California's insurance commissioner yesterday announced a "comprehensive" agreement in principle to sell Executive Life Insurance Co., but the plan ignores the $1.93 billion of debt tied up in municipal guaranteed investment contracts.

Commissioner John Garamendi succeeded in getting a group of French and Swiss concerns to sign an agreement that would divvy up the failed life insurance company: Six French and one Swiss firm would put up $300 million of capital and take over most policies, while another French firm -- Credit Lyonnais's Altus Finance -- would buy most of the company's junk bond portfolio for $2.7 billion.

The grand plan, however, must be approved by the Los Angeles Superior Court before taking effect. And the court has several other relevant matters to resolve first, a very large one being the disposition of the 16 municipal bond issues whose proceeds were invested in Executive Life GICs.

In Mr. Garamendi's original rehabilitation plan, the municipal GICs were to be "satisfied" at about 21 cents on the dollard, or 30% of the 70% that pension GICs and ther policyholders were slated to get. Yesterday's agreement would give policyholders a better deal -- at least 81 cents on the dollar -- and drops the fate of the municipal GICs altogether.

"These [municipal] GICs...are not generally recognized as conventional insurance products," a statement from the commissioner's office says. "Negotiations between the holders of muni-GICs and representatives of the commissioner have stalled, and litigation . . . to determine their classification will be heard before the court on Sept. 30."

A spokeswoman for the commissioner said the "stalled negotiations" were the primary reason for leaving the municipal GICs out of the plan.

Parties representing bondholders said the insurance commission never began negotiations in the first place. "That is nonsense. There have been no meetings of substance" since that meeting, said Robert Knight, head of the Bondholders Protective Committee and chairman of Alliance National Bank in Alliance, Kans.

The committee, which counts some 1,300 parties holding about $900 million of taxable GIC-backed issues, sent representatives to meet with Mr. Garamendi's special counsel, Carl Rubenstein, when the life insurer waas originally conserved in April, Mr. Knight said. Rather than discussing the claims of the GIC bondholders, he said, the commission simply announced the original 21-cents-on-the-dollar equation.

"This is not proper," Mr. Knight added. "We can't see why the [GIC bonds] shold be put in a clearly subordinate position to everything else."

The court's ultimate decision on "classification" will be a kay issue in the fate of the GIC-backed bonds: Mr. Garamendi essentially would treat them as claims from general creditors, while trustees and issuers are arguing that GICs are "policies of nsurance."

The commissioner's legal arguments hinge on the notion that municipal GICs are not covered by the California Life Insurance Guaranty Association and thus are not eligible for equal treatment with pension GICs and annuities. "We do not recognize them as class five claims under the insurance code," Mr. Garamendi said yesterday.

Mr. Knight said that both legal precedent and generally accepted insurance practices do treat the GICs as such claims. "GICs are a form of annuity," he said. "We're entitled to the same minority status as the other GICs."

A major tenet of the insurance commissioner's argument in the past has been that GIC-backed bondholders are predominantly "sophisticated investors and vulture funds," according to Mr. Knight and other officials.

Among the members of the committee, Mr. Knight said, are 800 individuals, several hundred banks--10 to 15 of which could fail if the GICs are not satisfied to a large extent -- religious organizations, and other charitable organizations.

"There's going to be a tremendous amount of pain and suffering out there," Mr. Knight said. "Most are people who bought them at or near par. his characterization is just plain wrong."

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