Bankruptcy Court Protection Sought by First Executive

First Executive Corp., the Los Angeles-based insurance holding company reeling from massive junk-bond losses, said Monday it filed for bankruptcy court protection.

The filing under Chapter 11 of the Bankruptcy Code, made in Los Angeles only minutes before the court closed Monday, has been expected since last month when state insurance regulators seized First Executive’s primary subsidiaries--Executive Life Insurance Co. of California and Executive Life of New York--and put them into conservatorship.

The insurance subsidiaries, which have more than $13 billion in assets and 400,000 policyholders, are not affected by the bankruptcy filing, regulators said.

“The conservatorship placed an impenetrable barrier between First Executive and Executive Life,” said Tom Epstein, deputy insurance commissioner in California.

The only entity asking for court protection is First Executive, according to the company’s bankruptcy attorney. Neither the seized insurers nor other First Executive subsidiaries were included in the bankruptcy, said Michael S. Lurey, partner at the law firm of Latham & Watkins in Los Angeles.

Other details about the Chapter 11 filing--including the company’s assets and liabilities--were not readily available.

Lurey said the filing would “buy time” for First Executive, which has been hard hit by a souring portfolio of junk bonds, numerous lawsuits and regulatory actions. Lurey said a liquidation of the company is “a possibility” but added that First Executive will try to reorganize so that it eventually can emerge from bankruptcy proceedings.

First Executive was largely supported by dividend payments from Executive Life of California. Those payments have been frozen by insurance regulators and the holding company has found itself increasingly short of cash, according to sources close to the proceedings.

Moreover, the company has $245 million in bank debt. A $5-million payment on that debt is due in July. The bankruptcy filing will also forestall a host of lawsuits that have been filed against the controversial insurer.

Once one of the state’s biggest and most profitable companies, First Executive’s primary subsidiaries were seized by insurance regulators in California and New York last month after steep losses in the company’s investment portfolio caused skittish policyholders to withdraw their funds.

Since then, insurance regulators have placed a temporary ban on policy loans and surrenders. After a short hiatus, regulators have also resumed making payments on death benefits and are paying Executive Life annuity holders 70% of what they are owed each month. The reduced payments are also temporary, regulators said. California Insurance Commissioner John Garamendi has said he is negotiating to sell Executive Life to a healthier company.

The bankruptcy will primarily affect lenders and shareholders of the holding company. But shareholders of the ailing company should not be surprised by the move. The company’s stock, which once traded for more than $14, is now selling for pennies.

First Executive has also posted more than $1.1 billion in losses during the past two years, largely because of its souring investment portfolio stuffed with high-risk, high-yielding junk bonds.