Garamendi Unveils Revised Executive Life Plan : Insurance: He outlines a rehabilitation proposal. But legal opponents threaten to defeat it again.

Insurance Commissioner John Garamendi on Thursday announced outlines of a revised rehabilitation plan for Executive Life Insurance Co., but legal opponents of his previous plan warned that unless the new version sweetens the pot for policyholders by as much as $2 billion, they will defeat it again in court.

Garamendi remains committed to completing the sale of the failed insurer to a French consortium led by Mutuelle Assurance Artisanale de France, but his earlier plan for the sale was shot down March 22 by the 2nd District Court of Appeal in Los Angeles on grounds that it failed several essential tests of fairness to policyholders.

Leading the opposition have been investors in “muni-GICs,” or municipal bonds backed by Executive Life guaranteed investment contracts.

Their opposition sprang from Garamendi’s original decision to give their claims lower priority than those of regular insurance policyholders and certain annuitants.

The muni-GIC holders won that battle, with court rulings that accorded them equal status with policyholders in the eventual recovery.

Now they’ve set their sights on what they regard as another fairness issue: getting policyholders a fair share of all Executive Life assets, including a slew of junk bonds that were sold last year.

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Garamendi said his revised plan--to be formally submitted April 20--would satisfy the appeal court’s concerns.

One revision eliminates two methods of determining the value of muni-GICs, which the court found discriminatory.

Another revision would change the date for determining Executive Life’s liquidation value from the day it was seized two years ago to the day that the sale finally goes through.

The revised plan is endorsed by the French consortium and the National Organization of Life and Health Guaranty Assns., Executive Life’s largest creditor.

Swamped by junk bond debt, Executive Life was seized by Garamendi in April, 1991, in the nation’s largest insurance failure.

As conservator, Garamendi crafted a two-stage deal: First, to sell off the bulk of the company’s huge junk bond portfolio to Altus Finance, a unit of French bank Credit Lyonnais, and second, to have Mutuelle Assurance Artisanale de France absorb the rest of Executive Life and run it as a new insurance company called Aurora.

The junk bond sale was completed in early 1992 for $3.25 billion. Muni-GIC holders, who say the bonds have since risen in value to $5.2 billion, have asked the Superior Court to rescind the sale and add the bonds to the pie to be divided among Executive Life holders.

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The $2-billion run-up in the bond portfolio’s value would be enough to return Executive Life to solvency without the need of a rehabilitation, Arthur F. Fergenson, a lawyer for underwriters of the municipal bonds, said in a court hearing Thursday.

Judge Kurt Lewin has yet to rule on the motion to undo the bond sale, but he acknowledged in Thursday’s hearing that he considers the junk bond sale and the sale of the rest of Executive Life to have been inextricable parts of the same deal.

Kenneth R. Heitz, an attorney representing Aurora, said Thursday that the junk bond sale is final and that all the muni-GIC representatives were aware of it when it closed more than a year ago. They wouldn’t be making any such arguments had the portfolio declined in value, he said.