Four creditors of Mission Insurance Group have filed a petition seeking to force the ailing Los Angeles-based insurance holding company into Chapter 11 bankruptcy proceedings.
The filing Tuesday in U.S. Bankruptcy Court in Los Angeles could complicate a rescue plan announced by Mission and state insurance regulators in November to alleviate the firm's mounting problems and head off what could become one of the largest insurance failures in state history.
Mission's principal subsidiary, Mission Insurance Co., was declared insolvent and placed in a conservatorship by the state insurance commissioner on Oct. 31. Regulators said Mission's liabilities outstrip its assets by $169 million.
The petitioners, principally pension funds, are owed payments on public debt that the parent firm has intentionally delayed under a debt restructuring that is part of the rescue plan, said Marc S. Cohen, a Los Angeles lawyer representing the petitioners. Creditor approval of the debt restructuring is a precondition for approval of the rescue plan, Cohen said.
"It (the petition) would complicate the rescue plan, but I don't know whether it would kill it or not," said Joe Morton, deputy state insurance commissioner and conservator in charge of Mission. He said the petitioners had not seen details of the debt restructuring.
Also, if forced into Chapter 11, Mission's flexibility could be reduced. Under Chapter 11, a company can continue operating while it develops a reorganization plan to repay creditors, but certain rules govern which creditors must be paid first.
May Contest Filing
Chapter 11 proceedings could also complicate regulatory matters. Domestic insurance companies are excluded from the jurisdiction of federal bankruptcy courts, Cohen said. Therefore, if Mission is forced into bankruptcy proceedings, its insurance subsidiaries would remain under state supervision while the parent would come under federal scrutiny, he said.
Mission, however, is expected to contest the filing in order to stay out of bankruptcy proceedings, sources close to the firm said. A final determination over whether to place the firm into bankruptcy proceedings would be made by a federal bankruptcy judge following a trial.
U.S. Bankruptcy Judge Lisa Hill Fenning, who has been assigned the petition, has not set a trial date, a clerk said. Mission has 20 days to respond to the petition.
Spokesmen for Mission and Cincinnati-based American Financial Corp., Mission's largest shareholder with 49% of its stock, did not return phone calls.
The four creditors filing the petition were Martin J. Whitman, trustee of M. J. Whitman & Co. Pension Plan in New York; the Teachers Retirement System of Alabama; the Employees' Retirement System of Alabama, and Carl Marks & Co., a New York-based investment concern. Together they hold about $25 million of Mission's public debt.
The creditors are missing payment of about $950,000 in interest on the company's 9% sinking fund debentures due 2002, Cohen said. Another payment is due next week, Cohen said.
Under Mission's rescue plan, the company said it would postpone that payment and ask public debt holders to accept new notes with a lower face value. Mission also would shift some of its liabilities to a new unit, Mission American Insurance, which would get a $125-million infusion of capital from American Financial.