Tilton’s Patriarch Partners Wins Order Delaying Zohar Sale

  • Judge blocks Sept. 15 sale of collateral behind defaulted debt
  • Patriarch claims sale a "sham" to benefit insurer MBIA

Lynn Tilton chalked up a win in a fight over one of her former investment vehicles as a New York judge blocked Thursday’s planned sale of collateral backing loans in the fund.

The ruling delays the sale of collateral by the trustee of the distressed loan fund so that Tilton can negotiate auction terms that would result in more money for her firm, Patriarch Partners LLC. Her lawyers argued that the sale was a “sham” structured to benefit insurer MBIA Inc., which holds a $149 million claim, and that the collateral in the Zohar I fund should be sold later so that more bidders can participate in the auction. U.S. District Judge Sidney Stein Wednesday signed an order temporarily blocking the sale from going forward. 

"I want to make sure this auction is robust and that people have time to do it," said Tilton, who attended the hearing in Manhattan federal court after traveling by helicopter from Dover, Delaware, where she was in court for another Zohar-related suit. "I think this was a good result."

Tilton’s private-equity firm initially sued in state court over the sale, which involves 132 financial assets and 53 financial entities. It was later removed to federal court.

If done property, the assets sale involving property from 24 different industries should deliver “far more” than the $149 million claim of MBIA, which holds the most senior notes in the Zohar I fund, Patriarch said in its complaint. MBIA holds the notes because it paid that amount in claims to the original holders, according to Patriarch.

In the Delaware hearing, Tilton’s lawyers told a judge that the new managers of some of the Zohar funds aren’t entitled to more information about assets used as collateral in deals. The restructuring firm Alvarez & Marsal, which now oversees three distressed-loan funds formerly managed by Tilton’s Patriarch Partners, say its being denied access to asset files.

The case is Patriarch Partners XV v. U.S. Bank National Association, 16-cv-7128, U.S. District Court, Southern District of New York (Manhattan).

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