By James Langton
(November 7 – 11:10 ET) – The Wall Street Journal reported yesterday that bondholders of Confederation Life Insurance Co.will get all their money back and more after a long fight led by UBS Warburg.
Confederation Life collapsed in 1994, leaving about US$9 billion of claims against it by policyholders and creditors. UBS organized Confed’s jilted bondholders and fought a plan by the original court-appointed monitor, Deloitte & Touche, to treat all claims equally, returning about 49¢ on the dollar to all claimants.
The newspaper says that UBS thought bondholders were in a stronger legal position and should get a greater recovery, so it opposed Deloitte’s plan. Bondholders voted down the monitor’s plan in October 1995.
UBS then started in negotiations with Michigan’s insurance commissioner (Confederation had been regulated in the United States by Michigan), and the court-appointed liquidator, KPMG Inc. In February 1996, they agreed to separate the liquidations of the U.S. and Canadian assets.
The Canadian estate agreed to make an initial payment of more than $300 million of its $700 million in assets to the U.S. estate, with the agreement that if a surplus were left over after the liquidation in the U.S., the extra funds could flow to other creditors.
The WSJ reports that Confederation’s U.S. assets were sold for more than originally expected, so U.S. and Canadian regulators have recovered 100¢ on the dollar for policyholders of the failed insurer.
On October 26, the bondholders and other creditors received a distribution of $159 million, adding to a $396 million payment they received two years ago. That brings the recovery to 4% more than the original value of the assets. And UBS says it expects up to another 21¢ on the dollar will be distributed within the next couple years, bringing the total recovery to 125¢ on the dollar.
By James Langton