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Lynn Tilton And The Art Of F*ck-You-Pay-Me

Gird yourself for a masterclass in the ways of the Diva of Distressed.
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It's easy to cast aspersions at Lynn Tilton. Anyone can invoke her Cinemax-worthy Christmas cards or Coyote-Ugly workplace culture or relentless wardrobe (mal)functions to create some one-dimensional image of a sex-crazed villain. But it's another thing to truly appreciate the full scope and depth of her craft, the subtle and misunderstood art of Fuck You Pay Me.

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Luckily, Debtwire has us covered, with an expansive look at the scores of companies her Zohar investment funds have taken over, for good or ill. The picture these cases paint, in the aggregate, is somewhere between Henry Kravis and Genghis Khan. There are stiffed employees, jobs outsourced to Cambodia, whistleblowers fired for participating in federal investigations, lawsuits aplenty, bankruptcies galore. And somehow not one reference to oral sex.

Tilton's overriding ethos is nicely distilled in a single (alleged) quote of hers, included in a lawsuit filed by aggrieved former employees of an ambulance company that drove into bankruptcy: “You pay me first, payroll second, and then I don’t care who else you pay.” From Debtwire:

When you peel back the layers on many of the companies, what emerges is a picture of a CLO-backed private investment firm gone bewilderingly awry. Based on interviews with former employees and a Debtwire Investigations analysis of a profusion of documents churned out in dozens of court cases, there are repeated incidents of asset transfers and bankruptcy filings seemingly designed to avoid paying vendors; aggressive lawsuits against former employees; abrupt facilities closures that left workers jobless with unpaid benefits; and companies starved of cash, even as Patriarch and Tilton continued to pay themselves.

Examples abound of Tilton's Patriarch Partners hoovering up cash from portfolio companies as they reneged on payments to vendors, employees and basically anyone with a financial stake in the business. In one case, a California table and shelving manufacturer called Rapid Rack started stiffing its Chinese supplier, Zhongda, while Patriarch was busy “siphoning away” funds from the company, a subsequent lawsuit alleged. This worked great for Tilton, less so for the supplier:

In one poignant case exhibit, a China-based Zhongda employee tells a Rapid Rack employee via email that he needs the money to pay his workers. “[No] money, we will die,” the missive says.

That kind of thing apparently wasn't an isolated event:

“Some of the companies are essentially receiving goods and services for free, or cherry-picking which vendors they pay,” said another source familiar with Patriarch’s business practices. “You don’t really need a sound business model when you don’t have to pay your vendors.”

That's a great business model! It's a wonder more business moguls haven't thought of it. But one unfortunate side-effect of diving into Tilton's dealmaking prowess is the realization that some of her other The Lynn Tilton Podcast: A Dealbreaker Review

">personal mythology might not exactly reflect the reality other humans experience.

Over the years, Tilton has claimed that Patriarch has been responsible for creating hundreds of thousands of jobs. Debtwire analyzed these claims. Based on publicly available information from form 5500 labor filings, first day bankruptcy declarations, news reports, and statements from company executives, the companies employed approximately 40,000 people at or near the time of Patriarch’s acquisition. In the most recent available data, the companies employ approximately 24,000, or a 40% reduction.

That trail of destruction manages to go beyond what even the most fulsome of private equity critics cite when accusing the industry of harming the American worker. Lynn Tilton is the funhouse-mirror version of a private-equity chief, the sort of brazenly amoral wrecking-ball operator that the Private Equity Growth Capital Council American Investment Council spends millions every year to erase from the popular imagination.

Whether Tilton represents an anomaly in the private equity world or just the extreme end of a spectrum, we can't say. But if the Tilton Train does come sputtering to an end, it probably won't be because of employees allegedly ripped off or whistleblowers retaliated against or anything like that. The real cardinal sin is stiffing your investors. And that may be what finally dethrones the Diva of Distressed.

Lynn Tilton: Diva of Distressed or Diva of Destruction? [Debtwire]

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