NEW YORK, Feb 5 (Reuters) - Wall Street financier Lynn Tilton on Friday said her firm Patriarch Partners LLC will become a "family office" and will step down as collateral manager of three investment pools that helped fund her portfolio of troubled companies.
The decision follows years of legal battles with the bond insurer MBIA Inc.
It also followed Patriarch's bid on Nov. 22 to put one of the pools, a collateralized loan obligation called Zohar I, into involuntary bankruptcy to keep MBIA from seizing its assets.
That effort came two days after the CLO defaulted on some notes, forcing MBIA to make a $149 million payment. Tilton and Patriarch will withdraw their opposition to MBIA's bid to dismiss the involuntary bankruptcy petition.
In a statement, Tilton said Patriarch will "operate as a family office and private equity company," managing the more than 70 companies in her portfolio, including Dura Automotive vehicle parts, Rand McNally travel guides and Spiegel catalogs.
Tilton, who will remain chief executive, said the changes are in her investors' best interest.
"Constant litigation between Patriarch and MBIA that began in 2009 and continues today has created an unproductive and untenable relationship between parties who by definition should be aligned," Tilton said.
MBIA spokesman Greg Diamond declined to comment.
Tilton is known as the "Diva of Distressed" for her efforts to turn around troubled companies, and also known for a flashy style that includes short skirts and once included plans to star in a reality TV show about her business.
Zohar I, known formally as Zohar CDO 2003-1, was created by Tilton in 2003. Patriarch has said it held $286.5 million of its notes, but that MBIA has "exclusive" control over how to dispose of the CLO's assets.
The other two CLOs from which Patriarch is stepping down as collateral manager are also named Zohar.
The U.S. Securities and Exchange Commission last March filed civil fraud charges accusing Patriarch and Tilton of hiding the poor performance of assets underlying the Zohar CLOs, for which they raised more than $2.5 billion.
Both have denied wrongdoing. The case was put on hold last September by a federal appeals court. (Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)