Lynn Tilton’s Patriarch Partners has been fighting with a unit of bond insurer MBIA Inc. since at least 2009 over securities they created together starting in 2003, according to Bloomberg News. Patriarch bundled loans to troubled companies into a series of complicated securities known as collateralized debt obligations totaling more than $2.5 billion, only to see one of the instruments default last year. That CDO, known as Zohar I, is selling its assets with some $400 million of face value in an out-of-court liquidation auction on Wednesday. The outcome is crucial to MBIA Insurance Corp., the unit that guaranteed portions of two of the three Zohar CDOs. Valuations for assets in Zohar I will give a sense of MBIA’s possible losses from Zohar II, which comes due in January and for which the insurer guaranteed $770 million of securities. Zohar III, which MBIA has no involvement in, matures in 2018.
