Tiltons Patriarch Defends Bid to Tip Zohar Into Bankruptcy
Lynn Tilton’s Patriarch Partners LLC fired back in its battle over whether it can put into bankruptcy investment vehicles controlled by MBIA that are composed of loans to distressed companies.
Tilton’s Patriarch Partners XV LLC said Tuesday in a court filing in New York that it should be allowed to put the Zohar I fund into bankruptcy. The fund is one of three collateralized loan obligations, or CLOs, under the Zohar name managed by Tilton. All are made up of loans to distressed U.S. companies, including Dura Automotive Systems Inc. and Spiegel Catalog Inc.
Zohar, controlled by bond insurer MBIA, said this month that Patriarch’s effort to tip it into bankruptcy should be dismissed because it could disrupt global structured finance markets.
MBIA opposes Patriarch’s petition to put Zohar in bankruptcy, Greg Diamond, a spokesman for the insurer, said in a statement. MBIA said in a statement in November after it paid a claim to investors that Tilton’s allegations were “utterly baseless” and called her actions a “desperate and transparent effort to deflect attention and blame from her own failures and misconduct as the Zohar I collateral manager.”
In its Tuesday court filing, Patriarch said bankruptcy is needed to bar foreclosure by MBIA and that so far only two unnamed Zohar directors in the Cayman Islands have oppose it.
The directors seek primarily to protect a “cottage industry” in CLOs, Patriarch said in its filing.
“The parochial interests of the Cayman Islands CLO industry should not outweigh the interests of Zohar-I’s largest creditor and U.S. bankruptcy policy,” Patriarch said in the filing in White Plains, New York.
Patriarch has $286.5 million in debt issued by Zohar 1. It wants to restructure its own investment, a move that would affect MBIA’s investments. MBIA insured $149 million in notes issued by Zohar I and $805 million in notes issued by Zohar II, according to the filing.
Patriarch said its bankruptcy plan would allow it to pay MBIA in full, with interest. If there isn’t a bankruptcy and MBIA forecloses on its debt in Zohar I, it could maneuver to enhance its recoveries on its much larger stake in Zohar II, and also affect Zohar III, Patriarch said.
The case is Zohar CDO 2003-1, 15-23681, U.S. Bankruptcy Court, Southern District of New York (White Plains).
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