Zohar, Patriarch mediator closes mediation with no settlement reached

By Caroline Salls

Pittsburgh, Aug. 22 – Zohar III, Corp.’s court-appointed mediator announced Thursday that another mediation session was held with no settlement reached, according to a notice filed with the U.S. Bankruptcy Court for the District of Delaware.

As a result, mediator Kevin Gross said he “deems the mediation over which he presided to be closed.” In addition, Gross resigned his position as mediator.

Last week, the mediator asked the court to stay related litigation so Zohar and Patriarch Partners could return to mediation.

Gross said Patriarch Partners made several proposals as part of an earlier nine-hour mediation session. He said a dispute exists between the parties about whether a sale/monetization process included in their settlement expires on Aug. 22.

In response to the proposals, the mediator said Zohar requested several documents to allow it to assess the proposals, and Patriarch was not happy with the extent of discovery requested.

As previously reported, Zohar III secured parties Patriarch Partners XV, LLC, Octaluna, LLC, Octaluna II, LLC, Octaluna III, LLC, Patriarch Partners, LLC, Patriarch Partners VIII, LLC and Patriarch Partners XIV, LLC objected in October 2018 to the company’s motion for use of cash collateral.

Through the cash collateral use order, the secured parties said the MBIA/Zohar controlling parties are trying to renegotiate essential terms of a settlement agreement approved by the court in May 2018 “by imposing on the debtors terms and conditions for the use of cash collateral that vitiate these cardinal principles and other essential elements of the settlement agreement, as well as a prior order of this court holding in abeyance the allocation of the independent directors’ fees.”

The secured parties said the Zohar III debtors propose a stipulation in the cash collateral order that other stakeholder creditors’ liens and claims will be allowed without challenge, resulting in an “undisclosed $148 million windfall to MBIA that violates the settlement agreement.”

In addition, the secured parties said the proposed order impairs the Zohar III debtors’ and Patriarch’s ability to satisfy settlement agreement milestones if creditors are paid 50% of specified amounts set in the settlement by Aug. 21, 2019 and expands the creditors’ access to confidential information “beyond the narrow information rights that were negotiated under the settlement.”

Zohar is a Grand Cayman, Cayman Islands-based collateralized debt obligation. The company filed bankruptcy on March 11, 2018 under Chapter 11 case number 18-10512.

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