Parent of Irvine-Based S&L; Gives Plan to Creditors

The corporate parent of Irvine-based Lincoln Savings & Loan outlined a bankruptcy reorganization plan Tuesday that promises to pay off shareholders, bondholders and other creditors in full--but over time and at a reduced interest rate.

Charles H. Keating Jr., chairman of American Continental Corp., unveiled the proposal at the first hearing of the company’s creditors in Phoenix, where it is based.

On April 13, American Continental and 11 subsidiaries of Lincoln Savings filed for court protection from creditors while reorganizing under Chapter 11 of the federal bankruptcy law. The savings and loan itself could not file a bankruptcy petition; federal regulators seized Lincoln the next day, saying that its parent company was operating the S&L; unsafely and was dissipating its $5.3 billion in assets.

That a tentative reorganization plan was offered so early in a complex bankruptcy case was somewhat unusual, bankruptcy experts who attended the hearing said.

Lawyers who have filed class actions against Keating and others on behalf of corporate shareholders and bondholders were quick to call for details of the plan, and one questioned the wisdom of any reorganization that kept Keating at the helm. (Under Chapter 11, a company’s current management normally remains in control while a plan to repay creditors is worked out.)

American Continental’s proposal, Keating said, is an attempt to start the process of negotiating a reorganization plan that would repay creditors and enable the company to continue some operations.

The creditors hearing was moved to a ballroom at the Sheraton-Phoenix Hotel because a courtroom was too small to handle more than 200 creditors who showed up. Altogether, there are more than 25,000 creditors.

About 22,000 of those creditors are bondholders who would be particularly interested in a reorganization plan that pays them back in full. That is because they hold $200 million in subordinated debentures, junior debts of the company, and stand near the end of the line to get repaid in bankruptcy proceedings.

Most of these debt holders are Southern Californians who bought bonds through Lincoln Savings branches, and dozens of them went to Phoenix for Tuesday’s hearing.

The reorganization outline calls for the formation of a new privately held, Keating-led company, Phoenician Holdings Inc., to purchase all the stock of American Continental and buy the largest of 11 Lincoln subsidiaries that were also placed in bankruptcy.

But terms like purchase and buy are used loosely in the reorganization proposal to indicate changes in ownership and restructuring of debt. No new cash would be added to the new structure, said Mark M. Connally, an American Continental spokesman.

If American Continental were liquidated, said Andrew F. Liggett, a company executive, unsecured creditors would get only 12 cents on the dollar.

Under the plan outlined Tuesday, junior bondholders would get 11-year notes bearing 5% interest a year. A special $20-million fund would be created immediately to pay those holders who could show hardship to an independent administrator of the fund.

Other creditors holding secured and senior unsecured debts would be paid in two years at the same 5% rate.

Those holding preferred stock and common stock--other than corporate insiders--would get new American Continental preferred stock that pays the 5% rate and must be redeemed in 12 to 14 years.

Current directors and other insiders would get new American Continental preferred stock that would pay no dividend and would be redeemed only after all other debts are paid.

“It’s obviously good news if they come up with a reorganization plan, but we certainly have to see if there are sufficient funds available to make the plan viable,” said Ronald Rus, a lawyer in Orange who represents a group of bondholders.

But he pointed out that many of his clients were elderly people who needed the monthly support they lost and who were expecting higher rates and much shorter terms--two to five years.

“I have to be extremely skeptical of any plan proposed by Keating,” said Richard Greenfield of Philadelphia, another bondholders’ lawyer. “He comes to the table with unclean hands. What the company needs is something not controlled by Keating.”

He found the $20-million hardship fund to be an “interesting wrinkle” but worries that such a provision may prove illusory if there is no real cash in the fund.

One of the big hurdles Keating faces is winning control of the Lincoln subsidiary he wants.

Under his plan, he would have to negotiate with the regulators to purchase Amcor Funding Corp. at a “fair market price.” The subsidiary holds more than $855 million in assets, including a 20% interest in General Oriental Investments Ltd., an international trading company operated by British financier Sir James Goldsmith. It also owns American Founders Life Insurance Co., which sells life insurance in 23 states through independent brokers.

Karl T. Hoyle, a spokesman for the Federal Home Loan Bank Board, said the regulatory agency would look at any “legitimate proposal” for the purchase of S&L; assets. But he said the bank board probably would want to see Keating put up some cash for the purchase of any Lincoln assets.

Some bondholders, like George LaRocque, an Anaheim firefighter, were not satisfied with the hearing. LaRocque said he had to postpone his retirement after interest payments stopped on his American Continental bonds.

“The information on this whole thing has been very little,” he said. “You call American Continental and they’re very nice, but they don’t tell you anything.”

Free-lance writer Steve Webb in Phoenix contributed to this story.