Banking

Citi’s $900 million Revlon gaffe threats getting back at more uncomfortable

It took less than a day for Citigroup’s now-infamous payment mistake to Revlon loan providers to come up in the cosmetics giant’s personal bankruptcy.

The bank’s two-year-old mistake — in which it wired the balance of a $900 million loan instead of simply the interest, and after that stopped working to get the majority of it back when financiers declared Revlon remained in default and ought to have repaid them anyhow — will likely hamper the business’s restructuring strategies, court documents reveal. The issue: It’s unclear who, if anybody, has the rights to the payment of the staying $500 countless loan principal captured up in a continuous court fight over the unexpected transfer.

After losing the preliminary of the battle in 2015 with loan providers who kept the incorrect payment, Citigroup
stated it presumed rights as a financial institution to the struggling business. But Revlon has actually hinted — in a regulative filing last month and personal bankruptcy court filings today — that Citigroup’s claim to the money is not specific, leaving the door open for yet another head-spinning financial obligation clash.

“There isn’t a lot of law on this,” stated Eric Talley, a Columbia University law teacher who has actually studied the Citi-Revlon fiasco. “Revlon would like nothing better than to wipe this debt off its books completely and have it be Citibank’s problem.”

The so-called subrogation rights that Citigroup declares it has more than the $500 million loan principal are a typical idea in insurance coverage law, however are fairly untried worldwide of financing, according to Talley. The restricted precedent that exists most likely falls in Citigroup’s favor, however Revlon’s precarious monetary position most likely makes even a long-shot effort to erase the financial obligation worth thinking about, he stated.

A Citigroup spokesperson decreased to comment, while an agent for Revlon did not instantly comment when called by Bloomberg.

In its most current quarterly report, Revlon stated it hasn’t taken a position on Citigroup’s rights as financial institution. It went an action even more today, stating that if Citigroup eventually loses its fight to recover the cash, Revlon “reserve all rights and defenses with respect to any claim Citibank may assert against” the business.

An effective difficulty of Citigroup’s claim might remove practically 15% of Revlon’s $3.4 billion financial obligation load in an immediate, alleviating the business’s course out of personal bankruptcy. But the scorched-earth method is far from a certainty, and threats souring the business’s relationship with Citigroup, stated Bloomberg Intelligence expert Phil Brendel, who thinks the chances protest Revlon.

“Recall that Citi was a fantastic financing partner for Revlon in 2020 when it arranged a new revolver just to gerrymander a lender vote to strip assets from the 2016 term lenders,” Brendel stated, referencing a questionable maneuver that benefited a group of senior financial institutions now key to the business’s restructuring.
“Now, through a series of unfortunate mistakes and luck, Citi finds itself potentially the owner of those loans,” Brendel stated. “Do Revlon and its likely new owners now add insult to injury? I don’t think the answer is obvious.”

Citigroup unintentionally sent out the $900 million to Revlon loan providers in August 2020, a quantity that settled the whole of a term loan instead of satisfying a much smaller sized interest payment as planned. The bank rapidly alerted receivers of the mistake, however loan providers consisting of Brigade Capital Management, HPS Investment Partners and Symphony Asset Management declined to return the money, triggering a claim from Citigroup.

U.S. District Judge Jesse Furman chose in favor of the loan providers in 2015, ruling they might keep the cash. That left Citigroup $500 million in the hole — an error so big the bank needed to reiterate its profits. Citigroup appealed and is waiting for a choice.

— With help from Erin Hudson and Jenny Surane.

Gabriel

A news media journalist always on the go, I've been published in major publications including VICE, The Atlantic, and TIME.

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