Lynne Tilton, founder of New York-based private equity firm Patriarch Partners, has announced that its main credit fund, Zohar I, has declared bankruptcy.
“We did not make this decision to file Zohar I for Chapter 11 protection lightly and have done so only after numerous good-faith attempts to accomplish a fair and transparent restructuring of Zohar I with MBIA outside of court," Tilton said in a statement earlier this week. “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.”
MBIA, for those not following the saga, is the largest creditor of Zohar I, holding almost $300 million in notes for the fund. Late last week Patriarch Partners defaulted on $149 million in notes insured by MBIA forcing it to take control of the fund.
Over the last decade Tilton has raised more than $2.5 billion from investors which has been used to provide loans to the distressed companies Patriarch Partners has acquired for the purpose of turning them around. To date she’s invested in more than 74 companies including Rand McNally and Spiegel Catalogs.
WP last reported
on Tilton in October when she was slapped with a $45 million lawsuit by German investors who claim Tilton’s sole purpose for running Zohar was to generate fat fees and not to improve the companies acquired by Patriarch Partners.
While Tilton argues that MBIA acted in bad faith in this situation, it sees the matter in an entirely different light.
“On Friday, MBIA Insurance Corp. honored its obligations and paid a claim on its insurance policy for the Zohar I CDO, which had suffered a payment default and for which Ms. Tilton has now filed a petition to place into an involuntary bankruptcy proceeding,” the company said in a statement. “MBIA intends to vigorously pursue its rights and remedies, and at the same time continue its efforts toward a global restructuring of all the Zohar transactions in order to maximize recoveries for itself and other investors.”
Once sitting on the top of the world, Tilton now faces bankruptcy proceedings on top of investor lawsuits and alleged fraud charges by the SEC.
The “Diva of Distressed” is now just distressed.