Five Increase Bids for Executive Life
At least five sweetened offers were submitted on Friday’s final bidding deadline for Executive Life Insurance Co. of California, raising the promised policyholder payouts to as much as 90 cents on the dollar.
A group led by investment bankers Hellman & Friedman of San Francisco, Zell/Chilmark of Chicago and New York-based Fund American Cos. said they filed a revised buyout offer with California Insurance Commissioner John Garamendi that promises to pay policyholders 90 cents for each dollar they invested in policies. That is up from Hellman’s previous bid of 83 cents.
That topped a bid of 89 cents per dollar made earlier this week by the National Organization of Life and Health Insurance Guaranty Assns., or NOLHGA.
Additionally, the Hellman group said it had changed profit-sharing arrangements to give policyholders more money up front. Policyholders will now get 100% of the group’s first $100 million in profits and 50% of the second $100 million, the Hellman group said.
“We are not in this game to be in second place,” said Charles Perkins, a Hellman & Friedman spokesman.
Meanwhile, Broad Inc., the Los Angeles-based parent of Sun Life Insurance Co., promised between 86 cents and 90 cents per dollar, compared to its previous bid of 81 cents. (Broad noted that all the promised payouts are based on calculations that can swing by several cents either way, depending on a number of factors. For that reason, Broad will only estimate payouts.)
Key to Broad’s higher offer is an agreement in principle to sell Executive Life’s low-grade bonds to a “prominent” unnamed buyer, who would pay about $3.3 billion for them. That’s about $300 million more than other buyers have offered. Broad will buy the company’s insurance assets for $300 million and try to get an AA rating for the company’s claims-paying ability.
Meanwhile, Altus Finance and Mutuelle Assurances Artisanale de France said Friday they would hike their bid to 87 cents from 86 cents. Altus now plans to buy a slightly bigger piece of Executive Life’s junk bond portfolio for $3 billion, compared to its previous $2.85-billion offer. Executive Life’s insurance assets will be sold to Mutuelle Assurances, or MAAF, for $300 million.
However, the Altus/MAAF group did not outbid the 89-cent-per-dollar offer submitted Tuesday by NOLHGA. Instead, the French-led group said it would battle to win the company based on giving policyholders more security.
“Ours is a real bid that puts out $3.3 billion in cash and provides policyholders with real security,” an Altus spokesman said. “They are putting up very little cash, and then they are saying ‘trust me’ to put up enough cash--trust that the junk bond market doesn’t swing so much that they can’t perform.”
New buyout offers were also received from groups representing the creditors’ committee of Executive Life’s parent, First Executive Corp., and groups representing holders of Executive Life-backed municipal bonds, better known as Muni-GICs. However, details of these two offers were not available late Friday.
Friday was the final deadline for potential buyers of Executive Life to increase their offers. Now insurance regulators must decide which of the eight offers submitted a week ago provides the most money and security to policyholders. Garamendi has promised to choose a buyer by next Friday, when Los Angeles Superior Court Judge Kurt Lewin is expected to rule on Executive Life’s liquidation and sale.
Although insurance department spokesmen refuse to characterize any of the offers as better than others, the four bids that were enhanced this week are clearly front-runners. In brief, these are the NOLHGA bid that promises 89% payout to policyholders, plus 25% of the profits on Executive Life’s junk bond portfolio; the Hellman & Friedman bid at 90 cents plus profit sharing; the Broad bid at 86 cents to 90 cents, plus account bonuses to those who stick with the insurer for more than five years, and the Altus/MAAF offer at 87 cents, plus some profit participation.
All the enriched bids were welcomed by policyholders, who said they once feared the loss of all they had invested when Executive Life failed last April under the weight of a souring portfolio of junk bonds and a flood of policy surrenders.
