U.S. private equity firm Patriarch Partners LLC said on Sunday it filed to put the Zohar I debt fund into Chapter 11 bankruptcy to protect against efforts by MBIA Inc to obtain the assets of Zohar, which invests in Patriarch’s portfolio companies.
Patriarch filed an involuntary bankruptcy against Zohar because Patriarch no longer controls the fund. MBIA took control after Zohar defaulted on $149 million of notes on Friday. Those notes were insured by MBIA.
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“We believe the Chapter 11 process now presents the best way for Zohar I to restructure its finances while preserving the value of the portfolio companies it owns on behalf of its key stakeholders, ” Patriarch Chief Executive Officer Lynne Tilton said in a statement.
Founded by Wall Street veteran Lynn Tilton in 2000, Patriarch, through affiliated investments funds, has had ownership in and restructured more than 240 companies with combined revenues in excess of $100 billion, the company says.
Separately, Tilton has been battling fraud allegations filed by the Securities and Exchange Commission (SEC), questioning her management of the funds. She denies wrongdoing. The SEC says many of the companies in which Patriarch has invested are doing poorly.
According to the SEC complaint, the Zohar funds are three collateralized loan obligation funds that have raised more than $2.5 billion from investors used to make investments to distressed companies.
Tilton’s platform is the largest woman-owned business in the country, managing 74 companies, including investments in Dura Automotive, Stila Cosmetics, Rand McNally, Spiegel Catalogs and MD Helicopters.
Tilton invests in troubled companies then bundles loans to them into packages, which are sold to investors.
Zohar I (Lynn Tilton-Garfinkle named the fund after the Zohar the literature of Jewish mystical Kabbalah) of was founded in 2003. Patriarch is the fund’s largest creditor, holding $286.5 million of its notes, the statement said. MBIA is another Zohar I creditor, Patriarch said.
Patriarch is seeking court approval for a re-organization plan that will repay MBIA in full, while “maximizing value” for Patriarch, said Tilton, alleging MBIA and MBIA Insurance Corp had acted in “bad faith” in restructuring discussions.
“This proceeding, like her recent lawsuit, is a desperate and transparent effort to deflect attention and blame from her own failures and misconduct, ” said the insurer in a statement.
Patriarch has likely set up a fight against MBIA for control of the case, and Tilton’s firm fired the opening shot in papers filed Sunday with the U.S. Bankruptcy Court in Manhattan seeking control.
“Zohar-I’s restructuring will not move forward if MBIA is left in charge, ” Patriarch said, adding “MBIA’s scheme is to take Zohar-I’s assets in a fire sale.”
Tilton continued: “Our decision to file Zohar I for bankruptcy and to seek court approval for a plan of reorganization that will pay MBIA in full, while maximizing value for Patriarch, only emerged when it became clear that MBIA had acted in bad faith throughout our discussions. A Chapter 11 filing is now the only course of action available that allows us to continue our efforts to turn around and build value at the portfolio companies, preserve their value on behalf of all of our stakeholders and protect the jobs of the tens of thousands of our portfolio companies’ employees.”
