Eight Deadline Offers Made for Executive Life : * Insurance: The original offer by Altus Finance is increased by $560 million. Some propose full compensation to policyholders.
Eight offers for the failed Executive Life Insurance Co. of California emerged Friday as the final bidding deadline flushed out yet another surprise offer and spurred the first suitor to up its ante.
A surprise bid by the creditor’s committee of First Executive Corp., Executive Life’s parent, offered to make policyholders whole. Meanwhile, Altus Finance and Mutuelle Assurances Artisanale de France, the initial bidder, upped its offer by $560 million. And two new bids were submitted by holders of municipal bonds backed by Executive Life-backed guaranteed investment contracts.
These bidding organizations--representing everyone from international banks to domestic insurers, entertainers and investors--submitted formal offers for the troubled Los Angeles-based insurance company that was seized by state regulators in April under the weight of a souring junk bond portfolio and a flood of policy surrenders.
Sketchy details available on Friday (specifics of each plan will be released today) indicated that the offers contained widely disparate promises to policyholders. Some were fully funded with investors standing ready to drop cash on the table, while others promised little cash of their own.
California Insurance Commissioner John Garamendi must review all the offers and recommend which to accept before a court-imposed deadline of Oct. 25. The bidders will also have the right to enhance their proposals until Oct. 18.
First Executive’s creditor’s committee--made up of four foreign banks and three of the company’s other major creditors--proposed to pay all policyholders 100 cents on their investment dollar, regardless of contract size or type.
However, the group promised no investment of its own. Instead, its bid was predicated on getting the National Organization of Life & Health Insurance Guaranty Assns., a trade group representing 47 state-operated life insurance guaranty organizations, to kick in $3 billion. NOLGHA has not yet agreed to the infusion, the creditor’s group said.
Meanwhile, Altus Finance and Mutuelle Assurances Artisanale de France, the Paris-based investment group that started the bidding with a $3-billion plan announced in August, said late Friday that its sweetened bid would give policyholders 86 cents on the dollar, up from 81 cents. Interest rates paid on cash values of certain policies would be increased and policyholders would be given more ready access to their funds, the group said.
Many of the provisions in the enhanced Altus proposal match those promised in a competing bid announced Thursday by a group that includes San Francisco investment bankers Hellman & Friedman, Chicago’s Zell-Chilmark Fund and Fund American Enterprises of New York.
The Hellman group promises to pay policyholders at least 83 cents on the dollar, plus share in the profits of a newly formed company called Sierra National Life Insurance Co. to be formed with policies, junk bond and real estate investments now owned by Executive Life. Policyholders would get the greater of 50% of the profits up to $200 million, or 15% of all profits earned during a five-year moratorium.
However, some have criticized the plan because it leaves Executive Life’s troubled junk bond portfolio in the company. That creates risks to policyholders, who could face an Executive Life-style debacle several years later if the junk bond market crashed, these critics contend.
Broad Inc., a Los Angeles-based financial services company that owns Sun Life Insurance, Anchor National Life and First Sun America, also revealed details of its bid, first announced Thursday.
Broad said it would pay about $300 million for $5.5 billion in insurance policies, annuities and guaranteed investment contracts owned by Executive Life. In addition, the company has arranged for J. P. Morgan & Co. to sell Executive’s junk bond portfolio for about $3.24 billion.
“To create a viable ongoing concern, we felt we had to remove the junk bonds from the company,” Eli Broad, chairman and chief executive of Broad Inc., said in an interview Friday.
The Broad offer would result in creating a new insurer that had less than 10% of its assets in low-grade securities, Broad added.
That would allow the company to receive an investment grade rating of its own, which might help quell policyholder fears, he said.
However, Broad declined to specify exact payouts to policyholders, saying all such statements were only estimates based on a wide array of factors that were subject to change.
Texas financier Richard Rainwater and Hollywood music mogul David Geffen, in partnership with San Francisco-based Bechtel Investments, also submitted a bid. Details of their offer were not available late Friday.
However, sources have said that the offer would provide policyholders with more than 81 cents on the dollar and that the investors planned to leave the junk bonds in the company.
Policyholders would get a share of the proceeds if the bonds proved to be more valuable than currently thought, these investors previously promised.
The National Organization of Life & Health Insurance Guaranty Assns. submitted its own plan as well.
Although NOLHGA is expected to participate in any offer by coordinating guarantee fund coverage for all policyholders, the group previously said that it felt it could save its constituents money by handling a takeover on its own.
NOLHGA previously said its deal would pay 100 cents on the dollar to those with cash-value policies worth less than $100,000.
How much would be paid to those with larger accounts or to those who purchased less-traditional products such as guaranteed investment contracts was not clear.
No one from the NOLHGA organization would comment or give details about their formal offer on Friday. However, industry experts have questioned whether the offer could fly.
Holders of so-called muni-GICS also submitted two offers. Although details were not available Friday, these investors had previously said they planned to buy the company by turning in half of their bonds. These holders are currently battling in Superior Court to get equal standing with policyholders, but, for the moment, their claims are not covered in the bulk of the buyout plans submitted for Executive Life.
Executive Life Bidders
* Altus/MAAF: A consortium of investors led by Altus Finance, a division of Credit Lyonnais, and Mutuelle Assurances Artisanale de France, a mutual life insurer headquartered in Paris.
* Hellman/Zell: The San Francisco-based investment banking firm of Hellman & Friedman has teamed up with Chicago’s Zell-Chilmark and Jack Byrne of Fund American Enterprises.
* Rainwater/Geffen: Texas financier Richard Rainwater and Hollywood music mogul David Geffen in partnership with Bechtel Investments of San Francisco promise a bid that would leave the junk bonds in the company.
* NOLGHA: The National Organization of Life and Health Insurance Guaranty Assns., a group that represents state-run guaranty funds in 47 states, offered to buy Executive Life in a deal that pays most policyholders 100 cents on the dollar.
* Broad Inc.: The Los Angeles-based financial services concern, which is the parent of three life insurers, has teamed up with J. P. Morgan & Co. to buy Executive Life’s insurance business and sell its junk bond assets.
* First Executive creditor’s committee: This committee is made up of seven members, including four international banks and some Executive Life contract holders. They propose to “bring peace” to the takeover process by getting NOLGHA to contribute $3 billion in capital.
* Bondholders: Holders of municipal bonds backed by Executive Life guaranteed investment contracts have also submitted two separate offers.
