Reliance Group Holdings Yields Control to State Regulators
Saul Steinberg’s Reliance Group Holdings Inc., teetering on the edge of bankruptcy, has ceded control of its finances to state insurance regulators.
In a filing with the Securities and Exchange Commission, Reliance said it agreed Thursday to seek approval from the Pennsylvania Insurance Department before making major financial transactions, including paying dividends, taking significant withdrawals from its bank accounts or selling assets.
The filing comes as Reliance, hurt by cuts in credit ratings and worse-than-expected losses in its insurance business, faces an Aug. 30 deadline to pay $735.1 million in debt. It said this month it may not make the payment and could seek bankruptcy protection.
“We intend to cooperate with insurance regulators in Pennsylvania and elsewhere as we work with our creditors to develop a financial restructuring plan,” said Reliance Chief Executive George Baker in a statement.
Reliance, which served as the base for Steinberg’s unsuccessful bids for Walt Disney Co. and Chemical Bank in headier times for the former corporate raider, said it will seek approval for dividend payments in August and November.
Reliance shares fell 14% to close at 19 cents on the New York Stock Exchange.
The insurer is scheduled to meet today in Chicago with a group of regulators from several states. Analysts said the regulators could order the company not to pay dividends in an effort to safeguard the interests of policyholders, striking the first blow in what could be a protracted struggle with creditors.
“Regulators are primarily concerned with the policyholders’ claims being covered,” said Michael Schroeder, chief investment officer at Wasmer, Schroeder & Co. Claims by bondholders and other creditors are “totally subordinate,” he said.
Reliance bondholders have hired Wasserstein Perella & Co. to advise them on a restructuring of the insurer’s debt. Reliance bonds trade for about 10 cents on the dollar.
Reliance shares have lost more than 97% of their value this year as the company has sold many of its insurance units to raise capital and protect its credit ratings.
In June, A.M. Best Co. cut the company’s financial strength ratings, and last month Leucadia National Corp., which had agreed in May to buy Reliance for $1.03 billion, backed out of the deal.
Last week, Reliance agreed to sell its accident and health business to a unit of Aon Corp., the world’s No. 2 insurance broker, for an undisclosed sum. That sale was the latest bid by Steinberg to raise cash.
On May 26, the day he agreed to sell Reliance to Leucadia, Sotheby’s auctioned the contents of Steinberg’s 34-room Park Avenue apartment for about $12 million. The apartment itself went for about $35 million.
