Lynn Tilton’s Dura Files Bankruptcy so Tilton Can Buy it Back

(Bloomberg) -- Distressed-debt financier Lynn Tilton put Dura Automotive Systems LLC into bankruptcy with plans to buy the automobile parts company back at a court-approved auction.

The filing in Nashville, Tennessee, comes as Tilton continues several years-long court battles with creditors for ownership of many of the companies she controls through various funds and holding companies. One of those entities, Zohar III Corp., is also in bankruptcy, where it is under the control of a court-appointed, independent director.

Tilton blamed Dura’s filing on one of those ongoing disputes, saying the fight has blocked the company from getting the financing it needs to grow. Bond insurer MBIA Inc. has been leading the effort to seize many of the companies, claiming Tilton-related entities have failed to pay their debts.

Shortly after Dura filed for bankruptcy, Zohar filed court papers seeking to transfer the case to Delaware, where three bankruptcy judges have had roles in adjudicating parts of the MBIA-Tilton fight.

Tilton-Zohar Spat

Dura owes $105 million to Zohar, which has an indirect ownership interest in a majority of the shares of the auto parts maker, according to a filing in federal court in Delaware. When Tilton put Zohar into bankruptcy, creditors were able to strip her of control of the entity and install a retired federal judge to oversee it.

One part of the complicated fight between Tilton and MBIA involves a dispute over whether Tilton or Zohar owns 70 percent of Dura, according to court records. The two sides had been trying to jointly sell Dura outside of bankruptcy under a settlement that Tilton has attacked in court.

Zohar accused Tilton of putting Dura into bankruptcy in Tennessee “to avoid and circumvent the bargain she struck in the Delaware bankruptcy court.”

This is the second trip into bankruptcy for Auburn Hills, Michigan-based Dura, which listed $130 million in funded debt in court filings. Tilton’s Patriarch Partners bought the company for $125 million in 2010, less than two years after Dura exited bankruptcy.

What’s Included

Lawyers for MBIA didn’t immediately respond to requests for comment. A spokesman for Patriarch and Tilton declined to comment. The company will operate normally while it restructures its finances. Dura’s international units are not part of the bankruptcy.

Last year Dura tried to attract a buyer. Tilton plans to loan Dura $50 million to keep operating while it reorganizes and seeks to sell itself under court supervision, the financier said in a statement. During the bankruptcy, Dura would hold an auction for itself in which a company controlled by Tilton has agreed to be the lead bidder, according to the statement.

In bankruptcy, an owner must pay all creditors before being allowed to retain their stake. To get around this so-called absolute priority rule, owners can invest new money in a bankrupt company, or make the highest bid at a court-supervised auction.

The auto parts maker listed assets and liabilities of as much as $500 million in its Chapter 11 petition in the Middle District of Tennessee.

The case is Dura Automotive Systems LLC, 19-bk-06741, U.S. Bankruptcy Court for the Middle District of Tennessee (Nashville)

Story Link: Tilton’s Dura Automotive Systems Files for Chapter 11 Bankruptcy

--With assistance from Jeremy Hill.

To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Nicole Bullock

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