Unsecured Creditors Offer Proposal to Seize Control of American Continental

Unsecured creditors of bankrupt American Continental Corp., joining forces with federal thrift regulators, have filed a plan in federal court in Phoenix that would give creditors $21 million and control of the one-time parent of Lincoln Savings & Loan.

The plan calls for the ouster of top American Continental officers, liquidation of the company and lawsuits against those responsible for the company’s demise.

Details of the plan, filed late Wednesday, were released Thursday in U.S. District Court in Arizona, where the plan must be approved before it goes into effect.

The plan also is subject to a separate agreement with American Continental bondholders, who have held $275 million of worthless stock since the company filed for bankruptcy in April, 1989. Lawyers for the bondholders helped to form the reorganization plan and hope to sign the agreement within a week, said Ronald Rus of Orange, one of their lawyers.

The coordinated plan is a significant step in the massive litigation involving American Continental’s bankruptcy and the failure of its Lincoln Savings unit in Irvine, which regulators say will be one of the costliest thrift fiascoes in the nation with a taxpayer bill of more than $2 billion.

In May, the creditors committee had announced a tentative agreement with regulators, but bondholders’ lawyers were not consulted and objected to certain terms. Bondholders joined in the new effort, though they have yet to sign the separate agreement.

The reorganization plan is the first complete proposal filed with the court since American Continental filed for bankruptcy protection. The company had filed an outline of a proposed plan a year ago.

The plan would provide bondholders with $14 million to $16 million and would eliminate competing claims for remaining corporate assets made by bondholders, other unsecured creditors and the Resolution Trust Corp., the federal agency running Lincoln.

Under the pending agreement with bondholders, it also would remove the RTC-run Lincoln as a defendant in 17 class-action suits filed by bondholders and would create a committee of creditors and regulators to pursue all legal claims against American Continental Chairman Charles H. Keating Jr., his executives and the company’s professional advisers.

“This solidifies a natural alliance between RTC and the securities holders’ lawyers,” said Michael Manning, a Phoenix lawyer for the RTC. “Now there will be a joint effort against those who defrauded the public and the regulatory system.”

Except for dropping Lincoln from the class-action suits, the agreement does not affect either that litigation or the RTC’s $1.1-billion civil racketeering suit against Keating and others. Lincoln’s former owners also are targets of various federal and state criminal investigations.

The reorganization plan and related documents must be reviewed at a minimum of two court hearings and would not be approved by the court for at least two months.

American Continental management will strongly oppose the plan and put forth its own ideas, Keating said Thursday.

Keating called the plan “a fraud, a charade on the securities holders of ACC and a fraud on the government, in the final analysis.” Keating asserted that regulators were trying to get off cheaply when they were the ones who caused the collapse of Lincoln and American Continental.

The joint effort against him, he said, also is “typical” of government efforts to do “everything they can to put us out of business, break (American Continental), put us in jail and shut out truth and facts.”

Keating, who had been kept informed of the progress of the plan, said he asked the creditors committee in late May to include a provision that would allow a new Keating-led company called Leland Financial Corp. to purchase $500 million worth of assets, including the S&L;’s 20% stake in General Oriental Investments Ltd., an international investing firm headed by British financier Sir James Goldsmith.

Keating said he believed that regulators would dump the General Oriental stock for much less than its value, which he estimated at $215 million. With no money down, he said, he could repay the purchase price within five years and also make $50 million at the end of the second year specifically for bondholders. Otherwise, he charged, regulators would sell those assets to others at discounts totaling $200 million or more.

The General Oriental stock was part of the outline of Keating’s reorganization plan for American Continental, which was filed last year. The plan, which lacked the needed regulatory cooperation, was never completed.