- 6 - As an additional inducement for the lenders to accept the investor notes from the partnerships as collateral, the partnerships negotiated and purchased financial guaranty bonds from Admiral Insurance Co. (Admiral). The bonds provided that in the event any limited partner defaulted on his or her obligations under the investor notes, Admiral agreed to pay to the lender(s) the amount due under the investor notes. The terms of the financial guaranty bonds provided that upon the satisfaction of the bond, the lenders were required to transfer the investor notes as well as the security agreements to Admiral. Concomitantly with the purchase of the bonds, the partnerships entered into indemnity agreements in which the partnerships agreed to indemnify Admiral against any loss on the bonds. In most instances, the partnerships' obligation under the indemnity agreements was secured by liens on real estate properties owned by the partnerships. Sometime in 1987 and 1988, the partnerships initiated bankruptcy proceedings and terminated payments on the partnership notes held by the financial lenders. Consequently, the lenders made demand on the limited partners who had contributed the investor notes, to the extent stipulated in the financial guaranty bonds. The limited partners, however, refused to honor the outstanding investor notes. The lenders, therefore, demanded and received a settlement from Admiral pursuant to the terms of the bonds.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011