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If you’re a hedge fund or other such “sophisticated” investor and you hold nine figures worth of debt from a failing cosmetics company, it’s safe to assume that you know exactly how much money that company has in the bank. And so if you and your fellow creditors wake up one morning and find that company has repaid you more than twice that figure, it’s safe to assume that you’d assume something strange had happened. At least, Citigroup hopes you’d assume that, and then quickly return the money, because of course the bank did just that, paying off those hedge fund creditors in full almost immediately after it and Revlon, the distressed company alluded to above, were sued over that money, and the collateral backing it that Revlon had allegedly moved out of harm’s way.

Well, at least some of those hedge funds didn’t make those assumptions, and now it is Citi heading to the courtroom for some relief.

Brigade “has unlawfully attempted to capitalize on the mistaken payment,” Citi said in the complaint, filed in New York federal court Monday…. “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….

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,” Citi said.

In addition to slippery slope arguments about how its fuckup might portend the end of civilized finance, Citi valiantly tries to make the mistake sound like a simple fat finger situation, saying that the payments were “on average more than 100 times the interest that was actually due.” But if it was a fat finger—and no one, including Citi, yet knows what happened—it was one every bit as precise as it was porky. And, unfortunately for the bank, arguments about presumed sophistication go both ways.

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. Loigman said.

For the time being, U.S. District Judge Jesse Furman has ordered Brigade to keep the money on ice. But that doesn’t mean Citi can feel terribly confident that it will be getting that frozen $175 million back.

Judge Furman at least twice brought up the fact that the payments were the exact amount owed and called that fact “significant.”

Revlon Lenders Defy Citi Demand to Return $900 Million Payments [WSJ Pro Bankruptcy]
Citi Sues Revlon Lender Brigade for Return of Payment It Says Was a Mistake [WSJ]
Citi Wins Freeze of Hedge Fund’s $175 Million Revlon Loan Payment [WSJ]



Hedge Funds Have Fun At Citi’s Expense, Possibly Their Own (Legally-Speaking)

In fairness to them, the whole paying-Revlon’s-debt-early thing is incredibly funny.


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We suppose it’s the really the least they could do.


Citi May Lose Half-Billion On Revlon Snafu A Second Time

While some doubt Revlon will screw over its erstwhile ally, the company hasn’t hesitated to do it before.

By Chris Potter (Flickr: 3D Judges Gavel) [CC BY 2.0], via Wikimedia Commons

Citigroup Stupid Beyond Belief Legally Speaking, Can’t Have Its Half-Billion Dollars Back

Finders keepers is apparently a genuine precedent under New York State law.


Citi Stupidity Clause Now Standard Feature Of Debt Deals

Never again will a bank have to admit how bad at banking it is in court, at least on this matter.