Zohar funds file Chapter 11 bankruptcy, planning sale to unlock value

By Caroline Salls

Pittsburgh, March 13 – Zohar III, Corp. filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the District of Delaware.

Zohar funds owner Lynn Tilton said in a statement filed with the court that the Zohar funds’ assets and the cash flow from the monetization of “equity upside” interests in the portfolio companies, “have tremendous value.”

“Nevertheless, Zohar I and Zohar II have already defaulted, and Zohar III will likely default on loans maturing in March 2019, absent intervention from this court,” Tilton said.

“This substantial value is locked up in the portfolio companies and cannot be monetized for the benefit of all stakeholders as a consequence to the cloud of uncertainty and litigation tactics pursued by the Zohar funds’ new collateral manager, Alvarez & Marsal Zohar Management, at the direction of Zohar I and Zohar II’s controlling creditor, MBIA Insurance Corp., and Zohar III’s controlling class.

Tilton said negotiations with potential buyers and lenders have revealed that “though they are more than willing to engage in sale and refinancing transactions, they will only do so absent the ligation risk and with certainty that assets and equity will be delivered to them free and clear with no ongoing risk.”

As a result, Tilton said Zohar filed Chapter 11 to allow the court to oversee the process of unlocking the value in the funds through sales and refinancing of the portfolio companies.

“Only through this process will noteholders be made whole and will the residual value in the portfolio companies inure to me as the Zohar funds’ preference shareholder,” Tilton said.

The portfolio companies were not included in the Chapter 11 filing.

According to court documents, Zohar has an estimated $1 billion to $10 billion in assets and $500 million to $1 billion in debt.

The company said it did not know what unsecured claims were held against it at this time.

Young Conaway Stargatt & Taylor is representing Zohar in its bankruptcy cases.

Zohar is a Grand Cayman, Cayman Islands-based collateralized debt obligation. The Chapter 11 case number is 18-10512.

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