Conseco shares jump on Paulson funding

BANGALORE (Reuters) - Shares of Conseco Inc (CNO.N) jumped 26 percent on Wednesday, a day after the insurer said hedge fund Paulson & Co agreed to pump $77.9 million into it, in addition to its other capital-raising plans.

The hedge fund led by billionaire investor John Paulson, which reaped windfall gains betting that U.S. mortgage markets would collapse in 2007, will now own 9.9 percent in Conseco.

"The vote of confidence by a widely-known and well-regarded firm - here in the form of a long-term equity investment - should send a positive message to the Street," Fox-Pitt Kelton analyst Paul Sarran said.

Conseco said its $293 million of senior notes, issued to fund the purchase of its existing convertible debentures, will bear an interest rate of 7 percent, payable semi-annually, and the convertible debentures will mature on December 30, 2016.

"The potential convert exchange... is a material positive and removes the primary roadblock that has been standing in the way of the company returning to a more normalized valuation," FBR Capital Markets analyst Randy Binner said and upgraded the shares to "outperform" from market perform."

Binner said Conseco's $200 million share offering will see a 10 percent to 15 percent fall in 2010 earnings per share.

Fox-Pitt's Sarran said Conseco's moves will strengthen its capital position relative to credit agreement covenants, reduce leverage and improve capital flexibility.

Conseco had in March warned of a possible default under its credit facility but later completed the amendment of an existing senior secured credit facility, somewhat easing liquidity concerns.

"Pro-forma for all transactions, Conseco still may remain close to the resetting credit agreement covenants, though the likelihood of on-going compliance is now clearly increased," Sarran said.

In a separate regulatory filing, Conseco said it restated its 2008 results to reflect new accounting standards.

Shares of the Carmel, Indiana-based company were up 25 percent at $6.23 in late morning trade on the New York Stock Exchange. They earlier touched a high of $6.29.

About 3.8 million shares changed hands by 1520 GMT on Wednesday, compared with a 10-day average moving volume of 1.2 million.

(Reporting by Anurag Kotoky in Bangalore; Editing by Gopakumar Warrier)