John Paulson Increases Conseco Inc. Stake to 9.9%

The world’s third-largest hedge fund firm by assets led by billionaire investor John Paulson, whose wagers against subprime mortgage securities helped him earn billions last year, agreed to increase his stake in U.S. insurer Conseco Inc. (NYSE:CNO) by buying 16.4 million of new shares and additional warrants to purchase five million shares of common stock for an aggregate purchase price of $77.9 million.

Upon closing of the deal, Paulson will own about 9.9% of the company’s common stocks, including shares it previously bought in open market transactions.

The warrants Paulson is getting have an exercise price of $6.50 a share, subject to customary anti-dilution adjustments, and not exercisable prior to June 30, 2013. The warrants expire on Dec. 30, 2016.

Paulson also agreed to buy as much as $200 million of Conseco ‘s convertible notes in a separate debt sale, the insurer said today. Interest on the convertible debentures will be payable semi-annually at a rate of 7.0% per year, and the convertible debentures will mature on December 30, 2016.

Conseco said it intends to enhance its capital position by using half of the proceeds from its stock sale to Paulson to repay debt under its credit agreement.

Shares of  the insurer spiked more than 26%  on Wednesday, a day after Paulson & Co. Inc. agreed to pump millions into it.

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