Zohar portfolio company Remco Maintenance closes abruptly amid lack of funds
02 May, 2017
Remco Maintenance, a company managed by Lynn Tilton and Patriarch Partners, is in the process of liquidating its remaining assets following an abrupt closure late last month, according to three former employees.
The latest shutdown by a borrower in the Zohar portfolio comes amid ongoing disputes between Patriarch and the new collateral manager, Alvarez & Marsal, over control of the underlying companies. Meanwhile MBIA, the owner of the Zohar I and Zohar II collateral, is attempting to maximize recoveries from the Zohar portfolios.
The nearly 100 employees at Long Island City, New York-based Remco received word on 21 April that the company would be shutting down due to a lack of funds to operate, two of the former employees said.
The company ceased operations that same day, they added.
Tilton, the founder and CEO of Patriarch, made the decision to close Remco’s doors, the three former employees said.
Remco, which restores and maintains building facades, is known around New York for its red trucks. The company has done work on Grand Central Station, the NYSE, and St. Patrick’s Cathedral, among other iconic New York buildings, according to its website.
On 21 April, the day Remco was closed, Tilton was in Delaware Chancery Court giving testimony in a case over the validity of irrevocable proxies she caused to be granted to herself for control of the companies. Alvarez & Marsal argues that the proxies are not valid.
Remco had experienced issues making payroll earlier this year, and closed down with outstanding amounts due on benefits for local unions, two of the former employees said.
“The paychecks started bouncing earlier this year,” said one of the former employees.
It’s a familiar refrain for Patriarch-managed companies, following the closures of multiple companies since early 2016, including TransCare, Duro Textiles, and NetVersant.
Remco had been in the news previously after a former CEO, Raymond Saleeby, sued Tilton for allegedly cutting off his unemployment benefits and denying him a vested equity stake worth USD 2.25m.
Patriarch’s three Zohar CLO vehicles were issued in the mid-aughts and financed loans to middle market companies like Remco. Remco owed almost USD 6m to Zohar I between a term loan and revolver borrowings, according to documents made available in a public auction last year.
MBIA, which assumed control of the Zohar I and Zohar II vehicles, is reliant on the value of the remaining collateral available through companies like Remco in order to recover amounts it paid as the insurer on the defaulted notes.
MBIA raised USD 325m of senior notes and USD 38m of subordinated notes late last year, both at 14% and due in 2020, to help fund its 20 January payment for the Zohar II. Those notes are backed by recoveries on the Zohar I and Zohar II collateral.
In a heavily-caveated presentation from last November, Houlihan Lokey estimated that Zohars I and II together would provide recoveries of between USD 799.2m – USD 1.211bn.
In early 2016, Alvarez & Marsal assumed the role of collateral manager for the Zohar funds, and has been engaged in court battles with Patriarch over access to information about the funds and equity and board control of certain companies.
MBIA declined comment.
Editor’s note: Subsequent to publication, Patriarch issued a statement to Debtwire confirming Remco’s closure. “We regret that Remco has been forced to cease operations,” the statement reads. “Unfortunately, Remco was unable to meet its obligations, and foreclosure by its lenders was the only viable option.”