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Less than two years after narrowly avoiding it, cosmetics dinosaur Revlon finally succumbed to the COVID-19 pandemic and bankruptcy. This, of course, is bad news for all holders of Revlon’s $3.31 billion in debt—the company was worth just $123 million before the bankruptcy filing—but it is the worst news for one which may or may not even be a Revlon creditor, that ultimate magnet for bad news banking: Citigroup.

Even with Citi suffering the side effects of its latest fat finger fuck-up, it’s hard to forget its most embarrassing: The time it, in its role as Revlon’s loan agent, apparently panic-repaid nearly $1 billion to the hedge funds and others suing the bank and Revlon over the 2020 restructuring that saved it from bankruptcy (and (allegedly) got Revlon owner Ron Perelman paid in full on the bonds he (allegedly) didn’t tender in that deal) for another 19 months.

Citi is still fighting to get a mistakenly-paid half-billion dollars back from those who refused to return it, but after it’s courtroom defeat on the matter, Citi presumes to stand in its adversaries’ stead as the true and rightful owner (pending an appeal in which it claims that the hedge funds are the true and rightful owners) of the $500 million in Revlon debt.

The bank’s two-year-old blunder -- in which it wired the balance of a $900 million loan rather than just the interest, and then failed to get most of it back when investors claimed Revlon was in default and should have repaid them anyway -- will likely impede the company’s restructuring plans, court papers show. The problem: it’s not clear who, if anyone, has the rights to the repayment of the remaining $500 million of loan principal caught up in an ongoing court battle over the accidental transfer…. The so-called subrogation rights that Citigroup claims it has over the $500 million loan principal are a common concept in insurance law, but are relatively untested in the world of finance, according to [Columbia University law professor Eric] Talley.

The bonds Citi claims (for now) as its own represents almost 15% of Revlon’s current outstanding debt, and Talley suggests that the (admittedly limited) precedent on the matter is probably on the bank’s side. Plus, others note that Revlon might not want to screw over a bank that was so very helpful in arranging the (alleged) game of dirty pool that kept it out of bankruptcy in November 2020. Of course, those people seem to have forgotten that the very investors that Citi helped Revlon screw over then (the hedge funds first suing and then sued by Citi) were also the investors who helped keep Revlon out of bankruptcy during its previous financing bind back in 2016, and so loyalty doesn’t appear to be the company’s strongest suit.

In its latest quarterly report, Revlon said it hasn’t taken a stance on Citigroup’s rights as creditor. It went a step further this week, saying that if Citigroup ultimately loses its battle to reclaim the money, Revlon “reserve all rights and defenses with respect to any claim Citibank may assert against” the company.

A successful challenge of Citigroup’s claim could erase almost 15% of Revlon’s $3.4 billion debt load in an instant, easing the company’s path out of bankruptcy….

“Through a series of unfortunate mistakes and luck, Citi finds itself potentially the owner of those loans,” [Bloomberg Intelligence analyst Phil] Brendel said. “Do Revlon and its likely new owners now add insult to injury? I don’t think the answer is obvious.”

No, Phil, although I doubt that’s as much cause for comfort at 388 Greenwich Street as you think it is.

Citi’s $900 Million Revlon Gaffe Risks Getting Even More Painful [Bloomberg]
Cosmetics giant Revlon files for Chapter 11 bankruptcy protection [CNBC]

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