Citigroup Sues Revlon Lender for Funds -- WSJ
Bank wants hedge fund's share of $900 million that was
mistakenly paid out
By Alexander Gladstone and Becky Yerak
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 18, 2020).
Citigroup Inc. sued Brigade Capital Management LP for the return
of the hedge-fund manager's share of nearly $900 million that the
bank said it mistakenly paid to Revlon Inc. lenders.
Brigade "has unlawfully attempted to capitalize on the mistaken
payment, " Citi said in the complaint, filed in New York federal
court Monday. Brigade and other lenders have taken the position
that they aren't obligated to return the money, The Wall Street
Journal reported Friday.
Revlon has said it didn't pay the money itself. In the lawsuit,
Citi said the payment on a loan issued by Revlon in 2016 came from
the bank's own funds.
Brigade and Revlon declined to comment.
Citi, in charge of collecting payments and communicating with
the syndicate of lenders that provided the 2016 loan to Revlon,
asked for a court order requiring Brigade to give up its share of
the loan payment made last week, roughly $175 million.
"Any other outcome would threaten the stability of the banking
system and the relationships between administrative agents and
lenders, as it would reward bad actors that try to capitalize on
operational mistakes," Citi said in the lawsuit.
The legal filing marks the latest development in a feud between
Revlon and lenders including Brigade, HPS Investment Partners LLC
and Symphony Asset Management that have accused the struggling
cosmetics company of siphoning off the collateral securing their
debt. The lenders last week launched a lawsuit against Revlon, Citi
and others claiming the cosmetics company siphoned off valuable
intellectual property that had been pledged as collateral.
Backed by billionaire Ron Perelman's MacAndrews & Forbes,
Revlon has been struggling with a large debt load, and more
recently, headwinds stemming from the coronavirus pandemic's
devastating impact on American retailing.
To help stay afloat, Revlon last year borrowed $200 million from
Ares Management Corp. and followed up with several other loan and
restructuring transactions earlier this year. Lenders, acting
through agent UMB Bank NA, said the cosmetics company breached its
loan agreements by moving brands including American Crew, Elizabeth
Arden and others out of lenders' reach, transferring those assets
to subsidiaries and pledging them as collateral to raise additional
debt financing. Citi also was named as a defendant.
On Monday, Citi provided a bit of detail on how it mistakenly
sent nearly $900 million to the investors that had recently sued it
and Revlon. The bank said it had intended to pay the lenders
several months of accrued interest under the company's credit
agreement. Blaming "issues with the loan-processing system," Citi
said it transferred payments to each lender that were "on average
more than 100 times the interest that was actually due."
The payout from Citi delivered a windfall to lenders, fully
repaying debt that wasn't yet due and that had been changing hands
at less than 30 cents on the dollar as recently as last week.
Brigade isn't so sure it is obligated to return the cash or that
Citi sent the money in error. In an email to Citi, Brigade said it
was "not at all clear that the funds were sent as a result of
'clerical mistake, '" according to Monday's lawsuit. Citi said the
response makes clear that Brigade doesn't intend to return the
A number of private-equity-backed companies hit hard by the
pandemic also have shifted assets -- in transactions similar to
Revlon's -- away from lenders to help secure rescue financing
elsewhere. Businesses that have used similar tactics to weather
coronavirus disruptions include circus company Cirque du Soleil
Entertainment Group and booking platform Travelport Worldwide
Even before the coronavirus pandemic began hammering the retail
industry, Revlon was struggling, along with other mainstream
cosmetics companies, to keep its grip on shoppers who increasingly
were buying items online and patronizing specialty beauty stores.
The company had $415.7 million of liquidity as of June 30, against
a debt load of several billion dollars.
Brigade is "well aware that virtually no company, let alone a
distressed retail and consumer company such as Revlon, would ever
make such a substantial prepayment while dealing with the
significant financial consequences caused by the ongoing pandemic,"
While some lenders honored Citi's request to return what they
received, certain hedge funds as well as other investors haven't,
reasoning the money was theirs to begin with and they aren't
required to lend to Revlon again after being repaid, according to
people familiar with the matter.
Write to Alexander Gladstone at firstname.lastname@example.org and
Becky Yerak at email@example.com
(END) Dow Jones Newswires
August 18, 2020 02:47 ET (06:47 GMT)
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