon has done underwriting for Conseco, and Devine gives the company a neutral rating.)

He arrives at this much lower price tag because he believes Conseco will have to transfer to its own balance sheet just over $3.1 billion of Conseco Finance assets that potential buyers will shun. Part of the value of these assets would offset the $1.7 billion the parent is owed by Conseco Finance, Devine adds.

The $3.1 billion of assets include $905 million of so-called interest-only securities (the assets that were subject to the $350 million charge announced on March 31 and were described in this

piece), as well as $694 million of other securities, $614 million of repossessed loan collateral, $642 million of delinquent loans and $299 million in a hodgepodge of assets transferred to Conseco Finance at the end of last year.

The annual report also says that Conseco has decided to keep a $18.9 million pre-tax bad-loan reserve against $576 million of loans made to high-ranking employees to finance purchases of Conseco shares. The loans, mostly taken by senior directors, are now in doubt, since the borrowers' shares are worth a fraction of what they paid. Some $150 million of the loans come due next month and the remainder in August next year. "That provision is nowhere near enough," says one hedge fund manager who has sold Conseco shares short and who requested anonymity.