New Jersey insurance regulators have filled a rehabilitation plan for failed Mutual Benefit Life Insurance Co., state Insurance Commissioner Samuel F. Fortunato announced Tuesday.

The plan filed late Monday with Judge Paul Levy, gives Mutual Benefit policyholder's claims priority over guaranteed unsecured creditors, including the holders of about $800 million of municipal bonds backed by the Newark, N.J.-based company. Judge Levy is overseeing the rehabilitation of the failed insurer and must approve the final plan.

In addition to the bondholders, three large banks that entered into interest rate swaps with the insurer valued at between $55 million to $114 million are labeled as unsecured creditors, and none is expected to receive distributions under the rehabilitation plan, said Mary Ann Green, a spokeswoman for the insurance company.

After the expiration of a standstill agreement on Aug. 15 that prevents some bond trustees from foreclosing housing projects financed by the bonds, "We will not be making up shortfalls in interest payments. Whatever the [projects'] cash flow supports on interest payments will be made," Ms. Green said.

Bonds backed by Mutual Benefit were issued by state and local governments, largely to finance real estate developments, many of which are government-assisted housing projects.

Mutual Benefit was placed into rehabilitation because problems with its real estate portfolio led to a surge of withdrawals and policy surrenders that threatened its financial health. After the company was seized by New Jersey insurance regulators in July 1991, it declared a moratorium on the redemption of municipal bonds it guarantees.

Since then, the company has continued to make interest payments on the bonds. While interest on most projects has been paid in full, partial payments have been made for some projects on which cash flow has not been sufficient to cover total interest payments and were not covered by the standstill agreement, Ms. Green said.

Now that the rehabilitation plan has been filed, insurance officials have 60 days to finalize agreements with participating state guarantee insurance associations and a consortium of life insurance companies headed by the Prudential Insurance Co. of America and the Metropolitan Life Insurance Co., which have tentatively agreed to guarantee policyholder claims.

Insurance officials and Victor H. Palmieri, deputy rehabilitation and chief executive officer of Mutual Benefit, have asked the court for a 90-day period for the submission of bids from outside investors to purchase Mutual Benefit and for the recording of objections to the rehabilitation plan.

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