Pacific Mutual bid for First Cap gets nod.

L.A. lawyer spearheads Newport Beach insurer's offer

Under a schedule announced last week, Los Angeles Superior Court Judge Kurt Lewin will probably decide in late May whether to approve a bid by Newport Beach-based Pacific Mutual Life Insurance Co. to buy First Capital Life Insurance Co., a subsidiary of Century City-based First Capital Holdings Inc., which is operating under Chapter 11 bankruptcy protection.

The 250,000-customer, $4.5 billion-in-assets First Capital was seized last May by state Insurance Commissioner John Garamendi, following a policyholder run. First Capital is a big investor in high-yield bonds. The value of which sank sharply in 1990, but which since have rebounded.

On April 24, Garamendi selected Pacific Mutual's bid over that of three rival bids, subject to Lewin's approval, but he did not lift a veil of secrecy he has kept on the value of First Capital's assets.

The $50 billion-in-assets Pacific Mutual has announced plans to sell First Capital's now-valuable hoard of junk bonds as soon as possible, although it characterized the portfolio as troubled. "Pacific Mutual will immediately begin to liquidate First Capital's troubled junk bond and real estate holdings in a timely and orderly manner and replace them with investment-grade assets appropriate for a life insurance company," the insurer announced April 24.

Pacific Mutual's bid was spearheaded by Los Angeles lawyer Mark Bonenfant, of the downtown Los Angeles law firm Buchalter, Nemer, Fields & Younger, who last week predicted Pacific & Mutual's bid would be approved by Lewin.

"We feel confident that Pacific Mutual will acquire the First Capital Life business," said Bonenfant. "Lewin is not going to undertake a brand-new review." Lewin's role is to vouchsafe that Garamendi's conduct in selecting Pacific Mutual's bid was fair, said Bonenfant.

It is unclear whether the rival bidders -- New York-based Shearson Lehman Bros., Los Angeles-based Transamerica Occidental Life Insurance Co., and Leucadia National Corp., parent of Colonial Penn Life Insurance -- will make an all-stops-out effort to derail the Pacific Mutual bid in Lewin's court, or whether they will throw in the towel, said Bonenfant.

"We don't know what they (other bidders) are going to do," he said. "We'll just wait for their presentations on May 11."

So far, Lewin has heard presentations by Bonenfant and Garamendi on the attributes of Pacific Mutual's bid. Last week he recessed the court until May 11, when he will begin to hear presentations by the competing bidders.

Pacific Mutual is a 125-year-old insurer, the largest domestic life and health insurer in California. The company is regarded as healthy and recently made a run on Woodland Hills-based HealthNet, the big health maintenance organization.

Assisting Bonenfant in preparing the Pacific Mutual bid were Stephen Olds and John O'Bryan, partners in the downtown Los Angeles offices of CPA firm Coopers & Lybrand, and the New York financial house J.P. Morgan.

Bonenfant, along with partner William Woods, began working on the Pacific Mutual bid in January, with work building to a frenetic pace in April, he said.

Bonenfant's team gained access to a secret "data room" in San Diego, where First Capital records are sequestered. Only the four bidders, and their appointed lawyers and financial experts, have been allowed access to the room.

The secrecy has bothered First Capital Corp. creditors and shareholders, who have wondered loudly if the historic junkbond rally of 1991 and early 1992 has not more than restored First Capital's financial health.

It is not lawyer Bonenfant's first exposure to seized insurance companies; he also represented the so-called pension-GIC holders (a type of financial claim based on guaranteed investment contracts) in the collapse of First Executive Corp., the failed insurance empire founded by Fred Carr.

Pacific Mutual offered to First Capital policyholders 90 cents on the dollar of account values in the first three years of a five-year rehabilitation period, growing to 100 cents at the end of five years. The insurer will also inject $50 million into First Capital, and hire on First Capital staffers.