The colorful and controversial reign of Lynn Tilton at MD Helicopters is over. Tilton appears to have relinquished control of MD Helicopters and other portfolio companies of Patriarch Partners following rulings by a Delaware bankruptcy court earlier this month. MD is continuing normal operations. Tilton served as CEO of both Patriarch and MD.
Patriarch bought “distressed” companies via funding from a series of collateralized loan obligations (CLOs) marketed through Patriarch via its $2.5 billion “Zohar” funds. Tilton placed the funds into bankruptcy in 2018 in what now appears an unsuccessful attempt to keep Patriarch’s portfolio from being liquidated by Zohar creditors including bond insurer MBIA, which insured $1 billion worth of Zohar notes. Combined debt of the funds is estimated at $1.7 billion.
At one point Tilton said Patriarch controlled 70 companies, but by the time of the Zohar bankruptcy filing that number has shrunk to 25. Tilton’s efforts to restore these companies to profitability resulted in several high-profile bankruptcies including those of Dura Automotive and American LaFrance. Others were sold for substantial losses.
Tilton consistently maintained that MD was owned by her personally as opposed to Patriarch, but did tell this reporter in 2017, that Zohar funds had made loans to MD. She acquired the company in 2005 and rebuilt it thanks in large part to substantial foreign military sales of militarized MD500 series single-engine helicopters whose design harkened back to the Vietnam War when the company was known as Hughes Helicopters.
Those foreign military sales drew the attention of federal law enforcement when it was revealed that in 2012 Tilton had hired a former high-ranking Army officer who ran the service’s non-standard rotary wing office, the entity responsible for procuring MD 530F/G light attack scout helicopters for the Afghan Air Force. The officer, Norbert Vergez, entered into a plea-bargain on unrelated federal charges of felony conflict of interest and neither MD nor Patriarch were charged in the case. However, his hiring did trigger a federal whistleblower complaint by two former MD executives. In their complaint, the executives cited the “level of Col. Vergez's subservience to Tilton and his continuing involvement in MD's Army contracts” after accepting a job offer from the company. He no longer works at Patriarch.
In 2015, the U.S. Securities and Exchange Commission charged Tilton and Patriarch with defrauding investors by failing to properly value the Zohar funds’ loan assets and subsequently collecting $200 million worth of management fees to which they were not entitled. The SEC dropped the charges in 2017 after a bruising legal battle, but by then much of Patriarch’s portfolio was in tatters. Investors sued claiming gross mismanagement. Bankruptcy specialist Alvarez and Marsal was named to manage the Zohar funds and then filed $1 billion suit against Tilton and Patriarch charging “a toxic mix of fraud, theft, and mismanagement.” Like the SEC action, the suit was dismissed. However, the judge in the case wrote a scathing opinion charging Tilton and Patriarch with “pillaging” its companies and re-directing Zohar equity to the defendants’ benefit.
In 2018, Tilton and bondholders negotiated a plan whereby Tilton would be allowed to manage and sell the portfolio companies to satisfy debt, but the deal quickly unraveled after Tilton was accused of stalling the sales. In February, a federal bankruptcy court judge ruled that the court could authorize such sales without Tilton’s consent. That ruling was amplified this month, a move that set the stage for Tilton’s departure.
While Tilton did rejuvenate MD through foreign military sales, the company was less successful when it came to modernizing its civil helicopter offerings. Programs to launch new variants of the MD600 single and MD 902 twin stalled. MD also failed to win competitions for the Army’s Light Utility Helicopter (LUH) and Future Attack Reconnaissance Aircraft (FARA) programs. Under Tilton, MD was also known for mercurial management and the short tenure of senior executives.
When Tilton acquired MD in 2005, she called it “a company that was 20 years broken.” Reflecting at this year’s Heli-Expo, she said MD had evolved from an empty shell to a stable, going concern. “Nothing has my heart or my time any more than this company. It’s really been a comeback story. We have a long way to go and lots to do, but when I walked into this company [in 2005], it didn’t have a production line; I had nobody that would supply us airframes; I had 365 grounded aircraft." Tilton predicted that MD would deliver 80 aircraft in 2020.