L.A. Insurer Opens Way for Bid; SEC Launches Probe of Company

First Executive Corp. canceled a restrictive agreement with its biggest shareholder Thursday, opening the door for ICH Corp. to submit a bid for the once high-flying Los Angeles life insurance company.

Meanwhile, First Executive revealed that the Securities and Exchange Commission has launched “an informal, private investigation” of the company, which said it is voluntarily submitting documents to the regulatory agency.

The SEC inquiry and First Executive’s decision to cancel its so-called standstill agreement with ICH are both apparently related to a number of woes that recently beset the company, including problems with California regulators, a souring junk bond portfolio and a severely depressed stock price.

ICH, a Louisville, Ky., insurance holding company that already owns more than 20% of First Executive’s stock, said it plans to marshal a “group” and make an offer for the now troubled parent of Executive Life Insurance Co. of California before July. ICH has already approached several of First Executive’s biggest shareholders, said Travis Reed, who holds about 4% of the company’s stock and says he will be part of the bidding group.

Reed expects that a company controlled by heiress Caroline Rose Hunt will also join the group. Hunt’s company, Rosewood Financial, already owns about 10% of First Executive’s stock and has been highly critical of the company’s management.

Until now, First Executive’s management and board steadfastly fought several attempts to kill the agreement with ICH, even though some big shareholders argued that it effectively detered all prospective buyers from submitting bids that could enhance First Executive’s market value. Shareholders narrowly defeated a proposal to cancel the standstill arrangement last July, in fact, at the board’s suggestion.

First Executive’s directors reconsidered their position Wednesday in light of the company’s market value, said Vice President Allan L. Chapman. Shares, which were as high as $17 last year, closed at $3.625 Thursday.

The stock has been pummeled by a series of events starting with the aborted sale of First Executive’s New York insurance subsidiary early this year. W. W. Acquisition Corp., which had agreed to buy the unit for $460 million, was unable to arrange financing for the deal. First Executive later said the unit was no longer for sale.

Then, late last week, the company announced that it would write down $515 million in unrealized losses in its $6.5-billion junk bond portfolio, resulting in a substantial loss for the year. The company simultaneously announced that it had settled a scuffle with California insurance regulators, who objected to the way First Executive accounted for a $750-million pool of junk bonds. First Executive added $110 million to its reserve for securities losses last Friday as part of that settlement.

The SEC is interested in the charges that First Executive took against its junk bond portfolio, Chapman said. Further details about the SEC investigation were not readily available.

The company said these events have caused “policyholder and agent apprehension” as well as a slide in its market value that “in the company’s view, are exaggerated and unwarranted.”

Nevertheless, analysts said any buyout offers that First Executive might attract are likely to be close to the firm’s current market price. And others are skeptical that First Executive will find any serious buyers at all.

“For anyone to make a bid, they would have to have a high degree of confidence that the number and severity of defaults Executive Life would be exposed to (in its junk bond portfolio) would be relatively modest,” said Fred Townsend, principal of Townsend & Schupp, an insurance rating firm in Connecticut. With the economy souring and investors shying away from these high-risk bonds, it seems unlikely that any buyer would offer much more than the company’s current market price, he added.

Thomas G. Rosencrants, senior vice president and director of research for Interstate/Johnson Lane Corp. in Atlanta, said he does not believe that any serious bids will emerge for First Executive--regardless of ICH’s apparent interest in bidding.

“I regard this announcement by First Executive as a sign of desperation,” Rosencrants said. “There are such extraordinary uncertainties here that no one will step in to buy it.”

ICH has been struggling with financial problems on its own, he added. And even healthy companies are having difficulty finding financing for takeovers in today’s environment.