Zohar petitioning creditor Patriarch objects to case dismissal motion

By Caroline Salls

Pittsburgh, Dec. 30 – Zohar CDO 2003-1 Ltd.’s largest creditor and involuntary Chapter 11 case petitioner objected to the company’s motion for dismissal of the involuntary bankruptcy case, according to a Dec. 29 filing with the U.S. Bankruptcy Court for the Southern District of New York.

Patriarch Partners XV, LLC said it holds approximately $286.5 million in debt issued by Zohar. Patriarch said it filed involuntary petitions against Zohar in order to restructure its obligations, plus roughly $149 million in senior debt obligations held by MBIA Inc. and MBIA Insurance Corp., as well as to protect Zohar’s assets from foreclosure by MBIA.

Patriarch said the involuntary petitions are also designed to protect two other funds managed by Zohar-1 collateral manager Lynn Tilton.

“If MBIA obtains the debt positions owned by Zohar-I through foreclosure, MBIA will use those positions against the operating companies to enhance its recoveries not only on its exposure to Zohar-I, but also on its much larger exposure to Zohar-II,” Patriarch said in the objection.

Patriarch said many of these companies are also obligors of Zohar-III, an investment fund in which MBIA has no interests, and “MBIA’s scheme will certainly cause untold damage to Zohar-III, whose stated maturity is not until April 2019 and whose value is anticipated today to fully repay [Zohar] noteholders.”

Patriarch said it has developed a plan for restructuring the affairs of both Zohar-I and Zohar-II and has already drafted a plan of reorganization and related disclosure statement for Zohar-I. Under that plan, reorganized Zohar-I will pay MBIA in full with interest while preserving value for the notes held by Patriarch, the objection said, and Patriarch will subordinate any recovery on its notes to payment in full of MBIA.

Patriarch said Zohar’s two Cayman Island directors caused the company to file an answer to the involuntary petitions and the dismissal motion, although the Cayman Islands directors “have virtually no decision-making authority over Zohar-I.”

“Under the relevant documents, MBIA is the controlling party of Zohar-I. By virtue of such authority, MBIA has the exclusive authority to control the disposition of Zohar-I’s assets, not Zohar-I or its directors,” Patriarch said.

“With virtually no authority to direct the course of Zohar-I’s future, the directors’ duties are limited to ministerial functions designed to maintain Zohar-I’s compliance with Cayman Islands corporate law.”

Zohar is a Grand Cayman, Cayman Islands-based collateralized debt obligation. The involuntary petition was filed on Nov. 23 under case number 15-23680.

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