Highland Capital Management LP, once a giant in high-yield debt markets, filed for bankruptcy protection Wednesday as investors and former employees seek more than $200 million from the firm for alleged improprieties, WSJ Pro Bankruptcy reported. The Dallas-based firm, founded by Jim Dondero, helped pioneer trading of corporate loans rated below investment-grade and managed about $39 billion in 2007, but it took heavy losses during the financial crisis and has been embroiled in lawsuits ever since. The company had been trying in recent weeks to settle some of the litigation it faces, warning its adversaries that it would seek bankruptcy protection if they didn’t compromise, people familiar with the matter said. Highland entered chapter 11 in U.S. Bankruptcy Court in Wilmington, Del., listing as its largest debt a disputed $189 million claim from investors in Highland Crusader Fund, a hedge fund that has been in liquidation since the financial crisis. The second-largest creditor is Patrick Daugherty, a former Highland portfolio manager who has been in personal and legal conflict with Dondero since 2012 and has an $11.7 million claim against Highland, according to its bankruptcy filing. A group of investors in Crusader sued Highland in 2016 in Delaware Chancery Court, demanding that Highland be fired as manager for delaying the fund’s liquidation and claiming that Highland wrongfully paid itself $30 million. The group subsequently won an arbitration award that Highland has yet to pay, court documents show.
