LOS ANGELES -- A California judge is expected to rule by early next week on a modified rehabilitation plan for Executive Life Insurance Co.
Lawyers for trustees and under-writers about $1.6 billion of taxable municipal bonds concluded closing arguments late Monday on why they believe the modified plan still discriminates against their clients.
The taxable bonds are backed by Executive Life guaranteed investment contracts, and those bondholders are the last group opposing the rehabilitation plan.
Los Angeles County Superior Court Judge Kurt Lewin has held hearings over the last month on the modified plan. An all-day hearing Monday featured closing oral arguments. Final written briefs are due by Friday, and Lewin is expected shortly thereafter to issue his decision on the plan.
An initial plan approved by Lewin a year ago was rejected in March by a state appellate court. The modified plan is designed to address the appellate court's concerns, including eliminating a system that would have valued taxable Municipal bonds at the price paid, rather than the par value, for establishing recovery levels in a rehabilitated company.
In response, California Insurance Commissioner John Garamendi offered a modified plan that attempts to eliminate legal defects while still incorporating many features of the initial proposal. Under Garamendi's plan, a successor company known as Aurora National Life Insurance Co. would assume Executive Life's policies.
Lawyers representing trustees and underwriters of the taxable bonds, known as muni-GICs, concluded their arguments Monday by questioning whether the modified plan eliminates disparate treatment for various policyholders.
Among other things, the lawyers argued that policyholders who decide to "opt out" -- or withdraw funds rather than stay with the successor company -- will receive less than those who "opt in."
The taxable muni-GIC lawyers also challenged Garamendi's valuation method for claims, which they argued discriminates against their clients.
Despite these arguments, many observers of the case expect Lewin to approve the modified plan. Lewin constantly asked questions about the muni-GIC lawyers' claims, often in a challenging tone, while he generally remained a passive observer when proponents of the rehabilitation plan presented their closing arguments.
Philip Warden, a lawyer for the bond trustees, pleaded with Lewin to "fix the problems" to avoid having the appellate court reject the modified plan as well.
But Lewin responded that Warden seeks remedies "'according to your agenda and your view of fairness and equity." Lewin said Warden assumes "no one else will be dissatisfied" if the judge addresses the bond trustees' concerns, but Lewin predicted "there will be opposition" because other lawyers consider the modified plan to be a fair approach. Lawyers for holders of the taxable muni-GICs also reiterated an argument on Monday that their clients deserve restitution in connection with the appreciated value of Executive Life's former junk bond portfolio. That portfolio was sold for $3.25 billion in late 1991 to a French group led by Altus Finance.