Mutual Benefit Life Insurance Co.'s plan to halt payments covering interest shortfalls on about $800 million of municipal bonds may have little impact on bondholders for at least the near future, trustees for several housing projects financed by the bonds said yesterday.

Trustees for some of the 44 tax-exempt housing bond issues backed by the failed insurer said they feel confident that project revenues would cover at least the next semiannual interest payment.

So far, only a San Diego project has notified bondholders of a default on bonds because Mutual Benefit did not make up the shortfall on a scheduled July interest payment.

In addition, the trustee for two 1983 Texas Housing Agency issues expressed concern about whether project revenues would cover an interest payment due Sept. 1.

"We would likely make some kind of pro rata payment" if project cash flows are insuffficient, said Lee Ann Anderson, a vice president and trust officer at Team Bank in Fort Worth.

The bank is the trustee for the Texas Housing Agency's multifamily housing revenue bonds, 1983 Series A and B. The Series A deal is $8.25 million and the Series B deal is $13.5 million. Both projects have been experiencing cash shortfalls, Ms. Anderson said.

Under terms of the standstill agreement, the bank has received from Mutual Benefit the bulk of the $403, 750 of interest due on the Series A bonds on Sept. 1 and the bulk of the $633,500 due on the Series B bonds, she said.

New Jersey regulators filed a rehabilitation plan for Mutual Benefit on Aug. 3 that gives policyholders' claim priority over those of guaranteed unsecured creditors, such as municipal bondholders.

As part of the plan, Mutual Benefit announced that it would stop making up shortfalls in interest on projects it guarantees after the Aug. 15 expiration of the standstill agreement.

Since being seized by New Jersey insurance regulators in July 1991, the failed insurer has paid $42 million in interest on bonds it backs as of June 30, said Mary Ann Green, a spokeswoman for Mutual Benefit.

The amount includes payments to cover interest shortfalls as well as regular interest payments on projects that Mutual Benefit owns. The company declined to identify bond issues on which it made payments for interest shortfalls or to name those specific issues.

The Housing Authority of San Diego, with a $36.8 million multifamily housing bond issue, has sent a default notice to bondholders, notifying them that they would receive only 60% of a scheduled July interest payment. Mutual Benefit provided a letter of credit for the bonds, but was unable to make up the July shortfall.

According to a notice sent to bondholders by the trustee last October, the San Diego project's revenues were falling about $1 million short each year of annual debt service.

The standstill agreement, signed by Judge Paul Levy in November 1991, prevented some bond trustees from foreclosing on housing projects backed by the insurer. As part of the agreement, Mutual Benefit made monthly interest payments to bond trustees. Trustees then placed the funds in reserve accounts, doling out interest to bondholders at semiannual interest payment dates.

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. When the company was seized by insurance regulators, 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 of the projects has been paid in full, partial payments have been made for some projects, not covered by the standstill agreement, on which cash flow has not been sufficient to cover total interest payments.

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