Griping bondholders query professional fees, bond values in First Executive case.

For the first time, questions about professional fees and certain new questions about the bond values in the Executive Life portfolio were raised before the state Court of Appeal last week in a brief filed by lawyers for disgruntled bondholders.

Executive Life was the California life insurance subsidiary of Los Angeles-based First Executive Corp., which declared bankruptcy in 1991. More than 400,000 policyholders were thrown into the lurch by the bankruptcy.

So too into the lurch went holders of a type of annuity, known as the muni-GIC, an acronym short for municipal investment contracts what can back municipal bonds. There are about $1.9 billion of muni-GICs outstanding.

State Insurance Commissioner John Garamendi seized Executive Life after the bankruptcy and devised a plan to rehabilitate the insurer, which had about $8.35 billion in assets at the time, taking into account the reduced market value of junk bonds in the insurer's portfolio.

Under the Garamendi plan, most of Executive Life's hoard of junk bonds -- about $7.56 billion worth, face value -- were sold to the French-backed Altus Finance for $3.25 billion in October 1991. Altus Finance is part of the big French bank Credit Lyonnais.

Related to that sale, the French group Mutuelle Assurances Artisanale de France was to take over Executive Life and inject another $300 million into the insurer.

When the dust cleared, policyholders would get about 72 cents on the dollar under the Garamendi plan, but some muni-GIC holders would receive only 22 cents.

But before that could happen, the muni-GIC holders contested their treatment in the Garamendi plan to the courts. The plan requires approval by the state court system, and the muni-GIC holders hired law firm Pillsbury, Madison & Sutro to represent their claims.

The muni-GIC holders appear on the verge of winning a ruling from the state Court of Appeal which could direct Garamendi to treat the muni-GIC holders on equal footing with ordinary policyholders.

In a brief filed before the appeals court March 4, the muni-GIC holders also asked that certain legal fees, particularly those paid by Garamendi to the law firm Rubenstein & Perry, be reviewed. The money for the fees has been coming out of the First Executive estate.

According to the brief, filed by Robert Wallen in the Los Angeles offices of Pillsbury, Madison, "To date, more than $60 million have been paid to professionals ... it seems clear that the compensation requested, particularly by the law firm of Rubenstein & Perry, is excessive and unreasonable."

The Wallen brief also cited testimony of bond experts who estimated that the Executive Life junk bond portfolio, if sold in an orderly process over a four to seven month period, could have yielded as much as $5.5 billion, not the $3.25 billion that Altus Finance paid.

The lawyer said that it is possible that the bond sale to Altus will be effectively rescinded, although "not without a fight. The French are not just going to walk away from a billion dollars."

Altus Finance could not be reached for comment last week.