Damsel of distressed

Lynn Tilton has a unique approach to private equity.

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By Telis Demos, writer-reporter

Tilton commutes to the office by chopper.

(Fortune Magazine) -- Lynn Tilton does not look or sound like your typical vulture investor. But that could be because the sometimes provocatively attired (and always outspoken) founder of Patriarch Partners sees the buying and reengineering of broken companies as a calling. "I save companies others throw away," she says, "bringing light into the gathering darkness. This is why I was put on this earth." (Okay, then.)

Her firm manages $6 billion in assets and invests in 70 mid-market companies, from Arizona Iced Tea to Rand McNally. She has TV offers - six so far, including a reality show. Her opinions about the bailout (she thinks banks are getting off easy) have appeared in the Financial Times. Friends like Indian mogul Ratan Tata consult her almost as frequently as she does the Mayan sorcerer who once was her spiritual guide.

Tilton's path to restructuring was a bit different from that of, say, Apollo's Leon Black. Now 50, she was an aspiring poet at Yale. But her father died when she was in college (the inspiration for her firm's seemingly ironic name), and she found herself a single mother at 23. So she went to work at Morgan Stanley. During her next two decades on Wall Street she found herself drawn to distressed investing, and in 2000 she founded Patriarch. "Lynn is an extraordinary person with enormous courage," says Tata in an e-mail.

Since its inception the firm's funds have had realized returns between 20% and 60%, with some investments producing strong results after just a couple of years and some taking many years to turnaround. Hits include MD Helicopters, a company founded by Howard Hughes. Since buying it in 2005, Tilton has grown revenues more than $200 million by selling more aircraft abroad and adding a repair division. But American LaFrance, bought from DaimlerChrysler in 2005, which went into and emerged from Chapter 11 last year, has been a struggle. Some ideas are just weird: She plans to sell furniture tassels made by her company Bomar as fashion accessories through infomercials with the slogan TASSEL ME!

Tilton raises money by issuing highly rated bonds, collateralized by her portfolio companies' equity, with modest but fixed returns of Libor plus a small premium. Investors have included Bank of America (BAC, Fortune 500) and TIAA-CREF. Though she is planning on raising a new traditional fund soon, in which investors will share in the upside of Patriarch's investments, she loves the flexibility "to bring more orphans into the trauma center," she says.

Recently Fortune accompanied her to St. Paul on such a rescue mission - an auction for Polaroid, no longer the camera giant of yesteryear but mostly a licensing business. She offered $59 million to buy it out of Chapter 11, keep its 80 workers, put its name on solar panels, and invest in a new digital instant camera. Polaroid accepted the bid, but creditors pressured the company to reopen the auction for a higher offer from liquidators, which would sell off its assets and probably fire employees.

Tilton was furious at first - she told the creditors they were "scum in suits" - and refused to re-bid. But flying back to New York on her Gulfstream jet, e-mails poured in from Polaroid workers begging her to save them. She couldn't say no. "We will fight in the name of American renewal," she told Fortune, and started work on a higher bid.

This is an updated version of a story that appeared in the April 27 issue of Fortune. To top of page

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