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Met creditors closer to payouts

Thu., May 18, 2006

Metropolitan Mortgage & Securities Co. and its insurance affiliate have resolved part of a bitter dispute that should finally allow the bankrupt firm to release money to thousands of creditors this summer.

The agreement makes it possible to pay people who hold Metropolitan debenture bonds between 7 cents and 8 cents on the dollar, said acting chief executive Maggie Lyons. Those holding debenture bonds of Summit Securities Inc. will receive an initial payout between 3 cents and 6 cents on the dollar.

At Metropolitan, bondholders held debts of about $364 million. Summit bondholders are holding onto paper worth about $160 million.

Repaying creditors has been a difficult endeavor. Lawyers and managers at Metropolitan brought in after the ouster of former company officials to handle the large corporate bankruptcy case have sold property and other investments, depositing the proceeds into trust accountants.

But investors couldn’t collect money until Metropolitan reached an accord with Western United Life Assurance Co., its insurance affiliate that was ordered into receivership by Washington State Insurance Commissioner Mike Kreidler two years ago.

Kreidler’s receivership team asserted that the insurance company was grossly mismanaged by Metropolitan and filed a bankruptcy claim of more than $220 million. Metropolitan attorney Barry Davidson has contended Metropolitan doesn’t owe Western United a single dollar.

With repayments to creditors in limbo until the claim amount was resolved, both sides agreed recently that the claim could be estimated at $50 million as a way to separate the disputed claim from bondholders’ claims, which have already been allowed. This gives Metropolitan a holdback number that it can use in its reimbursement calculus — with the understanding that in the future Western can still press for its $220 million claim and Metropolitan can continue to insist the claim should be rendered worthless.

The fight between Metropolitan’s bankruptcy managers and Kreidler’s receivership team has been acrimonious.

Kreidler announced more than a year ago that he would try to sell Western United, with any money from the sale benefiting Metropolitan’s creditors.

But the sales efforts have so far failed and the net worth of Western United has fallen, though the firm remains solvent and continues to conduct business.

The insurance firm was once considered among the most significant assets of Metropolitan.

Western United is pressing the claims, according to Kreidler’s office, because it is mandated by state law to aggressively pursue every means possible to financially benefit the insurance company.

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