Slum Financing Figure Files Bankruptcy : Investment: A federal examiner questions the ability of his companies to pay an estimated $110 million in debts. But Alexander Spitzer says the creditors should not be alarmed.

The financier behind some of Los Angeles’ worst slums has filed for bankruptcy protection from creditors, and a federal bankruptcy examiner has questioned the ability of his companies to fully pay an estimated $110 million in debts to investors and creditors.

Alexander Spitzer, a central figure in the city’s landmark lawsuit this year against slumlords and their lenders, filed Monday for protection under Chapter 11 of the U.S. Bankruptcy Code.

Two of Spitzer’s largest business entities also sought Chapter 11 protection. A & B Loan Co., a California corporation headed by Spitzer, and California Pacific Funding Ltd., a California limited partnership controlled by Spitzer, filed last Friday.

A bankruptcy examiner’s report last month concluded that significant amounts of loans extended by A & B Loan and California Pacific could be “uncollectable.”

However, Spitzer, 69, who estimated that about $80 million is owed to banks and $30 million to individuals, said he disagrees with the report.

“I am absolutely convinced we are coming out of this mess whole,” he said.

Spitzer said that investors should not be alarmed by his bankruptcy filings. “As far as the investors are concerned, it is a constructive move. It is for their protection.”

The investors have included prominent Jewish scholars, rabbis and Soviet emigres. Spitzer, a Holocaust survivor, has been a prominent member of the city’s Jewish community for many years.

The new filings brought to three the number of Inglewood-based business entities associated with Spitzer to file in the U.S. Bankruptcy Court central district office in Los Angeles. Linmark Investments, a holding company which Spitzer also heads, filed last June.

James M. Crosser, senior partner of the accounting firm of Touche Ross & Co., had been appointed bankruptcy examiner in the Linmark case by Davis von Wittenburg, the U.S. trustee in Los Angeles.

After reviewing the financial records of Linmark, A & B Loan, California Pacific and other business entities associated with Spitzer, Crosser recommended in early November that a trustee be appointed to take control of Linmark, A & B Loan and California Pacific.

Crosser also suggested that a trustee investigate past practices of the companies and determine whether Linmark’s “identification of assets and liabilities . . . truly represents the assets and liabilities.”

Chapter 11 filings allow a debtor to suspend obligations to creditors while attempting to reorganize and to restructure debts. Normally the debtor retains control, unless a trustee is appointed to oversee the reorganization.

In order for a trustee to be appointed, either the U.S. trustee, creditors or another “interested party” must file a motion in bankruptcy court.

Trustees are appointed in only about 5% of the 2,500 Chapter 11 bankruptcy filings each year in the Los Angeles office, Von Wittenburg said.

Examiners are appointed in only a few cases each year. In the Linmark case, Von Wittenburg said, “We wanted answers to some of the problems, particularly the relationships between the various entities.”

Von Wittenburg said Spitzer’s multiple Chapter 11 filings are “significant” because of their potential effect on individual investors.

The civil lawsuit brought by the Los Angeles city attorney and public-interest lawyers last March accused Spitzer, A & B Loan, California Pacific and 139 other defendants with fraud and racketeering in connection with their investments in 11 slum properties.

In a settlement reached with the city attorney in July, Spitzer and his loan companies promised to change their lending policies. They remain defendants in the class-action part of the suit, however, in which damages are being sought by hundreds of tenant families.

Spitzer said he had problems with his creditors as a result of the lawsuit: “It created conditions that required a certain protection the law is giving us, to continue the business and reorganize.”

He filed personally for Chapter 11 protection, he noted, because “I am a guarantor to all these creditors.”

Spitzer said he and his entities are “absolutely not” broke.

“The liabilities of those companies will be met,” he said. “The assets are there, absolutely, and the overall net worth of the companies is also there.”

The examiner’s report said that Linmark, A & B Loan and California Pacific “operated with little regard of maintaining the separateness of the individual corporate or business entities.”

The entities seemed dependent on each other for their financial viability, the report said, so “deficiencies in net worth” of some companies put the value of others in question.

For example, even though Linmark reported $5.3 million in equity on its June 30 financial statement, the examiner found that as much as $9.4 million of Linmark’s listed receivables from two other entities had no value. The examiner also found that about half of Linmark’s $21-million investment in A & B Loan--”its only other asset of significance”--might not be recovered.

A high number of the loans A & B Loan had issued were in default 90 days or more, the report noted. “This loss of recoverable value would further exacerbate the adjusted deficiency in assets of Linmark . . . increasing such deficiency to approximately $15 million,” the examiner wrote.

In an interview, Spitzer disputed the examiner’s conclusions. “The loan portfolio was somewhat impacted by the publicity connected with the (city’s) lawsuit,” he said, explaining that some people temporarily stopped making payments on loans from his companies.

That is not a problem now, he added. “All the debtors are in a mode of paying.”

Peter Magnani, a spokesman for Bank of America, one of Spitzer’s largest creditors, with a listed claim of $54.5 million, said: “We’re in a sort of wait-and-see situation, monitoring developments to see what steps the bank will take to protect its position.”

Some investors contacted this week said they were not sure how to react.

William Shusset, a retired electrician from West Hills who has invested more than $100,000, said, “We are not getting enough information. . . . This is a nightmare.”

Four investors in Spitzer companies have lawsuits pending to recover their investments, in amounts ranging from $60,000 to $171,000.

But others still expressed confidence. “I haven’t the slightest doubt I’m going to be paid ultimately,” said Sidney P. Schreiber, a Los Angeles businessman who is one of the 20 largest unsecured creditors.

Melvin Greenstadt, a Los Angeles doctor, expressed similar sentiments, adding that Spitzer is “an old friend. I have certain confidence in what he is telling us. I’m going to be as patient as possible.”