Highland Capital Management unit files for bankruptcy protection
Highland Capital Management LP, a Dallas-based investment management unit of Highland Capital Management, filed for Chapter 11 bankruptcy protection Wednesday in Delaware, federal court documents show.
In a statement, Highland Capital Management said the bankruptcy filing is related to a potential judgment against the unit stemming from the liquidation of the Highland Crusader Fund, a credit hedge fund.
"Although Highland disputes the underlying claims, entry of the judgment in its maximum potential could result in a judgment against HCMLP greater than the entity's liquid assets. HCMLP's Chapter 11 filing was therefore necessary given its present liquidity position," the firm said in the statement.
The Crusader Fund has been in liquidation since 2011 under a plan approved by a committee of investors known as the Redeemer Committee. Highland Capital Management LP distributed $1.55 billion of the original fund balance of $1.7 billion between 2011 and 2016, the firm said in the statement.
The Redeemer Committee terminated Highland Capital Management LP as manager of the fund in 2016 and "initiated legal proceedings to make the Crusader investors whole for damages caused by Highland's willful misconduct in the course of its management of the liquidation of the Crusader Fund," committee spokesman William Braun said in an email statement.
In 2016, the investor committee hired Alvarez & Marsal Zohal Management to manage the fund and sued Highland Capital Management LP.
In his statement, Mr. Braun said the committee "secured an arbitration award of approximately $189 million based on findings of multiple instances of willful misconduct and breaches of fiduciary duty by Highland in its management of the Crusader Fund. We were prepared for a hearing to confirm the award, when Highland filed for bankruptcy. We are confident that we will recover the full amount of our award through the bankruptcy process."
An arbitration panel that is reviewing the investor lawsuit in Delaware Chancery Court issued a partial final award on March 6, but did not say how large the award would be.
According to a document, the Crusader fund had $128 million in assets as of Feb. 28 — far lower than the $189 million unsecured claim of the investors committee, which Highland Capital Management LP listed as its largest creditor in the bankruptcy filing.
In the bankruptcy document, Highland Capital Management LP estimated its assets and liabilities to total $100 million to $500 million each.
Highland Capital Management said in its statement than none of the other investment entities on its investment platform are affected by the bankruptcy filing and are operating normally.
Bloomberg contributed to this story.
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