Insurance regulators in Idaho and Arizona struck an agreement to sell two insurance affiliates of bankrupt Metropolitan Mortgage & Securities Co., a deal that may return up to $20 million to some creditors awaiting payouts in the wake of Spokane’s largest business failure.
The sales of Old West Annuity and Life Insurance Co. and Old Standard Life Insurance Co. arrive 20 months after insurance regulators in Arizona and Idaho seized control of the companies and operated them under receivership.
The complex deal with Great American Life Insurance Co. represents a significant step in the bankruptcy case. It is particularly good news for the 6,600 people who hold notes of Summit Securities, the Idaho sister company of Metropolitan. They stand to collect a share of the $12 million to $20 million garnered from the sale, said Maggie Lyons, who took over management of the Metropolitan companies after C. Paul Sandifur Jr. resigned and the company filed for bankruptcy.
“We’re very pleased,” said Kevin O’Rourke, an attorney representing Summit creditors. “The alternative was those companies going into liquidation, which would have meant creditors get nothing for those valuable assets.”
The sales agreements stand in contrast to the situation regarding Western United Life Assurance Co., the largest affiliate in the Metropolitan group.
Western was put into receivership by Washington state Insurance Commissioner Mike Kreidler.
Last March, Kreidler announced that he would lead an effort to sell the three insurance companies as a package because of the inter-company business dealings they conducted and interest from outside buyers.
Unlike Old West and Old Standard, money earned from the sale of Western would go to the more than 10,000 noteholders of Metropolitan.
But attempts to sell the firms together have apparently failed.
Kreidler and his receivership team had not seen the court documents approving the sale of Old West and Old Standard, said spokesman Bill Ripple.
Notification of the sale by Idaho and Arizona officials is a courtesy that Kreidler is still waiting on, Ripple said.
“We knew there was a deal cooking,” he said, adding that the difficulty of three different state insurance commissioners trying to work together – while duty-bound to look out for their own interests first – may have scuttled the joint sales proposal.
The sale will not adversely affect Western United, according to Ripple.
Western maintains that it is solvent, even after writing down tens of millions of dollars in assets that were inflated in Metropolitan’s now notorious financial reports.
The management team Kreidler put in charge of Western has clashed sharply with the lawyers and managers steering Metropolitan through bankruptcy.
The acrimony has grown during the past few months as the anticipated sale of Western United failed to materialize. Now with the independent sale of Old West and Old Standard, questions, expectations and comments – already raised months ago by U.S. Bankruptcy Judge Patricia Williams – about why Kreidler’s team has not sold Western could sharpen.
The problems might be aired this week if Western files a court objection to Metropolitan’s bankruptcy plan, as expected. Among the issues: Kreidler’s receivership team blames Metropolitan for inflicting the drastic financial losses on its own insurance company.
With claims of fraudulent bookkeeping and wrongful inter-company dealing, Western has threatened to file a $200 million claim against Metropolitan. Such a claim – which the insurance commissioner’s office has said it is required by law to pursue as part of its receivership duty – could cut any cash recovery to investors.
Right now, Metropolitan investors are expected to collect less than 14 cents on the dollar.
Western remains the single largest asset of Metropolitan, but Kreidler is required to act first on behalf of Western’s customers – the holders of annuities and insurance policies.
He has publicly pledged to work hard at recovering money for Metropolitan noteholders, many whom were unsophisticated elderly investors in the Northwest who bought the company’s unsecured debenture bonds as retirement savings.