Pacific Security repays bondholders

People who invested with the Guthrie family in Spokane through a now-defunct company called Pacific Security Companies Inc. have had most of their principal repaid.

It’s turning out to be an acceptable outcome for 180 investors, most of whom live in Spokane. And it stands in stark contrast to the financial disaster that unfolded at Metropolitan Mortgage & Securities Co., which was in essentially the same business as Pacific Security Cos. The two firms sold unsecured notes, called debentures, to mostly local investors.

Pacific Security investors have already received 93 cents on the dollar, with good prospects of being made whole, said Barry Davidson, an attorney who oversaw the company’s dismantling and receivership. Metropolitan investors stand to collect an initial reimbursement in the range of 5 cents to 9 cents on the dollar, perhaps this spring.

“It worked out as well as we could have hoped,” Davidson said, adding that he is still collecting on loans and litigating a couple of outstanding claims on behalf of bondholders, many of whom also had invested in Metropolitan Mortgage. In all, Pacific Security had issued about $6.5 million in bonds — just a fraction of the debts issued by Metropolitan Mortgage.

Pacific Security was hit especially hard by the financial repercussions of Sept. 11. In the wake of the attacks, banks immediately constricted lines of credit. Two banks canceled lines of credit to Pacific Security totaling $25 million. The money had been the source of the company’s liquidity, enabling it to make commercial loans.

At the same time, state regulators told the company it would not be allowed to issue new bonds.

David Guthrie, who ran the company founded by his father, the late Wayne Guthrie, attempted to keep the company going but ultimately decided to put Pacific Security under a court-appointed receiver.

Guthrie said he still hopes to one day recapitalize the company, but he now works as a development manager for Spokane-based SRM Development’s operations in California.

“The whole process has been disappointing,” he said, “but I am happy that repayment has been made. That’s important.”

He still owns Pacific Security, though the company is little more than a shell.

At one time Pacific Security owned assets such as the Peyton and Hutton buildings in downtown Spokane.

It was started in 1957 after Wayne Guthrie enjoyed success building homes during the post-World War II boom.

In the mid-1960s the company turned into a mortgage financing firm. It sold its first debentures in 1969, using the bonds – which are backed by nothing more than a corporate promise to repay – to finance projects.

The company was mired in family disputes during the 1990s. David Guthrie took over in 1999.

Pacific Security no longer has any employees or office space.

Davidson said the receivership action in Spokane County Superior Court should be completed later this year.