Citi Wins Freeze of Hedge Fund's $175 Million Revlon Loan Payment -- Update
By Becky Yerak and Alexander Gladstone
A federal judge granted Citigroup Inc.'s request to freeze
roughly $175 million the bank said it paid hedge-fund manager
Brigade Capital Management LP by mistake on a loan owed by troubled
cosmetics company Revlon Inc.
Brigade has taken the position it isn't obligated to return the
money it received last week, its share of a nearly $900 million
loan payment owed by Revlon.
The ruling by Manhattan U.S. District Judge Jesse Furman marks
an initial victory for Citi before the judge fully evaluates the
dispute over whether Brigade can keep the money. Another court
hearing was scheduled for late August, when Brigade must explain
why it shouldn't have to give the money back, according to the
Until then, Brigade can't withdraw, transfer or otherwise
dispose of the money, the judge said.
Brigade declined to comment.
Citi, the administrative agent on a loan issued by Revlon in
2016, said the payment was made in error out of the bank's own
funds. The $175 million sent to Brigade was part of almost $900
million that Citi wired to various lenders that have been locked in
a feud with Revlon over the company's debt-restructuring
When Citi asked for the money back, Brigade refused, questioning
whether the payments were really a mistake. Some other investors
have also kept the money, reasoning it 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.
Citi said it had meant to pay the lenders several months of
interest. But the bank said it transferred payments to each lender
that were "on average more than 100 times the interest that was
actually due," blaming issues with the loan-processing system.
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.
In a letter to the court Tuesday, Brigade lawyer Robert Loigman
said some of the lenders didn't buy Citi's "bald assertion that the
wires were sent in error."
During a roughly 60-minute hearing Tuesday, Mr. Loigman said
lenders should be able to presume that the payments they receive
are correct and received in good faith without having to troll
records and perform a forensic inquiry.
The payments were the exact amount, down to the penny, of
principal and interest owed by Revlon, Mr. Loigman said.
"It is not believable that a sophisticated institution like
Citibank could have transferred nearly $1 billion, in the exact
amount outstanding under the 2016 credit agreement, in error," Mr.
During the hearing, Judge Furman at least twice brought up the
fact that the payments were the exact amount owed and called that
fact "significant." He also asked whether it was proper for Citi to
sue Brigade instead of the individual funds that Brigade
Citi lawyer Matthew Ingber said that Brigade controlled the
funds and had to be aware the payment was a mistake because
Revlon's financial statements showed it didn't have close to $900
million in cash on hand. Revlon had $415.7 million of liquidity as
of June 30.
The bank is investigating how the mistake occurred. Brigade said
it wonders how Citi could expect the lenders to know a payment was
erroneous when the bank itself can't explain what went wrong.
Brigade also questioned why it was the only lender sued so far
given that it received only about a fifth of the money.
Some lenders have returned the money, and Citi is in talks with
others about doing so, Mr. Ingber said. Brigade is the largest
lender that has refused to return the money, he said.
Brigade, HPS Investment Partners LLC and Symphony Asset
Management have been at odds with Revlon over financial maneuvers
that moved valuable intellectual-property assets out of their
reach. Since last year, Revlon has shifted brands including
American Crew, Elizabeth Arden and others to new subsidiaries and
pledged the assets as collateral to other creditors, raising
financing to stay afloat.
The lenders last week launched a lawsuit against Revlon and Citi
over those transactions, demanding they be unwound.
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 impact
on American retailing.
Write to Becky Yerak at email@example.com and Alexander
Gladstone at firstname.lastname@example.org
(END) Dow Jones Newswires
August 18, 2020 16:06 ET (20:06 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Historical Stock Chart
From Sep 2020 to Oct 2020
Historical Stock Chart
From Oct 2019 to Oct 2020