American Continental Corp., the owner of Lincoln Savings & Loan Assn., filed for bankruptcy court protection from creditors Thursday, apparently killing a proposed sale of Lincoln and increasing the chances it will be seized by S&L regulators.
Lincoln, based in Irvine, was not included in the bankruptcy filings, which included 11 other American Continental subsidiaries. But the parent company's action could trigger a legal battle between creditors and federal regulators over control of Lincoln's assets, according to regulatory officials and other sources.
American Continental Chairman Charles H. Keating Jr.--a politically connected Arizona developer who has been involved in numerous battles with S&L regulators in recent years--said in a prepared statement that the bankruptcy petitions were filed after federal regulators demanded that he sign an agreement that "requires relinquishment of control of Lincoln and its subsidiaries" to the Federal Savings and Loan Insurance Corp. Keating said he refused to sign the agreement.
Keating also said he had "received confirmation" that the Federal Home Loan Bank Board, the parent of FSLIC and the principal federal S&L regulator, opposes the proposed sale of Lincoln for $200 million to an investor group led by former congressman John H. Rousselot.
Mark M. Connally, a spokesman for American Continental, said Lincoln "will be open for business as usual" today.
'Only Course of Action'
But the Chapter 11 bankruptcy filing jeopardizes the holdings of investors who own about $200 million in American Continental subordinated debt. Much of the debt was sold in small denomination bonds to customers of Lincoln's 29 branches in the Southland, and an estimated 12,000 Southern Californians own American Continental bonds.
In the prepared statement, Keating said the bankruptcy petition was "the only course of action that will maximize the value of Phoenix-based American Continental for the benefit of our bondholders and shareholders."
Lincoln S&L, with about $5.5 billion in assets, represents about 85% of American Continental's total assets. But regulators have said the S&L faces huge potential losses from bad investments and have tried to force American Continental to pump a massive amount of new capital into the S&L.
American Continental has been trying unsuccessfully to sell Lincoln since mid-1988, but three deals already have fallen through. Rousselot, a former Republican representative from Arcadia, was the fourth potential buyer.
One source close to the negotiations among Lincoln, Rousselot and the regulators said the government wanted an immediate infusion of about $200 million in cash while Rousselot was offering only $50 million now, with an additional $150 million to be raised during the next 3 years.
By publicly announcing that the bank board wanted him to sign a consent agreement turning over control of Lincoln, Keating is putting pressure on regulators to quickly seize the S&L, several knowledgeable sources said. At the same time, by refusing to relinquish control of Lincoln and throwing American Continental into bankruptcy court, Keating has the stage for a legal battle over Lincoln's assets.
Because the holding company owns all of Lincoln's stock, it could be difficult for regulators--should they take control of the S&L--to sell it or liquidate its assets because the disposition of any of American's assets, which include Lincoln, will have to be approved by a federal bankruptcy judge, according to an attorney with one of the regulatory agencies.
Karl T. Hoyle, a spokesman for the bank board, said regulators believe that because an agency of the federal government insures S&L depositors for up to $100,000, the depositors would have precedence over any other creditors. Thus, he argued, the insuring agency, the FSLIC, would have precedence over the bankruptcy court in deciding the fate of Lincoln and its assets. But Hoyle said the issue is probably one that will have to be resolved in court.
Keating, who declined to be interviewed, is a flamboyant and controversial figure. He is a former Navy flier-turned-developer who is heavily involved in conservative political causes not only in Arizona but throughout the country. He funded a drive to close down an adult theater in Santa Ana last year.
Keating has helped finance the political campaigns of numerous political figures, including the unsuccessful presidential bid of former Texas Gov. John B. Connally--whose son, Mark, now works for American Continental. Keating early in 1987 enlisted U.S senators Alan Cranston of California, Dennis DeConcini and John McCain of Arizona, John Glenn of Ohio and Donald Riegle of Michigan to lobby the bank board to halt an audit of of Lincoln.
He also has been accused of attempting to bribe business rivals and political opponents--former Federal Home Loan Bank Board Chairman Edwin Gray, long a critic of Lincoln's unorthodox investment strategies, said Keating offered to place him in a high-paying job with the S&L if he would resign from the regulatory board.