Settlement Nearer on Executive Life Insurance : Courts: Garamendi plan to rehabilitate the failed company is the subject of a hearing today. At stake is $7.5 billion in assets.
With a flurry of last-minute maneuvers, lawyers, investors and regulators prepared for a potentially climactic Los Angeles Superior Court hearing today on the rehabilitation of the failed Executive Life Insurance Co.
At stake is how a $7.5-billion pie--the fallen insurer’s assets--will be divided among a diverse group of petitioners. They range from Wall Street speculators who bought Executive Life-backed bonds to severely injured accident victims whose sole source of money for medical care is an annuity guaranteed by the now-insolvent insurer.
The twists and turns of the complex case--the largest insurance insolvency in U.S. history--have caused surprising shifts in courtroom alliances and prompted some of the parties to take positions that they earlier opposed just as fervently.
On Tuesday, Texas Commerce Bank of El Paso, trustee for holders of $200 million worth of municipal bonds backed by Executive Life-guaranteed investment contracts, threw its support behind the latest version of state Insurance Commissioner John Garamendi’s rehabilitation plan for Executive Life.
Under the plan, a French investment group led by Altus Finance Co. would take over the hapless insurer and operate it under the new name Aurora National Life Insurance Co.
The so-called muni-GIC holders represented by Texas Commerce had been among the most determined of Garamendi’s opponents in earlier stages of the court proceedings, which began when Garamendi seized the junk bond-laden insurance company in April, 1991.
In the state Senate, meanwhile, Garamendi and allies are trying to push through emergency legislation to remove a cloud over the heads of yet another group of Executive Life policyholders. In this group are 18,000 public employee pensioners in Alaska, plus investors in municipal bonds issued by the cities of Whittier, Simi Valley and Temecula.
The gist of the legislation--as it affects Executive Life--is that these people ought to get equal treatment with all other policyholders in the rehabilitation.
It is an ironic position for Garamendi to take, because some of the investors he is trying to protect are muni-GIC holders--the very group he had tried to cut out of his original rehabilitation plan.
A state appeals court rejected that plan as unfair, however, forcing Garamendi to return to Superior Court Judge Kurt J. Lewin with the revised plan under consideration today.
Aside from the merits of the new plan, Lewin will be asked to rule on a controversial motion by a third group of muni-GIC holders represented by the law firm of Pillsbury, Madison & Sutro. These investors contend that Garamendi illegally delivered a huge windfall to the French investment group that is buying Executive Life when he sold them Executive Life’s junk bond portfolio at the bargain price of $3.25 billion.
Although the junk bond market looked dismal at the time the sale went through, the bonds have since appreciated in value by as much as $2 billion, these muni-GIC holders contend. They say the bond sale should be rescinded and the $2-billion profit recaptured for Executive Life policyholders.
Lewin already has signaled that he will reject the motion to rescind the bond deal. He views the bond sale as part of a two-step deal--the second step of which is to have the French group take over Executive Life. That second step will be completed as soon as Garamendi’s rehabilitation plan is approved.
Garamendi has spent recent weeks lining up support for the plan. He enlisted the Texas Commerce Bank group Tuesday with an agreement that pays them $34.6 million now.
Of that sum, $3 million will go to the bank’s lawyers, while the remaining $31.6 million will cover 70% of the interest payments that have been withheld from the muni-GIC holders since Executive Life was seized.
Still opposing the plan--besides the muni-GIC group represented by Pillsbury, Madison--is Action Network for Victims of Executive Life, an organization representing 1,500 individual policyholders.
