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Highland Capital founder to relinquish president’s role as bankruptcy proceedings continue

Dondero will remain an employee of the firm and will maintain his portfolio management responsibilities

Updated throughout at 3:25 p.m. Jan. 10, 2020, to reflect the agreement reached by Highland Capital Management LP and the committee of unsecured creditors.

Highland Capital Management LP and a committee of unsecured creditors have reached an agreement that will require its founder to resign from the role of president.

Highland Capital co-founder James Dondero will remain an employee of the firm, according to a court order this week. A new independent board of directors will be created at the firm’s general partner Strand Advisors Inc. to oversee Highland Capital Management LP and co-founder Dondero’s activities until Highland Capital’s bankruptcy proceedings are complete.

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Dondero will also resign from his role as director and officer at Strand Advisors. As an employee of Highland Capital Management LP, he "will be subject at all times to the supervision, direction and authority of the Independent directors,” according to the court order.

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“The settlement agreement advances the process toward a reorganization plan that creates value for all constituents. The independent directors bring extensive knowledge and experience relevant to both our industry and the specific business activities at Highland Capital Management LP," a company spokesperson said in a statement.

“We believe this oversight will ensure HCMLP’s business and investment activities can continue without disruption, while moving the bankruptcy process forward in the most efficient way possible.”

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In a previous proposal filed in court, Dondero would have parted ways with the bankrupt hedge fund firm he helped found. Dondero’s roles at Highland Capital Management Fund Advisors LP and NexPoint Advisors LP remain unaffected by the settlement, according to the company.

The independent board of directors will consist of James Seery, John Dubel and Russell Nelms.

Seery is a high yield and distressed investing professional who recently was senior managing director and co-head of Credit at Guggenheim Securities LLC, according to a court filing.

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Dubel has a professional background spanning telecommunications, manufacturing and finance, according to a court filing. He’s currently serving on the independent boards of companies including Purdue Pharma Inc.

Nelms served as a bankruptcy judge in Fort Worth from 2004 until 2018 when he retired, and also currently serves on another independent board of directors for a Houston company in bankruptcy, according to court a filing.

James Dondero, co-founder and president of Highland Capital Management in Dallas.
James Dondero, co-founder and president of Highland Capital Management in Dallas.(DON NETZER / Highland Capital)

Highland Capital filed for bankruptcy protection in October as former investors and employees sought hundreds of millions from the hedge fund. The firm has been in litigation with investors since the 2008 recession when it incurred heavy losses.

Creditors have blamed Dondero for the bankruptcy, with one saying he is "not worthy of placing the trust of the state of 70 employees and hundreds of millions of dollars of creditor claims in his hands to do as he wishes.”

Dondero and co-founder Mark Okada created the the Dallas hedge fund in 1993 and grew it to oversee $40 billion at one point. Okada announced in September that he was leaving the company, delegating his duties to Dondero and remaining in an advisory position through the end of the year. Okada said in September that he would retain his ownership stake in the hedge fund in retirement.