Executive Life Buyout Deal Runs Into Another Snag : Insurance: None of the parties expect a resolution before a June 30 deadline.

The buyout of Executive Life Insurance Co. by a French investment group is being threatened by a delay in final court approval of the $3.55-billion deal, leaving most of the firm’s 400,000 policyholders without access to their funds.

A group led by Mutuelle Assurances Artisanale de France agreed earlier this year to buy Executive Life, a Los Angeles-based insurer that failed in April, 1991. The deal, which would provide most policyholders 100 cents on the dollar, must be completed by June 30.

But the transaction, which was given tentative court approval on May 5, has been held up pending the resolution of an appeal by investors who purchased $2 billion in municipal bonds backed by Executive Life’s guaranteed investment contracts. These muni-GIC holders are demanding the same treatment under the rehabilitation plan as other policyholders.

An attorney for the buying group, frustrated by the delays, recently stated in court that they were having trouble holding their investment group together and couldn’t guarantee what would happen if the June 30 deadline passed without resolution.

The group would not comment further Wednesday. However, sources close to the MAAF consortium say the group remains committed to buying Executive Life, even though no one expects the deal to be completed by the deadline.

“It is all but a foregone conclusion that the June 30 deadline will pass,” said Bill Schulz, a spokesman for the California Department of Insurance. “The question is how close will we be able to come to that deadline in closing this deal, and how much delay can any party take?”

A group of policyholders is also upset by the delay. Maureen Marr, coordinator of the Action Network for Victims of Executive Life, said the policyholders are caught in a “judicial stalemate.” She noted that two-thirds of the policyholders have had their funds frozen since Executive Life failed because of bad junk bond investments 14 months ago.

The main holdup has been litigation over the payout rates for the muni-GIC holders. Regulators contend that these bondholders are general creditors of the company, not policyholders. However, Superior Court Judge Kurt Lewin ruled the holders of these contracts were indeed policyholders. (As general creditors, the holders of the muni-GICs are likely to get less than 10 cents on the dollar versus 60 cents to 70 cents if they are considered policyholders.)

His decision is being appealed in the U.S. 2nd District Court of Appeals in Los Angeles.

California Insurance Commissioner John Garamendi, meanwhile, submitted a second plan that would give muni-GIC holders policyholder status, but would only pay them a percentage of what they paid for their bonds. Some of these investors bought their bonds at steep discounts of face value, Garamendi noted. In this case, paying them based on the face amount of their contract--policyholders are paid based on the face amount of their policies--would result in a windfall for profiteers to the detriment of other Executive Life customers, he contended.

However, Judge Lewin said he hesitated to rule on this alternate plan until the appeals court ruled on the muni-GIC investor’s status. Court hearings on the matter are set to resume today.