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Tilton Ordered to Sell Her Zohar Funds to Pay Bondholders (1)

July 14, 2020, 5:14 PMUpdated: July 14, 2020, 8:29 PM

Distressed-debt investor Lynn Tilton must comply with a previous agreement to compensate bondholders by selling the funds in her investment company Zohar Funds, a federal judge in Delaware ruled.

Tilton has resisted bondholders’ call to sell three of her collateralized loan funds—Zohar I, Zohar II, and Zohar III—she created in 2003 to borrow $2.5 billion to buy distressed companies. Bondholders say some $1.8 billion of that debt matured without being repaid.

Monday’s decision from Judge Maryellen Noreika of the U.S. District Court for the District of Delaware is another loss for Tilton, who’s been battling with bondholders over the sale for years. Zohar Funds filed for Chapter 11 bankruptcy in March 2018 to partly seek protection from the litigation.

Zohar Funds, Tilton, and bondholders reached a settlement in 2018, agreeing that the funds would be sold after a 15-month pause from litigation.

U.S. Bankruptcy Court Judge Karen B. Owens earlier this year rejected Tilton’s assertion that the deal only required Tilton to “monetize” the portfolio companies but not sell them.

Noreika’s ruling affirms Owens’ September 2019 order implementing the terms of the agreement.

In a related development, an attorney for Zohar told Owens Tuesday that Patriarch Partners LLC, the investment firm that Tilton runs, agreed to produce documents to help with the sale.

Patriarch recently handed over more than 600 pages of documents to Zohar and will turn over most of the rest by July 27, Joseph M. Barry of Young Conaway Stargatt & Taylor said at the bankruptcy court hearing. Complete documentation of Tilton’s claims to the funds is needed to reassure buyers that they are acquiring the Zohar funds free of claims, the funds said in court documents.

The parties will report back to the court Aug. 4, Barry said.

The case is In re Zohar III, Corp., D. Del., No. 18-10512, order 7/13/20.

(Updated to include details about a related hearing in bankruptcy court.)

To contact the reporter on this story: Leslie A. Pappas in Wilmington, Del. at lpappas@bloomberglaw.com

To contact the editor responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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