Now, thanks to the creative eye of Paul Singer, (almost) all sovereign debt deals include some pretty stringent collective action clauses, even without the assistance of the New York State Legislature. And, thanks to the incomprehensible idiocy of one of the world’s biggest and allegedly most sophisticated banks, the boilerplate has been amended once more to make it literally idiot-proof.

Wall Street banks including Citi are protecting themselves from similar situations by inserting legally binding clauses in the form of accidental payment covenants in debt documents, which allow banks to demand the repayment of any money sent to lenders by mistake…. The covenant typically gives banks the discretion to judge whether a payment was mistakenly made and to demand its repayment as well as any interest from the date that the funds were received….

The accidental payment protection has so far been spotted only in US documents, according to Steven Hunter, chief executive of 9fin, who said it may be because of a quirk of New York’s law which allowed Revlon’s hedge fund investors to keep the accidental transfer…. “This is probably going to become pretty standard . . . There’s no harm in putting it in,” he said.

It also can’t hurt to not do business with the hedge funds that necessitated the change in the first place.

The bank is choosing to not invite these money managers, who hung on to over $500 million, to its new-issue debt deals, the people said, asking not to be identified discussing a private matter. Firms targeted include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, the people said.

These firms and others tangled in a lawsuit with Citigroup can still participate if an issuer specifically requests for them to be able to join their offering, one of the people added…. At least two firms that received the errant payments opted to return it last year after the bank threatened to retaliate, according to people familiar with the matter.

Banks adopt new debt terms to avoid repeat of Citi’s $900m payment mishap [FT]
Citi Blocks Firms With Errant Revlon Payout From Debt Deals [Bloomberg]

Securing a deal, therefore, requires a bit of creativity, and have Dyal Capital Partners, Owl Rock Capital Partners and HPS Investment Partners ever done so with this extraordinary circle-jerk: In essence, an asset manager that invests in hedge-fund stakes (Dyal) is simultaneously spinning off from its owner (Neuberger Berman) by merging with a SPAC backed by a hedge fund (HPS) that is partially owned by said asset manager, and merging with a second hedge fund (Owl Rock) that is also owns a chunk of, in which Frankestein’s monster the former parent will remain a major investor. Makes total sense, right?

Dyal and Owl Rock said they have been discussing a deal with a special-purpose acquisition company called Altimar Acquisition Corp.

The Wall Street Journal earlier reported on the transaction, which would value the combined asset managers at about $13 billion, according to people familiar with the matter….

Dyal has previously floated the idea of an IPO of one or more of its funds as a possible way to allow its investors the option of monetizing their holdings, the Journal has reported. The transaction being discussed, however, is an IPO of the management company and wouldn’t alter the liquidity opportunities for fund investors.

Of course: Who would want to undertake a complicated financial transaction to benefit them? And who says SPACs are just back-slapping masturbatory nonsense that will end in tears?

Dyal Capital in Talks to Combine With Owl Rock Capital [WSJ]
Ex-Barclays investment bank chairman plans to raise $250 million with blank-check company [MarketWatch]
Australia’s Macquarie to buy Waddell & Reed Financial for $1.7 billion [Reuters via CNBC]

Seems a pretty open-and-shut case, but HPS Investment Partners and Brigade Capital Management can hire fancy lawyers, too. And, when you think about it, isn’t Citi’s story a bit odd? I mean, sure, the bank still doesn’t really know what happened, but it quickly cried “mistake,” which allowed it to preserve its legal options vis-à-vis getting the money back. But the key theory here—a fat-finger error—does seem a bit fishy (it certainly did to the judge overseeing things): After all, fat fingers tend to add a zero or two or 10 to the end of a legitimate transaction. But the transfers made to HPS, Brigade and others weren’t simply coupon payments a few orders of magnitude too big, but the precise amount of principal and accrued interest owed, and didn’t come on the usual payment day, anyway. Furthermore, it’s not the job of sophisticated investors to spend time or energy investigating things done by allegedly sophisticated counterparties.

And this is why the American legal system allows for some rather invasive discovery. And boy oh boy must Citi’s lawyers have gotten excited when they saw these messages.

“How was work today honey?” the unnamed employee wrote. “It was ok, except I accidentally sent [$900 million] out to people who weren’t supposed to have it.”

The employee also wrote that he felt bad for whoever at the bank had “fat fingered” the payment….

Lenders used words like “unbelievable,” “erroneous,” “accidental” and “overpayment” when discussing the matter. An employee at lender Medalist Partners Corporate Finance LLC said Citi was getting “a taste of their own medicine,” court papers said.

Seems pretty damning, eh? Clear evidence that the hedge funds knew this was a fuck-up and not something intentional? Well, they say, not exactly, as it seems Citi’s as bad at checking timestamps as it is at not paying out nearly $1 billion by alleged accident.

A person familiar with the matter said the messages from HPS and cited by Citi were written only after the bank requested the payment be returned…. “Witnesses have testified that, in their decades of experience on Wall Street, they had not seen a similar error where a bank had paid lenders the exact amount of principal and accrued interest under a loan in error,” the lenders said in a court filing.

Plus, they add, whenever Revlon hits the skids, owner Ron Perelman is always there to bail it out (and, indeed, just did). So even if they knew Revlon didn’t have $900 million, Ron Perelman certainly does, and maybe that’s where the money came from, is what they might have been thinking to preserve their legal options vis-à-vis keeping the money.

At New Generation Advisors LLC, an employee involved in the matter wrote in an internal message that “mistakes like this can be hard to undo” and that he “thankfully” had prevented the investor’s share of the money from being returned to Citi, according to court papers.

“Someone’s losing their job over this,” another employee wrote back.

And he was right: Someone did.

‘Someone’s Losing Their Job’: Revlon Lenders Were Surprised at Citi’s $900 Million Mistake [WSJ]

Revlon, of course, called the allegations “baseless” and nothing more than an attempt by the people who saved the company back in 2016 to now destroy it to their own nefarious ends. And yet, on Thursday morning, those hedge funds woke to find that they had been fully repaid—principal and accrued interest—to the tune of almost $900 million.

Was this theirs most successful lawsuit in the history of litigation, so hard-hitting that Revlon decided to pay them back without negotiating or even telling them it would do so? Did Ron Perelman have an uncharacteristic change of heart?

Nope. Turns out Citigroup just screwed up spectacularly.

The money didn’t come from Revlon, another person familiar said…. Citi, the agent for the 2016 lending agreement, also was named in the lawsuit as a defendant. The bank caught Thursday’s error quickly and initiated a process to recall the money, a person familiar with the matter said. Some lenders have begun returning what they received, this person said.

Citigroup Pays Revlon Lenders Nearly $900 Million by Mistake [WSJ]