Metropolitan Mortgage, Summit Securities unsecured claimsholders may get pennies on the dollar

By Jeff Pines

Washington, Aug. 20 - Metropolitan Mortgage & Securities Co. Inc. and Summit Securities Inc. general unsecured creditors may get up to 15 cents on the dollar and 10 cents on the dollar within the next year, respectively.

Metropolitan Mortgage & Securities Co. Inc. and Summit Securities Inc. filed their disclosure statement and reorganization plan with the U.S. Bankruptcy Court for the Eastern District of Washington Thursday.

Unlike many other debt issues, Metropolitan and Summit securities are held by individuals and not institutional investors. Many purchased the securities for their retirement and are now left with little of their original investments, the disclosure statement said.

The companies failed because their staff lacked the training, experience or authority to take action when problems arose. Instead, they tried to hide the problems, which led to the companies' failure, the disclosure statement said.

In Metropolitan's case, the company estimates 10,000 investors hold $352 million in debt securities and $102 million in preferred stock. More than 6,600 investors own $112 million of Summit debt securities and several thousand more own $29 million of preferred securities.

The core assets of Metropolitan and Summit are estimated to be worth a total of $40 million, which will go to general unsecured creditors.

Metropolitan indirectly owned Western United Life Assurance Co., and Summit indirectly owns Old Standard Life Insurance Co. and Old West Annuity & Life Insurance Co. Metropolitan and Summit valued their equity at $184 million, but it is likely this figure "is substantially overstated."

The stock the two companies own will go into two liquidating trusts, one for Metropolitan claimsholders and another for Summit claimsholders.

A third trust will be created to try collect on insurance policies protecting directors and officers from liability. The trust's proceeds will go to increasing the recoveries for debt and equity security holders.

Both companies believe they have "substantial viable malpractice claims against their former auditors, PricewaterhouseCoopers and Ernst & Young LLP and other professionals involved in their financial reporting and other activities," they said in the statement.

Equity holders will get nothing.

The companies filed for bankruptcy on Feb. 4. Their Chapter 11 case number is 04-00757.

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