Lynn Tilton Forgoes LP Dollars for Her Own

Why spend time wrestling money away from tight-fisted investors when you’re sitting on a pile of your own cash? Lynn Tilton, CEO of distressed investment firm Patriarch Partners, plans to invest a significant amount of “Lynn Tilton dollars” into a new bank holding company project, she said during today’s Reuters Distressed Summit.

The project will take precedent over any fundraising efforts by Patriarch Partners, she said. In June, Tilton told peHUB that the firm’s latest fund, Zohar III, was 80% deployed and that she would likely come to market with a new effort in September. Zohar III is a $1.25 billion pool which closed in 2007.

But that fund has been placed on the back burner as Tilton seeks to capitalize on the void of lenders currently serving small and mid-market companies. “Large banks are not making small loans and regulators are telling them not to,” she said.

Work is underway for her bank holding company project, which would involve buying or creating a bank and expanding with strategic acquisitions. She said she expects to “make a lot of headway” in the next three to five months.

Tilton has been vocal about her views on the woes facing small and mid-market companies since the collapse of Lehman Brothers. She recently launched SMERescueLoans.com as part of a program she proposed to the White House and Treasury in August. It would allocate PPIP money, alongside money from private investors, to small and mid-market companies desperate for cash.

Tilton said she has a great fear of a collapse at CIT, the mid-market lender that recently restructured its credit lines to avoid bankruptcy. If regulators allow CIT to fail, the world could see another financial collapse, she said. She cautioned that the firm’s restructuring plan is unsustainable because of its high cost of capital. Separate from CIT, she predicted as many as 1000 bank failures.

Currently Patriarch Partners has 73 companies in its portfolio. The firm is working on three to four more deals and plans to continue to be a very active buyer, she said. With Patriarch’s penchant for buying bankrupt or near-dead companies, the firm’s approximate $250 million in dry powder could go relatively far. Still, Patriarch will need to return to market eventually.

The moderator closed Tilton’s Summit interview by asking what she has personally cut back on in the recession. Known for her bold style, Tilton quipped, “Obviously not clothing.”

Previously:
Lynn Tilton Wants To Save The Middle Market (But Can’t Do It Alone)

Lynn Tilton of Patriarch Partners on Speigel, AriZona Iced Tea, Not-Bankrupt Stila Cosmetics, and a Possible New Fund

Kind Of A Big Deal-Patriarch Partners

Check out full coverage of the summit at Reuters.com