Efforts Begin to Protect Ailing Maryland S&L;’s Depositors, Creditors
Efforts began Friday to protect the depositors and creditors of Community Savings & Loan, a Washington-area thrift, and investor-participants in the limited partnership program of Community’s subsidiary, Equity Programs Investment Corp. (EPIC).
In Alexandria, Va., a court deputy said the law firm of Reed, Smith, Shaw & McClay of McLean, Va., filed 341 separate petitions late Thursday from EPIC partnerships for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. The petitions were filed between 8:04 p.m. and 11:45 p.m. Thursday, bankruptcy court deputy Jim Larscheid said.
At about the same time, Maryland officials went into Montgomery County Circuit Court in Rockville, Md., to ask Judge Erma S. Raker to place Community Savings & Loan into the hands of a conservator. Judge Raker signed the order at 11:10 p.m.
341 Partnerships
EPIC said its action was taken just before appointment of a Maryland conservator for Community.
In a press release, EPIC said it is the general partner in the 341 partnerships. It said the effect of the request for protection is to hold off legal proceedings against the partnerships. (Larscheid said the 341 cases were “bare-bones filings” containing no schedules of assets or liabilities.)
U.S. Bankruptcy Trustee William White has set a meeting of EPIC’s creditors for Oct. 15.
Norm Silverstein, assistant press secretary to Maryland Gov. Harry Hughes, said: “The state was aware, before it went into court, that the limited partnerships were filing bankruptcy petitions. We are still assessing what the legal impact of that might be.”
Silverstein said the state decided to seek conservatorship for Community and EPIC when officials were notified late Thursday that efforts in New York to arrange a bail-out of EPIC had been unsuccessful. Because of the crisis at EPIC, Hughes ordered Community closed, stopping all withdrawals by its depositors.
Hughes aides said the order putting Community and its subsidiaries under a state conservator for 45 days will allow the state to manage both institutions and give it some authority to protect assets while attempts are made to resolve the financial puzzle.
Operations to Continue
EPIC said representatives of the Maryland Deposit Insurance Fund, the court-appointed conservator, have affirmed to EPIC intentions to “assure that the operations of EPIC and the limited partnerships continue as usual.”
“The conservator, on behalf of EPIC, said that it expected to continue negotiations with interested parties in order to resolve its current financial difficulties,” EPIC said.
Community’s problems stem from its ownership of EPIC, a subsidiary that has been unable to make payments on mortgages and mortgage-backed securities totaling more than $1.4 billion. The EPIC problem stirred concern about the nation’s mortgage finance system, which depends heavily on Wall Street for investment capital.
That anxiety was heightened Thursday after Los Angeles-based Ticor Mortgage Insurance, the nation’s third largest, announced that it will stop writing new policies, effective next Wednesday, because of its potential $165-million liability with EPIC.
William J. Fitzpatrick, the successor of Raymond R. Rodeno, who resigned Thursday as Ticor Mortgage’s chairman and chief executive, called EPIC’s filing for bankruptcy protection a “favorable development.”
“It means that EPIC’s money is under court supervision and will go to the places it should. It means someone has taken control of the situation,” Fitzpatrick said.
Dean Witter Reynolds, investment banker for EPIC and Community, said the Chapter 11 filing resulted “after no bail-out agreement could be reached” among EPIC and its insurers and creditors, including an unnamed “white knight” said to be considering buying the troubled real estate company and thrift.
At an Annapolis press conference Friday, Gov. Hughes said that Chase Manhattan Corp. has signed a letter of intent to buy one troubled Maryland savings and loan and that another money-center bank is interested in purchasing a second thrift.
Hughes said he expects a quick resolution to negotiations concerning the purchase by Chase of Merritt Commercial Savings & Loan of Baltimore. He did not name the out-of-state bank involved in the other transaction, but he said the bank is “at the point of practically concluding the negotiations” to buy First Maryland Savings & Loan, which is based in the Washington suburbs.
Sources who asked not to be identified said New York’s Citicorp is the potential buyer for First Maryland.
Merritt and First Maryland are two of the four thrifts whose funds were frozen to prevent withdrawals by depositors. If the state can unload those two, it would go a long way toward solving the crisis that began in May with a run by depositors at Old Court Savings & Loan, also of Baltimore.
