Will Conseco's Latest Trick Help or Hurt the Company?

Also, graveyard gossip and more reader revolt.
Publish date:

Wednesday wallop:

Conseco calamity:

Why does


(CNC) - Get Report

make itself so hard to understand? When we last visited this company, back in

May, I pointed out that short-sellers were convinced the Indiana insurer was about to sink under the weight of its own debt, which totals more than $5 billion in an array of esoteric debt instruments. The big worry was whether the company had enough money to pay interest on that debt. The company responded that its cash flow was strong and getting stronger and was more than adequate to not only service its debt, but to invest in the growth of other businesses.

Oh, yeah?

So why, then, did the company on June 29 issue stock to

Warburg Dillon Read

(which then transferred the stock to its parent


) in what amounts to a convoluted, last-minute $90 million loan to pay off a convertible note due June 30? (I say loan because Conseco is paying interest on the outstanding amount.) And why did it do the bare minimum in the way of disclosing the deal, with an


filing but no formal press release?

The company says it issued the stock (or took out the loan) to pay off $90 million in convertible debt that was originally issued by a company it had acquired several years ago. The reason for the speed, it says, was to get its debt-to-capital ratio below 25%, which it believes is required to get a debt rating upgrade from

Standard & Poor's

. "In order to meet our rating agency plan in the second quarter before the conversion actually occurred," a spokesman says, "we synthetically replicated the effect of the conversion."

Synthetically replicated? Huh? But why? What about all of that cash? Why not just pay off some of the other existing debt instead of going through this rigmarole? Looks like smoke and mirrors to the company's critics. Even Conseco fan Caitlin Long, of

Credit Suisse First Boston

, referred to it as a "Band-Aid."

Still, the company says it now believes it's in a position to get an upgrade. The S&P analyst who tracks Conseco was unavailable yesterday. But one critic wonders, "Do they really think S&P will be


stupid." He's referring to the fine print in the deal, which could force Conseco to issue additional shares for UBS to sell if the price of its stock falls below UBS's cost of 29 1/6 on Dec. 15.

Put another way, while the stock in question represents a relatively small chunk of Conseco's total shares outstanding, in the end this deal could make the company's capital structure look worse, not better. Conseco closed yesterday at 30 3/4, down 7/8.

Graveyard gossip:

The latest on

Stewart Enterprises


, the operator of cemeteries and funeral homes, comes from

Banc of America Securities

analyst David Scharf, who believes that Stewart's "case volume" was lower than originally reported relative to new (and lower) monthly death stats from the

Center for Disease Control

. "Usually that's a signal to investors to begin monitoring market share more closely," he wrote in a report to clients. But whaddaya expect? Despite his "buy" rating he's been less than enthusiastic about Stewart lately.

Interestingly, though, on the same day his report hit the Street, Stewart fan Fran Bernstein of

Merrill Lynch

said that in discussions Stewart management "did not indicate any problem so far" in the company's current fiscal quarter. (As if they would in private discussions?) She then hedged herself by saying that she views Stewart's shares as attractive "even if it missed earnings by a few cents." A bullish analyst hedging herself by even suggesting the company could miss earnings? Not usually a good sign.

Finally, from reader Aaron Vermut

: Vermut, who goes under the screen name


, regarding yesterday's

comment about "going after the unruly members of the online mob," writes, "That smacks of elitism to me, Herbie. No one cares that you tried to get someone booted off the Net or that you are overly litigious. In fact, it makes you look like a jerk."

So be it: I'm a jerk; an elite jerk, at that.


Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

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