This was hardly the role the bankers at Citigroup Inc. signed up for when they helped Ron Perelman’s Revlon Inc. borrow $ 1.8 billion in 2016. But, now, a back office error leaves the financial giant with the prospect of becoming one of the struggling cosmetics empire’s biggest creditors.
A surprise ruling by a New York judge last week blocked Citigroup’s efforts to recover $ 500 million it mistakenly sent to Revlon lenders last year as the loan’s administrative officer. company. While the bank says it will appeal the decision, if it doesn’t reverse it, Citigroup will keep the sack on most of the remaining $ 900 million on the loan that Revlon himself failed to pay.
“Revlon’s loan was never repaid. So if the appeals fail, Citi will eventually step into the lenders’ shoes and own $ 500 million on this nearly $ 900 million term loan.” said Philip Brendel, senior troubled debt analyst at Bloomberg Intelligence.
Representatives for Citigroup and Revlon declined to comment.
Ironically, Citigroup will also hold a loan that just nine months ago accused the cosmetics company of defaulting when it transferred some intellectual property to receive another loan. In this situation, the angry creditors had sent the formal notice to Citigroup as administrative agent.
The generally sleepy role of a loan officer tasks a bank with collecting and distributing interest payments, managing amortization schedules, and providing other housekeeping services while maintaining contractual obligations to the bank. borrower and its lenders. This is not expensive work, but it is considered necessary to secure more lucrative underwriting and advisory mandates.
Administrative officers have been sued by aggrieved borrowers in the past, and they often resign when disputes with creditors heat up, citing advice from credit agreements borrowers make with their lenders.
The move puts Citi in an unlikely position alongside Highland Capital and Investcorp Credit Management, the Revlon lenders who received the erroneous payment but chose to return the funds. Firms such as Brigade Capital Management, HPS Investment Partners and Symphony Asset Management scored a victory after keeping the transferred money, thus rendering them unscathed from their investments.
In addition, Citi effectively paid off a very troubled loan in full. The debt, which matures in 2023, was last listed at around 43 cents on the dollar, according to data compiled by Bloomberg, suggesting the bank could take another hit if it were to reduce the position. at current levels.
“An interesting question remains as a result of this opinion,” Eric Talley, professor at Columbia Law School, said in an interview. “Is Citibank now trying to recover from Revlon? In other words, they could claim they bought the loan from the lenders, and now Revlon owes Citibank.”
Revlon is struggling to stem the drop in sales and fend off fledgling beauty companies. The pandemic worsened her finances as customers who stayed at home had less reason to buy new makeup.
The struggle for the wrong transfer is far from over. Citi has vowed to appeal the case, and Brendel has said that future lawsuits against Citi and Revlon are also possible.
For now, companies can hold the money, pending an appeal, but can’t spend it, said U.S. District Judge Jesse Furman. The judge said earlier court rulings forced him to conclude that lenders have the right to keep the money.
“I am pleased that the clients’ decision to hold the funds, notwithstanding Citibank’s request to recover them, has been upheld by the court” applying a legal precedent, said Ben Finestone of Quinn Emanuel Urquhart & Sullivan.
Representatives for Brigade and HPS declined to comment. Symphony did not immediately return messages requesting comment.