Met pinning hopes on plan

Beset by investigations, an auditing fiasco and unpaid, upset investors, Metropolitan Mortgage and Securities Inc. is betting on bankruptcy as its best chance at survival.

“We don’t know where our future is,” chief financial officer William Smith acknowledged during a Friday interview.

Neither do thousands of investors left holding about $580 million of debts in Metropolitan and its sister Idaho company, Summit Securities Inc. The bankruptcy marks one of the biggest business failures in Spokane history. It’s a rapidly unfolding episode where there are far more questions than answers.

The central worry is this: Will investors get at least some of their money back?

Smith believes so. The company is pushing a debt-for-equity plan, which - if executed to perfection - would give ownership of a reorganized and profitable Metropolitan with three insurance subsidiaries to investors in exchange for their debentures.

Those with preferred stock stand far less chance of recouping their money.

Smith, the fifth chief financial officer in five years at Metropolitan, said the company’s outlook remains cloudy. Any chance of the company surviving bankruptcy will require an abundance of investor faith and tolerance.

In the next 30 days, Smith expects the U.S. Trustee to appoint a committee of creditors to represent the thousands of investors left wondering just how they might best recover a share of their money.

Many want to risk their nest eggs with the company’s plan. Others are gambling on a class-action lawsuit pushing for liquidation of the company’s assets and quickly paying out the money collected.

Simply put, the Chapter 11 bankruptcy filed this week gives Metropolitan a timeout from the myriad problems that have dogged the company for months.

Lawsuits are now suspended. The company can quit paying its bills - including money to investors - without retribution.

The dramatic unraveling of the company must now be sorted out in a courtroom.

Once a mighty contributor to the arts and backer of political upstarts, Metropolitan’s fortunes have crumbled.

The company is no longer paying on bonds and preferred stocks. Its securities are being delisted. Metropolitan’s brokerage affiliate has been closed and its three life insurance affiliates - where the bulk of Metropolitan’s assets are held - are under state supervision.

Company owner C. Paul Sandifur Jr. has resigned as chairman and chief executive officer.

Metropolitan’s problems began, Smith said, in the late 1990s when its residential mortgage business began failing.

It had specialized in subprime, or high-interest, mortgages. But a spike in interest rates forced Metropolitan to exit the market.

Metropolitan then plunged into commercial lending. It’s a business where higher profit margins are possible, Smith said. But it’s also a business that requires lots of cash.

For that, Metropolitan tapped the securities markets. By last summer the company had issued about $512 million in debentures and sold about $132.8 million in preferred stock.

Smith said about 63 percent of Metropolitan’s real estate portfolio was locked into commercial loans. About half of Summit’s business was commercial lending.

The need for more and more cash, however, ran headlong into a sticky review of Metropolitan’s business dealings by the U.S. Securities & Exchange Commission.

About 13 months ago, the SEC began asking questions of Metropolitan and its affiliates before it would authorize the companies to sell another $400 million worth of debentures and preferred stock.

While waiting for an approval that would never come, Metropolitan began consuming itself. The insurance affiliates executing most of the commercial loans drained money from the parent companies.

In early 2003, for example, Western United Life received a one-time $41.4 million cash infusion from Metropolitan.

Eventually the money ran out and unpaid investors chased Metropolitan into bankruptcy court.

Smith said the company was anguished.

The SEC could not comment on its review of Metropolitan, a spokeswoman said.

Metropolitan’s bankruptcy, sure to a be multimillion dollar endeavor, is expected to last about a year, Smith said.

“It will be a challenge,” he said.