The Montgomery County, Md., Housing Opportunity Commission yesterday pulled off a Houdini-like escape, rescuing its $53.2 million housing bonds from a Mutual Benefit Life Insurance Co.-inspired default.

The Maryland issuer succeeded in acquiring a letter of credit from General Electric Capital Corp. The housing commission then called all the bonds at par, refinanced the issue with a "multi-modal" annual put bond, and sold a new $48.22 million issue to institutional investors.

General Electric Capital's letter of credit acts both as enhancement and liquidity provider. The annual put bonds are due on Nov. 1 and can be fixed out if the issuer so chooses; the bonds mature in 2007, which is the maturity date of most of the original 1985 issue.

Bernard Tetreault, executive director of the commission, said the refinancing was "miraculous" and that the commission devoted special attention to resolving the problem. The 1985 Chase Grove bonds -- now known as Oakwood -- is the largest of all Mutual Benefit-insured deals.

The refinancing relied on a combination of team effort and providence, Mr. Tetreault said. Perhaps most important was the commission's advance notice of Mutual Benefit's intention not to renew its insurance guarantee on the Dec. 1, 1991, put date.

"We had been working on this even prior to the state taking over Mutual Benefit," he said. "So last summer we set out to find a substitute credit enhancer. That's what we were doing when the conservatorship came along. We had a head start."

Other factors aiding the refinancing include the health of the project itself; the willingness of the owner, Los Angeles-based South Bay Club Apratments-Van Nuys, an affiliate of R&B Realty Group, to go through with the restructuring; and General Electric's letter of credit.

"Oakwood has been a positively functioning development since it was built in 1986 and 1987," Mr. Tetreault said. "But a critical element was GE feeling comfortable with this deal." Officials at General Electric Capital were unavailable for comment.

Sources familiar with the other 43 tax-exempt deals insured by Mutual Benefit said the circumstances surrounding Oakwood were very unusual. At least half of the deals reportedly are experienceing negative cash flow, and Mutual Benefit has a stake in many others -- making a call of the original bonds highly unlikely.

The new issue was privately placed by Denver-based Newman & Associates Inc. and Kidder Peabody & Co., according to W. Kimball Griffith, attorney for the housing commission and a partner at Kutak Rock & Campbell in Washington D.C.

The refinancing issue is not completely free from Mutural Benefit's lingering influence, although the temporary relationship is not expected to affect the credit quality of the new deal.

Mr. Griffith explained that the refinancing absolved the guarantee of principle and interest, but the life insurer technically still has a guarantee against the Oakwood project from going bankrupt. The guarantee will expire within the year.

In other news, yesterday's hearing on whether to extend a temporary restraining order preventing bond trustees from foreclosing on Mutual Benefit-backed developments concluded too late for inclusion in this edition.

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