Spokane conglomerate Metropolitan Mortgage files for bankruptcy
Seattle Times business reporter
The move, which the two troubled companies last weekend had warned was imminent, temporarily halts investor lawsuits and will let Metropolitan and Summit try to merge their operations and reach a deal with their creditors — mainly the people who bought their securities on the promise that they were safe, conservative investments.
Those investors will be asked to exchange that debt for stock in the new company.
Metropolitan and Summit expect to spend the next month negotiating with creditors and bondholders to come up with a plan to emerge from Chapter 11 and pay back as much of the $455 million they owe as possible, said William Smith, the companies' chief financial officer.
The company has between 14,000 and 15,000 bondholders, some of whom have multiple accounts, Smith said.
In a prepared statement, Smith acknowledged that "some members of the public have lost faith in us," and called reorganizing under the federal bankruptcy code a step toward regaining that faith.
"We all believe this filing affords the companies the best opportunity to restore the public's trust and maximize the payment to bondholders," he said. "We seek to emerge from bankruptcy as soon as possible and as a strong, vibrant, renewed entity operating with the highest level of competence and worthy of confidence and trust."
Smith said the companies were negotiating with lenders to raise $25 million in operating funds. He expected that some of the companies' extensive real-estate holdings across the United States would need to be sold to pay back bondholders and creditors.
He stressed that the group's three insurance subsidiaries are not part of the bankruptcy proceeding. Those companies — Western United Life Assurance of Washington, Old Standard Life Insurance of Idaho, and Old West Annuity & Life Insurance of Arizona — have been under state supervision in their respective states since December.
It may be a year before Metropolitan and Summit emerge from bankruptcy, Smith said.
The process is not likely to be smooth. Attorneys for one group of investors, who have filed a class-action lawsuit against the companies, immediately asked the court to appoint a trustee to run Metropolitan and Summit.
"Any plan that involves current management staying in control of the company is unacceptable," said Brad Jones, attorney with Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim in Tacoma.
The motion cites the many problems of Metropolitan and Summit — from the resignation of auditors Ernst & Young over what it said were misstatements in the companies' financial statements, to the finding that their in-house brokerage used misleading statements to market the companies' securities — to argue that the current management cannot be trusted.
Jones also cast doubt on the companies' turnaround plan. "The vast majority of people who invested in Metropolitan or Summit are elderly, many of them on fixed incomes, and many of them don't have the luxury of waiting years and years to see if this company can be magically turned around and become a profitable business," he said.
Although the bankruptcy filing halts lawsuits against the two companies, the parts of the suit filed by Jones' group against Ernst & Young and individual officers and directors can still go forward.
Also in bankruptcy court yesterday, the companies' brokerage arm, Metropolitan Investment Securities (MIS), filed a petition to liquidate itself.
It was an enforcement action against MIS last fall that sent the rest of the group into a tailspin. MIS was the sole seller of Metropolitan and Summit securities; the companies relied on proceeds from those sales to fund their operations and, increasingly, to pay off earlier investors.
The National Association of Securities Dealers (NASD) cited MIS' misleading sales practices and inadequate supervision of agents in fining the firm $500,000 and ordering it to refund millions of dollars to disgruntled investors. The NASD also barred MIS from selling any more securities, starving Metropolitan and Summit of funds.
MIS' main assets, which will be distributed to its creditors, are two restitution accounts set up on orders from the NASD and containing about $1.6 million. Since November, MIS said in a statement, it has repaid nearly $2.2 million to customers.
Information from The Associated Press is included in this report. Drew DeSilver: 206-464-3145 or firstname.lastname@example.org.
Copyright © 2004 The Seattle Times Company