Met creditors waiting for checks in mail

Metropolitan Mortgage & Securities Co. creditors can expect a check early next year to help ease a bit of the sting out of Christmas shopping bills.

Though their initial payout may be as little as a nickel to 9 cents on the dollar, at least enough progress is being made to dispense money – the first cash 16,000 investors caught in the debacle will receive since the company declared bankruptcy 22 months ago, said Metropolitan bankruptcy attorney Barry Davidson.

The payout is detailed in Metropolitan’s bankruptcy plan, which has been overwhelmingly approved by creditors, the company announced this week. A bankruptcy court judge is expected to approve the plan next month. The repayment hinges on complicated tax issues that had divided Metropolitan and Western United Life Assurance Co., its key affiliate now run by a receivership team of the Washington State insurance commissioner.

The sides reached a deal this week resolving the dispute. Western United will separate from the Metropolitan group of companies by the end of the year, altering its tax treatment and presumably saving $15 million.

Once Western United is separated and the plan is approved, Metropolitan will be free to begin distributing money to creditors, Davidson said.”This is something the creditors have been waiting a long time for,” said P.J. Grabicki, attorney for creditors. “Thank goodness it’s about to happen.”

The company continues to bank money and creditors may eventually collect 14 to 15 cents on the dollar from asset sales.

Much more could be returned if several scenarios play out in favor of creditors. Among them: successful lawsuits and arbitration against auditing giants PricewaterhouseCoopers LLP and Ernst & Young LLC; successful recoveries of alleged ill-gotten gains from former owner C. Paul Sandifur Jr. and his family; and proceeds from the sale of Western United.

Maggie Lyons, who was hired in late 2004 as Metropolitan’s chief executive, has declined to estimate how much more creditors could receive from such recoveries, instead sticking with sure-footed money collections such as real estate sales and the liquidation of other investments.

The agreement this week between Western and Metropolitan also established a framework to resolve the most contentious issue separating the sides.

Western has filed a $220 million claim against Metropolitan, blaming it for mismanaging its own affiliate. Now that Western is run by a receivership team, the company says it must press the massive claim to right its financial books for the benefit of annuitants and the state Guaranty Association.

Metropolitan’s bankruptcy team has questioned the necessity of Western United’s claim, pointing to the insurance company’s own independent audits that show it is solvent, with equity in excess of $40 million.

The sides agreed to attempt mediation to resolve the claim. If mediation fails, the claim will be the subject of special bankruptcy action called an estimation hearing, where the sides ask U.S. Bankruptcy Judge Patricia Williams to estimate how much the claim is likely to be worth in the context of the case.

The judge’s ruling will be used to help Lyons set aside a reserve to cover the potential cost of the claim, but more importantly, Metropolitan can then release its remaining cash to creditors.

Ultimately, the claims might be litigated by Judge Williams, or perhaps by a state judge in Thurston County Superior Court, where the insurance commissioner filed his receivership action.

The mediation sessions and possible litigation will all happen soon, putting the bankruptcy on a timeline designed to hurry the case along.

The claim dispute is not expected to disrupt the approval and confirmation of Metropolitan’s bankruptcy plan. Vote tallies released Monday night show 99.3 percent of Metropolitan creditors voted in favor of the plan, and about 95.2 percent of the creditors of related company Summit Securities Inc. approved it.