First Executive Corp. Reportedly Rushing to Fend Off Cash Crisis
First Executive Corp. on Wednesday was said to be working feverishly with investment bankers and lenders to try to complete a restructuring plan intended to stave off a cash crisis at the big Los Angeles-based life insurance holding company.
Sources said the plan, among other things, will involve an offer to exchange several issues of preferred stock for a new issue of zero-coupon bonds. Dividend payments on three issues of preferred stock have been a heavy drain on the troubled holding company’s cash. The sources also said the company is negotiating with lenders to restructure about $275 million of bank and other debt.
First Executive is the parent of Executive Life, which serves the California market, and Executive Life of New York. The company has suffered severe losses recently because of heavy investment in junk bonds in the 1980s. And the company said some months ago that it had hired the investment banking firm First Boston Corp. to help plan a restructuring.
More recently, the company said it might not be able to meet debt obligations and continue dividend payments on the preferred stock because regulators are preventing it from drawing profits from the insurance units. Analysts say the insurance units appear to be financially sound.
In a setback, however, Standard & Poor’s Corp. on Wednesday again lowered its ratings on First Executive’s preferred stock and also lowered ratings on Executive Life’s claims-paying ability and on nine issues of housing bonds backed by Executive Life guaranteed investment contracts.
“The poor quality of Executive Life’s bond portfolio continues to present problems for the company,” Standard & Poor’s said in a report. It noted that the possibility of a recession raises chances that the value of the company’s junk bond portfolio will decline further--and the market value already is $1.4 billion below that carried on the company’s books.
Although Fred Carr, First Executive’s chairman and chief executive, and other senior officials normally are readily available by phone to reporters, neither Carr nor William C. Adams, the senior vice president for corporate services, returned repeated telephone calls on Wednesday.
But Travis Reade, a former U.S. undersecretary of commerce who controls about 2% of First Executive’s stock, asserted that the investment banking firm Kidder, Peabody & Co. is also heavily involved in the restructuring plans and may participate in a recapitalization or bring in its parent firm, General Electric, to do so.
“I think what you’re going to see is a complete restructuring of the company,” Reade said.
A Kidder Peabody spokeswoman declined to comment. A spokeswoman for GE Capital, Lisa Van Orden, said: “I don’t know anything about it, and it’s probably based on rumor.”
The Times reported Wednesday that First Executive has filed papers with the Securities and Exchange Commission, notifying the agency that it may soon call a special meeting of shareholders. Sources said Wednesday that the filing was made because parts of the restructuring plan will require shareholder approval. They said shareholders would have to ratify, among other things, an increase in the authorized number of common shares so the company could issue warrants or other securities as part of the restructuring.
In over-the-counter trading, First Executive’s common stock closed Wednesday at 87.5 cents a share, up 12.5 cents, on volume of 536,100 shares. The sharp 16.7% rise in the stock price apparently was fueled by the disclosure of a possible special meeting of shareholders.
Any restructuring plan would almost certainly require the consent of the company’s two largest shareholders, ICH Corp. and Rosewood Financial Partners, which together hold more than 29% of First Executive’s common stock.
Charles Tusa, a Rosewood spokesman, said the firm hasn’t yet been presented with the plan. “We’re not aware of the plan, and we have no opinion on it,” Tusa said.
Rosewood has demanded the ouster of Carr from First Executive. The firm also made a highly conditional offer to take control of First Executive, but the bid was rejected by First Executive’s board.
Frederick S. Townsend, an insurance company analyst at the firm Townsend & Schupp in Connecticut, has closely followed developments at First Executive. He said Wednesday that in recent days there have been strong indications that the firm was attempting to complete a restructuring. He said people he routinely talks to at the firm have suddenly stopped taking his telephone calls. And he said the company abruptly stopped taking action on “things that would be in the company’s best interests to do.”
“All of this says to me that a deal is in the works,” Townsend said.
Gloria Vogel, a securities analyst at Bear, Stearns & Co., said Kidder has strong reasons to be involved in a recapitalization of First Executive. Kidder faces litigation because of a securities underwriting it managed for First Executive shortly before the company disclosed its severe financial problems. Kidder also has sold First Executive insurance products and may face liability if the parent company’s problems spill over to the insurance units.
