Highland Capital Management Files for Bankruptcy -- Update
October 16 2019 - 6:50PM
Dow Jones News
By Matt Wirz and Andrew Scurria
Highland Capital Management LP, once a giant in high-yield debt
markets, filed for bankruptcy protection Wednesday as investors and
former employees seek more than $200 million from the firm for
alleged improprieties.
The Dallas-based firm founded by Jim Dondero helped pioneer
trading of corporate loans rated below investment-grade and managed
about $39 billion in 2007, but it took heavy losses during the
financial crisis and has been embroiled in lawsuits ever since. The
company had been trying in recent weeks to settle some of the
litigation it faces, warning its adversaries that it would seek
bankruptcy protection if they didn't compromise, people familiar
with the matter said.
Highland entered chapter 11 in U.S. Bankruptcy Court in
Wilmington, Del., listing as its largest debt a disputed $189
million claim from investors in Highland Crusader Fund, a hedge
fund that has been in liquidation since the financial crisis. The
second-largest creditor is Patrick Daugherty, a former Highland
portfolio-manager who has been in personal and legal conflict with
Mr. Dondero since 2012 and has an $11.7 million claim against
Highland, according to its bankruptcy filing.
A group of investors in Crusader sued Highland in 2016 in
Delaware Chancery Court, demanding Highland be fired as manager for
delaying the fund's liquidation and claiming that Highland
wrongfully paid itself $30 million. The group subsequently won an
arbitration award that Highland has yet to pay, court documents
show.
In a statement, Highland said the bankruptcy filing was made "in
consideration of its liquidity profile" and stems from a potential
judgment in favor of a committee of Crusader Fund investors.
"We are confident that we will recover the full amount of our
award through the bankruptcy process," a spokesman for the Crusader
investors said.
Highland said it disputes the investors' claims but acknowledged
that the maximum potential judgment could exceed liquid assets.
Between 2011 and 2016, Highland distributed $1.55 billion to
Crusader Fund investors, completing 90% of the liquidation process,
according to the statement.
Mr. Daugherty, once one of Mr. Dondero's lieutenants, has been
fighting with his former employer in court since his departure in
2011. Mr. Daugherty has won several awards in those cases that he
has been trying to collect since at least 2014.
"I have been fighting Highland and Dondero for eight years to
redeem my name and get the compensation they took from me," Mr.
Daugherty said. "I look forward to working with other creditors to
make everyone whole."
Mr. Dondero signed off on the bankruptcy petition. Mark Okada,
who founded Highland with Mr. Dondero 26 years ago, announced his
retirement from the firm last month.
The fund manager is one of several investment platforms under
the same ownership, including Highland Capital Management Fund
Advisors LP and NexPoint Advisors LP, which didn't file for
bankruptcy. Investment and business activities on the platform are
operating in the ordinary course and are continuing without
disruption, a Highland spokeswoman said.
Highland has subpoenaed The Wall Street Journal related to the
litigation between the firm and Mr. Daugherty. Dow Jones, the
Journal's parent company, has challenged the subpoena and the
matter is pending.
A New York Supreme Court last year dismissed a defamation
lawsuit Highland filed against Dow Jones, Wall Street Journal
reporter Matt Wirz and Wall Street Journal editor Aaron Kuriloff
over an article in the Journal about the investment firm. Highland
has appealed the ruling.
Write to Matt Wirz at matthieu.wirz@wsj.com and Andrew Scurria
at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
October 16, 2019 18:35 ET (22:35 GMT)
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