Goodness. Nice day for Paulson and Co.
Carmel, Indiana based insurer Conseco (CNO) announced a share sale and debt refinancing, sending the shares +25% today. The company needed to raise capital to cushion against losses on the asset side of the balance sheet. Hedge Fund Paulson & CO. was only too happy to provide $$$, and they're reaping massive, immediate gains.
CARMEL, Ind., Oct 13, 2009 /PRNewswire-FirstCall via COMTEX/ -- Conseco, Inc. (NYSE:CNO) announced today that, as part of a series of transactions intended to enhance its capital position, it entered into a stock and warrant purchase agreement with Paulson & Co. Inc., on behalf of the several investment funds and accounts managed by it (collectively, "Paulson"), to sell to Paulson 16.4 million shares of common stock and warrants to purchase 5.0 million shares of common stock for an aggregate purchase price of $77.9 million. In addition, Conseco announced its intention to privately offer, subject to certain conditions, up to $293.0 million aggregate principal amount of convertible senior debentures to fund a substantial portion of the purchase price of its existing convertible debentures that are tendered in a cash tender offer for its existing convertible debentures that Conseco intends to commence in the near future.
So. For $77.9million, Paulson received 16.4million shares, at about $4.75 each. Usually when a company wants to place stock in a big chunk like this, they offer a discount -->> no problem. But Paulson also received warrants (options) to purchase 5million shares at $6.50. Today the stock is at 6.23, so these warrants are already worth a TON of money, in addition to the $24million profit (31%) he's made on the common stock purchased, in ONE DAY. The warrants are ("except under limited circumstances" - huh?) not able to be exercised until after 2013, but if this capital raise gets Conseco out of the danger zone, they'll be worth a great deal then.
The stock was upgraded by FBR Capital this morning, and they took their price target from $4 to $9. More importantly to them than the Paulson equity purchase was Conseco's ability to issue new convertible debt to retire existing debt. Paulsen is also participating in the convertible offering.
Standard & Poor's raised their outlook on Conseco to "stable" from "negative."