Lynn Tilton — known on Wall Street as the “Diva of Distressed” — just cried for the help of a bankruptcy judge.
The flamboyant financier — who gained notoriety for her racy outfits, as well as her penchant for sending steamy Christmas cards to clients — said Monday that the Zohar Funds she once managed have voluntarily filed for Chapter 11 protection.
That’s despite two legal wins in late 2017, in which Tilton had appeared to gain the upper hand in an epic legal battle with bond insurer MBIA and the funds’ investors.
Tilton, who runs New York-based buyout firm Patriarch Partners, stepped down as manager of the three funds in 2016 amid the litigation. The Zohar Funds, now managed by Alvarez & Marsal, control $2.5 billion in loans to distressed companies.
“It has become increasingly clear that value cannot be maximized in the litigious and charged atmosphere that currently exists,” Tilton, who is known as much for her flashy outfits as her turnaround prowess, said in a statement Monday.
The filing is expected to halt most of the legal proceedings and allow Tilton to work toward selling assets.
“Unfortunately, I have come to the conclusion that Chapter 11 is the only path forward to maximize the value of the Zohar Funds’ assets,” Tilton said.
Among the companies in Patriarch’s portfolio are MD Helicopters, Stila Cosmetics, and Spiegel.
By filing for Chapter 11 and having the dispute handled by a third party, Tilton can avoid the “feeding frenzy” between creditors, which would likely decrease the value of the funds, Robert Hockett, a professor at Cornell University Law School, told The Post.
This move could be viewed as a “good-faith effort to get space and proceed with what [Patriarch does]: turning around distressed companies,” Hockett said.
Ongoing business at companies indebted to the Zohar Funds will not be affected by the filing, Tilton said. And all claims are expected to be paid in full, she added.
Late last year, Tilton scored two significant legal wins. In December, a New York federal judge threw out a civil racketeering case filed by Alvarez & Marsal, which alleged that the distressed diva defrauded them out of $1 billion.
The judge’s decision came three months after Tilton was cleared of fraud allegations by the Securities and Exchange Commission, which claimed in 2015 she had bilked investors out of $200 million.
But despite the wins, Tilton’s troubles were not over — to the detriment of the funds she managed.
“The Zohar Funds have been tied up in litigation for years — with no effect other than to prevent me from refinancing the portfolio company loans and selling those same companies in order to maximize value for all of the funds’ stakeholders,” Tilton said.
Monday’s filing was not the first time the Zohar Funds sought Chapter 11 protection. In November 2015 — while battling with MBIA — they filed for bankruptcy protection, but following pushback from MBIA, Tilton ultimately stepped down from the funds.