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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Met may scuttle debt plan

Firm may be forced to sell assets to pay off thousands of bondholders

Metropolitan Mortgage & Securities Inc. may abandon its bankruptcy plan that envisioned creditors taking ownership of a newly reorganized company.

Instead, the company raised the possibility it might not reorganize.

That leaves few options. Among them: selling off assets needed for business to repay the thousands of bondholders.

In a press release issued Friday, the company said the loss of its Western United Life Assurance Co. affiliate to receivership earlier this week might disrupt attempts to climb out of bankruptcy.

“These actions may affect Metropolitan’s ability to effect a reorganization,” the company wrote, “and has caused the company to consider other options besides the previously announced debt-for-equity reorganization.”

Company executives did not return phone calls Friday evening seeking comment.

However, an attorney representing creditors in the Chapter 11 case said he was surprised.

“Just last week we were fairly encouraged by information the company presented,” Doug Siddoway said. “Yet we’ve all known all along that this entire debt-for-equity deal was dependent on the (insurance commissioner) standing pat.”

He added: “If you can’t reorganize, what’s left for you to do?”

Insurance Commissioner Mike Kreidler assumed control of Western this week and announced that his office would seek to rehabilitate the struggling affiliate that has 40,000 annuity and life insurance customers.

Insurance commissioners in Arizona and Idaho also have assumed some control of Metropolitan’s two other insurance subsidiaries: Old West Annuity & Life Insurance Co., and Old Standard Life Insurance Co.

That poses a problem for Metropolitan, which has between 80 percent and 90 percent of its assets tied up inside the three insurance affiliates.

The reorganization plan has Metropolitan combining operations with its Idaho-based sister company, Summit Securities Inc. Executives want to issue bondholders shares of stock in a new company that would have control over the three insurance subsidiaries.

There are accounting problems plaguing the companies, however.

Outside auditor Ernst and Young LLP abruptly resigned in late January citing “material misstatements” by executives.

The auditor’s concerns about certain real estate transactions fueled worries that the books of Metropolitan and Western may be inaccurate.

Regulators are searching for evidence of fraudulent conduct. The U.S. Securities and Exchange Commission, along with the Washington attorney general, have sought an investigation to determine if real estate investments were inflated to make Metropolitan and Western appear more profitable.

With three years of financial statements now considered unaudited, Metropolitan plans to hire a new accounting firm to perform a clean review.

Kreidler’s office has been working on its own audit of Western. The receivership orchestrated by Kreidler earlier this week was done after Metropolitan lost a tax battle with the Internal Revenue Service.

Western took an $18million hit, tipping its financial condition into the red for 2003. Together with Metropolitan’s mounting troubles, the insurance commissioner decided to kick Western into receivership and out of Metropolitan’s control.