Suitors Up Their Bids for Exec Life : Insurance: Policyholders have a chance to recoup up to 90% of their investments.
The two favored bidders for Executive Life Insurance Co. substantially boosted their offers Monday for the failed company only moments before expiration of a final deadline set by Los Angeles Superior Court Judge Kurt Lewin.
Based on sketchy details released by the bidders--a French consortium headed by Altus Finance and a partnership led by investment banker Hellman & Friedman--the offers appeared to have been boosted by 3% to 4%, promising policyholders up to 90% of their investment.
Altus, a unit of Credit Lyonnaise, and Mutuelle Assurances Artisanale de France said they would now pay a total of $3.55 billion for the Los Angeles-based life insurer, which collapsed in April after incurring huge losses from its junk bond investments.
The French group, which has boosted its offer several times, says it will now pay $3.35 billion for Executive’s junk bond portfolio. And MAAF, a Paris-based insurance company, will pump an additional $300 million in capital into the life insurance operation.
Policyholders, who have already been promised a share in profits of some of the company’s business over certain threshold levels, would be given additional profit-sharing opportunities and greater access to their funds, an Altus spokesman said.
The result is policyholders would initially be credited with 90.1 cents on the dollar, up from the company’s previous bid of about 86 cents. Altus said that about 97% of the company’s customers should get back their entire investment because life insurance guaranty funds operating in most states will compensate policyholders for losses of up to $100,000 in cash values and up to $300,000 on death benefits.
The other bidder, Hellman & Friedman and its partners Zell/Chilmark of Chicago and New York-based Fund American Cos., has offered to buy the insurer with $300 million in cash and another $750 million in financial guarantees. It would keep the junk bond portfolio intact.
On Monday, Hellman & Friedman said it would increase profit-sharing provisions and give policyholders additional access to their funds. The exact value of Hellman’s bid was not clear late Monday, however. Hellman has valued the deal at 90 cents on the dollar, but state regulators previously said it was worth only about 85 cents.
The new round of enriched offers was welcomed by policyholders, who had once feared the loss of the bulk of their investments in the failed insurer.
“This is great,” said Maureen Marr, coordinator for a 2,000-member policyholder support group called the Action Network for Victims of Executive Life. “They are doing a good job getting the bidders up to the zenith point for policyholders.”
For the past several months, California Insurance Commissioner John Garamendi has been attempting to auction the company off in an effort to get the best return and greatest safety for the company’s policyholders.
Eight bidders originally submitted offers for the Executive Life. But over the past three weeks, Garamendi rejected all but two as being either financially inadequate or incapable of giving policyholders sufficient security.
At least one of the rejected bidders, the National Organization of Life and Health Guaranty Associations, has not thrown in the towel, however. NOLHGA, which represents 47 state-operated life insurance guaranty associations, previously said it would continue to press for acceptance of its 89-cent-per-dollar bid in court.
Judge Lewin is presiding over the insurer’s conservatorship. He will decide who gets the company, but is expected to be influenced by Garamendi’s recommendation. Garamendi said he would announce his support for either Altus or Hellman & Friedman on Nov. 14.
The new bids are a substantial improvement over the 81-cent-per-dollar offer that opened the bidding war last August. At that time, Altus and MAAF offered to buy Executive Life’s junk bonds for about $2.7 billion and contribute another $300 million to the life insurance company.
The group, which includes former Drexel Burnham Lambert investment banker Leon Black, was then widely criticized for what was seen as a low-ball offer. Black, who was among a handful of Drexel insiders to receive multimillion-dollar bonuses only weeks before the investment banking house failed, had made profits selling junk bonds to Executive Life and now he was sure to profit again by buying them back at bargain-basement prices, critics said.
The political ties of Hellman & Friedman has also raised some questions. Walter Hellman, head of the investment banker, has been a large contributor to Garamendi’s past political campaigns, according to published reports.
However, the criticism of both bidders has ebbed as their offers rose in price. For instance, one industry insider said Altus’ offer was not “at least within the realm of reason.”
As part of its new bid, Altus said it named Kenneth O’Brien, a retired executive vice president of New York Life, as interim chief executive. Altus also plans to name Robert Chick, president of Lawyer’s Mutual Insurance and a member of the California Insurance Guarantee Assn., Earl Cheit, professor of business and public policy at UC Berkeley, and a policyholder representative to the board of the new company, which it will call Executive-Aurora Life Assurance.
