Conseco Inc. last month obtained a temporary waiver from senior lenders affecting cross-default provisions under the company's credit agreement.Conseco also received an extension of the temporary waiver previously granted by its senior lenders concerning Conseco's noncompliance with its debt to capitalization ratio covenant.

The Indianapolis-based financial services giant also received temporary relief from lenders regarding the company's guarantees of D&O loans.

In response, Fitch Ratings lowered its corporate rating of Conseco to "default."

Conseco's finance and insurance subsidiaries are not borrowers under the company's senior credit agreement, and Conseco's insurance subsidiaries are not party to any indebtedness that would be subject to any cross-default provisions with respect to defaults under Conseco's debt, company officials stated.

Conseco stated in August that it would exercise the 30-day grace period on its upcoming bond interest payments, and would start restructuring discussions with its debt holders.

The first of the grace periods expired Sept. 8. The company's failure to make the interest payments on or prior to that date put Conseco in default with its bondholders and the holders of its trust preferred securities.

Conseco executives say discussions with its debt holders are continuing and they reaffirmed their goal to achieve a consensual restructuring.

Meanwhile, a recent report by Townsend & Schupp indicates that six life insurance subsidiaries of Conseco have funneled more than $586 million into corporate coffers.

Although the capital outflows should not raise immediate concerns about the solvency of the Conseco-owned insurance firms, "it must be noted that a significant element of risk has been introduced which could impact the delicate balance of the solvency of these companies," says Scott Kallenbach, a senior financial analyst for Townsend & Schupp, a division of Informa Financial's Insurance Research Group Inc., Westborough, Mass.

Townsend & Schupp tracked the flows of extraordinary shareholder dividend payments from the insurance subsidiaries to Conseco. Based on second-quarter data released by the National Association of Insurance Commissioners, Townsend & Schupp analysts noted that insurance department officials in various states had approved a number of dividend payments and were continuing to review additional proposed money transfers.

In the largest single transaction, Conseco Life Insurance Co. of Texas, a holding company for 13 other life insurance firms, paid $200 million to a direct Conseco subsidiary.

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