Bondholders crossed another hurdle in their years-long battle with distressed-debt investor Lynn Tilton, after a federal judge ruled that the financier can be forced to sell her portfolio companies to repay about $1.8 billion in bonds, Bloomberg News reported. U.S. Bankruptcy Court Judge Karen B. Owens rejected Tilton’s claim that a 2018 deal with bondholders only required Tilton to “monetize” the portfolio companies, not actually complete a sale. Tilton also claimed that under the deal, Owens did not have the power to force a sale without her consent. That interpretation “would lead to an absurd result,” Judge Owens said yesterday in court. “We have now crossed another speed bump on the road to monetize the portfolio,” Owens added. “I anticipate there will be more.” Starting in 2003 Tilton put together three collateralized loan funds called Zohar I, II & III that borrowed $2.5 billion in order to buy distressed companies and distressed loans. About $1.8 billion of that debt matured without being repaid, according to court documents. The bondholders, including Bardin Hill Investment Partners and bond insurer MBIA Inc., have been fighting Tilton in bankruptcy court, arguing that she is dragging her feet on the sale of the portfolio companies, which she controls. Tilton says that she has hired investment bankers to start the sale process, and won’t be rushed into a bad deal.
