At least nine Mutual Benefit Life Insurance-backed housing issues have begun the countdown to mandatory redemption, and unless project owners can obtain a new guarantor for three of the deals by Aug. 13, bonds will be called in September.

A mandatory redemption could prove disastrous to both bondholders and project owners because in almost every deal the only assets to pay the bonds off are the projects themselves, according to analysts. In the worst-case scenario, the bondholders -- through the sale of the developments -- would realize far less than their par investments.

Notices to both bondholders and the project owners of the nine deals for which Citizen and Southern National Bank is the trustee have been sent out, according to officers at the bank. The three most imminent deadlines are for put bonds sold by the Nashville and Davidson County Metropolitan Government Industrial Development Board: the $15.5 million series 1988A; the $9.4 million series 1988B; and the $7.5 million Series 1988C.

"If they don't replace the guarantor," said Kevin Kirby, corporate trust officer at Citizens and Southern, "then we give 30 days notice for a mandatory prepayment, and [the funds] would have to come from the actual owner of the apartment projects." He added that, according to the technical default sections of the indentures, the notices were required.

Preliminary research into a series of the deals found that little or no equity invested in the projects, leaving only the developments themselves to secure the bonds, according to several analysts. In addition, Mutual Benefit was a partner in many of the deals, which may have contributed to the absence of equity and debt service reserve funds, they said.

Obtaining a guarantor to fend off the redemption will not be easy, according to several sources, but it may be possible. An analyst with a large investment house said bondholders would be better off finding some form of insurance. The analyst and other sources contacted for this article asked not to be identified due to the possibility of eventual litigation.

"In our judgment, the bonds are worth more if the municipal debt is left in place," he said. "Anybody who moves to lose the debt is cutting their own throat."

The analyst noted many prospectuses call only for "bank investment grade" backing, or those institutions with claims-paying ratings of triple-B or better. "It may be hopeless," he admitted, "but the money-market crowd does not know credit, they know liquidity.

An executive of one bond house with clients invested in the bonds said it was unlikely any guarantor could be found. "Unless you have real estate that has appreciated wildly, you're not going to be able to get anyone to do it," he said. "The guarantor will want to see some equity in the deal."

On the other hand, the head of a large mutual fund group's tax-exempt department said it was quite possible to find alternate guarantees. "It's hard to conceive that you cannot get a replacement for the put bonds," he said. "Nuveen has achieved it. If you could reinstate the put, the bond once again becomes a money market security."

To date, only John Nuveen & Co. has been able to replace the guarantor on its Mutual Benefit exposure. The firm paid a premium to Municipal Bond Investors Assurance Corp. to cover its $41 million of put bonds, currently held in the Nuveen Tax-Exempt Money Market Fund.

Michael C. Ballinger, vice president at MBIA, said the entire $41 million is covered by reinsurance arrangements. "Based on our review of the transactions and our ability to obtain various forms of reinsurance, MBIA is satisfied that the transaction meets its underwriting guidelines," Mr. Ballinger said.

Asked if the firm would insure other Mutual Benefit deals, he said MBIA "will review each transaction on an individual basis." He declined to identify the issues held by Nuveen or the reinsurers who took on the actual exposure.

On the immediate horizon, bondholders should be concerned about the interest payments on these "notified" bonds, according to a municipal bond broker who also has clients holding certain issues, "Since they've been given notice and may be looking at Chapter 11 anyway, they'll be thinking twice about making an Aug. 1 coupon payment," he said.

The eventual salvage realized by bondholders is likely to be small, several sources explained, because prospective buyers would have to finance the deal through more expensive taxable loans. A project that may have been worth 105 before the sale might only get 82 in a sale, said one analyst.

Furthermore, a small sample of the 59 deals affected show the mortgages to be "non-recourse notes," which means claimant bondholders will not be able to seek assets outside the projects themselves. Dallas-based Trammell Crow Co., for example, has holdings on many of these developments, but the firm's real estate empire will not be attachable, sources said.

The municipal broker also pointed out the devastating effects such an outcome would have on the current property owners. Having experienced housing bankruptcies, the broker said developers are often unaware of the tax consequences of losing their properties to bondholders: All of the depreciation they have been claiming on the projects will be treated as capital gains by the Internal Revenue Service.

In light of this, he added, it is even more tempting to intentionally miss any imminent interest payments. "At least then [the owner] can stuff his cheeks with cash so he can pay his lawyer," the broker said.

Another large question raised by the custodianship of Mutual Benefit is the position money market funds holding the put bonds are now in, according to traders and other market participants.

The problem is that since the deals can no longer be put back to the issuer or guarantor, the bonds may no longer be "seven-day floaters," or securities with specific weekly durations. Money market funds are required by the Securities and Exchange Commission's amended rule 2a-7 to have a maximum average maturity of 90 days. In addition, funds constrain themselves through internal qualitative and duration restrictions.

A spokesman for the SEC had no comment on the viability of the put bonds as money market-qualified securities.

"It's my understanding that under certain money market prospectuses, funds can only but certain maturities," said a trader. "I question whether an original seven-day put that is no longer valid still would be a legal investment.

"It's logical to believe they would have to sell them," the trader added, "which they can [only do] at a substantially lower level than where they're carrying them on the books. This could be an area where the public is being less than adequately informed and protected -- especially if somebody buys [the funds] at par and they're not worth that."

"The sharks will buy them," another trader suggested. "These are people who have done a little homework and they are the same people who traded Executive Life" bonds, he said. "They'll get them at a bargain price and hopefully make a lot of money."

Yesterday, the put bonds were bid at a 15% yield to maturity, or about 40 cents on the dollar. The regular bonds were bid at 70 cents on the dollar.

Last week, Mutual Benefit was placed under the custodianship of the New Jersey Department of Insurance. The move affected 59 tax-exempt issues totaling $809 million that depended on guarantees from the life insurer. Since then, several put bonds have gone into default because the tenders were not honored. Late Monday, the insurance department formally declared a freeze on all put-bond payments.

The other six deals that are scheduled for mandatory redemption within the next 180 days are: Shelby County, Tenn., Health, Education and Housing Facility Board's $21.8 million Series 1987A; Cobb County, Ga., Development Authority's $9.7 million series 1985; Fulton County, Ga., Housing Authority's $21 million Series 1985E; Fulton County's $18.8 million series of 1988; South Carolina State Housing Authority's $12.1 million series 1985B; and Marietta, Ga., Housing Authority's $14.2 million Series 1983.

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