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Jim Dondero, the distressed debt investor who was as soon as a scourge of personal fairness, is the type of hard-charging financier you would possibly examine in a novel. The truth is, Dondero thinks it doable that you’ve got examine him in a novel — one which, strikingly, was written by a federal decide who’s overseeing the chapter of Highland Capital Administration, his as soon as high-flying funding agency.
Highland’s rise and messy fall is a narrative for the ages. Throughout the go-go years, guests to Dondero’s Dallas workplace reported that the employees there labored underneath the glassy gaze of animals that he had shot useless from his porch. The agency raked in billions of {dollars} of capital within the years earlier than 2008, investing a few of it on client debt, actual property, even undesirable life insurance coverage insurance policies. Its core enterprise, although, was proudly owning the debt of corporations that had been purchased by personal fairness companies.
Dondero’s enthusiasm for personal fairness was generally unrequited. A number of the greatest US buyout companies grew so uninterested in their shouting matches together with his underlings that they tried to freeze Highland out of proudly owning debt issued by the businesses they purchased. But the agency was tough to keep away from, and had a status for being fast to threaten authorized motion when offers went improper. In a single celebrated case, Highland reportedly delivered its calls for to a recalcitrant borrower with a 10-minute ultimatum, and a warning that the agency already had a consultant stationed outdoors a close-by chapter court docket.
When the monetary disaster struck, Dondero loved a glimpse of the bonanza. His agency held a number of the debt issued by Metro-Goldwyn-Mayer in reference to its ill-fated 2004-05 buyout by a consortium that included Texas Pacific Group. The deal soured, and Highland ended up proudly owning a slice of the film studio.
Distressed debt buyers have solely grown extra influential since then, with about $272bn underneath administration as of final 12 months, in line with a tally maintained by Preqin, greater than double the quantity 10 years earlier.
However Highland was not among the many victors of the monetary disaster. Its flagship automobile, the Crusader fund, closed to buyers in 2008 after struggling losses, triggering battles which might be nonetheless echoing throughout American courtrooms. Maybe it’s the limitless combating, or maybe it’s simply the passage of time, however Dondero appears to be like much less youthful now. In accordance with an individual who works with him, his hair has turned greyer.
After dropping a authorized skirmish with buyers, Highland Capital Administration entered chapter in 2019. Initially filed in Delaware, the Highland case grew to become a page-turner after it moved to a Dallas court docket, the place judges are much less continuously referred to as upon to cope with complicated company bankruptcies.
Dondero, who resigned as a director after a negotiation with collectors, grew sad with the proceedings. US chapter decide Stacey Jernigan took exception to Dondero’s conduct, too, twice ruling him in contempt of court docket. Jernigan imposed sanctions of practically $240,000 on Dondero and others over a kind of incidents, warning that in the event that they appealed towards her ruling and misplaced, she would hit them with $100,000 extra.
What started as a routine enterprise dispute has, over time, change into one thing extra poetic. Dim the courtroom lights, and you’ll have a real-life Texas noir.
One wonders whether or not that thought ever occurred to Jernigan, who just isn’t solely the chapter court docket’s chief decide but additionally a part-time writer. Her most up-to-date novel, Hedging Loss of life, contains a fund supervisor named Cade Graham. Her fictitious financier buys an eclectic vary of property, from business debt to life insurance coverage insurance policies whose authentic homeowners not need them — a commerce that one character calls “creepy”. “His boyish brown hair had turned silver,” Jernigan writes of Graham, “and his sun-kissed easy pores and skin had grown weathered.”
In a ruling handed down this week, by which she denied Dondero’s request that she step apart on grounds of bias, Jernigan was emphatic: her novel, she wrote, was “totally fiction”, and “not about Mr Dondero or the hedge fund business”. Within the story, she factors out, Graham fakes his personal demise in Mexico after linking up with drug cartels. He’s a Princeton graduate. (Dondero holds a level from the College of Virginia.)
Authorial intention is a slippery notion however it’s placing {that a} shut observer of the distressed debt business ought to devise an unappealing character whom Dondero sees as “patterned after” himself. Jernigan insists that any resemblance to precise individuals, dwelling or useless, “is totally coincidental”.
mark.vandevelde@ft.com
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