Almost $57 billion of variable-rate put bonds insured by Mutual Benefit Life Insurance Co. were tendered for payment yesterday, and trustees for the issues say some defaulted while others were "bought back" by the investors.

About $8.2 million of the Fulton County, Ga., Housing Authority's Series 1988 bonds and $32.86 million of three issues sold by Nashville and Davidson County, Tenn., Metropolitan Industrial Development Board went into default at 1:00 p.m. yesterday, according to the trustee, Citizens and Southern National Bank of Atlanta.

The entire $15.5 million Harris County, Tex., Series 1989 issue was tendered for payment, but its single bondholder snatched the bonds from the jaws of default yesterday by rescinding the put option, according to the trustee on the deal.

Arthur Honore, assistant vice president of Texas Commerce Bank, said the investor exercised an option allowed by the Series 1989 indenture that prevented the issue from slipping into default.

"There's no exchange of funds," Mr. Honore said. "So this one will stay alive."

Yesterday, New Jersey's commission of insurance, Samuel F. Fortunato, declared a moratorium on the payment of all Mutual Benefit Life Insurance Co. tax-exempt put bonds.

The insurance department's statement on the payment freeze did contain a glimmer of hope: Interest payments on the bonds will be continued and "guarantees on bonds will not be treated any differently" than policyholders or annuity contract holders, the statement said.

Last week, Judge Paul G. Levy of the Mercer County Superior Court of New Jersey granted a consent order allowing custodianship of Mutual Benefit. The firm needed the drastic action, which effectively places it under regulators' direction, because policyholders were cashing in their contracts out of fear of insolvency.

Yesterday's payments defaults come on the heels of the first such exercise of the seven-day demand notes last Friday. In that situation, $500,000 of tax-exempt put bonds sold by the Harris County, Tex., Housing Finance Corp. for the Pate's Crossing development and the Pate's Landing project were not honored by the insurance company or the New Jersey insurance department.

Today at 1:00 p.m., eastern standard time, all of the $16.6 million Florida Housing Finance Agency's 1984 Series C bonds are due to be paid, according to a trust officer at Sun Bank in Orlando. The bondholder, reportedly a single party, gave notice a week ago under the terms of the seven-day demand notes.

A spokesman at Lehman Brothers said the firm had processed the put bonds according to its role as remarketer. "We are obligated to place the bonds back to the issuer at the direction of the investor," he said. "In the interim, we are not making a market in them because there's no market to make. So we're offering technical assistance."

He added that Mutual Benefit's failure to make good on the variable-rate notes triggers the "default price," which is at a yield of 4.13%. Lehman is remarketer for the overwhelming majority of the weekly put bonds.

Market participants were generally dismal about the prospects for the put bonds, especially given the perceived precedent in the Executive Life Insurance Co. case. In that conservatorship, California's insurance commissioner, John Garamendi, is proposing that bondholders be given the last priority. The assetss in the firm fall far below the claims, so bondholders would presumably suffer tremendous losses.

Although the circumstances are vastly different -- Mutual Benefit did not issue guaranteed investment contracts for these deals and the reasons for the conservatorships are dissimilar -- the philosophy behind the Executive Life prioritization could well be applied to Mutual Benefit's guaranteed bonds.

One dealer who represents bondholders affected by the put problems said Mr. Garamendi's portrayal of bondholders as speculators, rather than unwitting investors, should be countered. He asked for anonymity.

"These aren't greedy speculators," the dealer said. "That's not why those people bought these bonds. If you bought the original, you got 10-year, triple-A short-term paper."

He pointed out that Judge Levy set a "return date" of Aug. 5 for responses to the custodianship and suggested that neither the insurance commission nor the insurer would be likely to take definitive action on the put bonds until they obtained the blessing of the court. As a result, he suggested, every issue put between then and now could experience payment defaults.

The Mutual Benefit-backed bonds are further clouded by indenture clauses that appear to contradict an action taken by Commissioner Fortunato. When the firm was taken over by the department, Mr. Fortunato immediately sought to have all of the firm's businesses and $1.1 billion in assets transferred to a newly created firm: MBL Life Assurance Co., according to court documents.

Yet the bond indenture of the $26.6 million Broward County, Fla., deal expressly staets that any action that "will materially impair ... the Guarantor's obligations" will result in an event of default and the subsequent mandatory redemption of the bonds.

Iris Goldman, an official with the Montgomery County, Md., Housing Agency, said the authority's deal includes similar language. "The indenture calls for a 60-day period for alternate credit enhancement to be supplied or the debt is accelerated," she said.

Acceleration of the bonds in either case would be problematic because, if the project could not support it, the bonds would all default in the absence of the Mutual Benefit's payments, sources said.

Mutual Benefit was originally rated AAA by Standard & Poor's in November 1985. In May 1990, the rating agency dropped the life insurer's claims-paying ability to AA-plus. The rating was dropped to A in May of this year, and on July 12 the firm's rating was pulled altogether.

The following Tuesday, July 16, the ratings on all of the tax-exempt supported by the insurer were pulled as well.

Traders yesterday reported no secondary trading in any of the bonds affected by the seizure. Ten bonds of the $12.1 million South Carolina Housing Finance Authority 7 3/8% bonds to mature in 2007 were reportedly bid at 60 cents on the dollar, but no buyers stepped up, traders said.

In addition, John Nuveen & Co. yesterday announced that it held $41 million of the variable-rate put bonds in its tax-exempt money market funds.

Staff reporter Sean Monsarat contributed to this article.

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