Relevant Document:Letter
Arnold & Porter and Quinn Emanuel, on behalf of lenders that they say constitute the “required lenders” under Revlon’s 2016 credit agreement, today sent a letter to Paul Hastings, which is counsel to Jefferies, administrative and collateral agent under the “purported 2020 credit agreement.” The letter addresses Revlon’s “attempt to amend” the 2016 credit agreement and the “validity of the loans and liens purportedly issued in connection with the purported 2020 Credit Agreement.”
Reorg previously
reported that a majority term lender group working with Arnold & Porter had opposed the amendment.
In their letter, the required lenders reference
a May 11 press release in which Revlon announced that it closed on the 2020 credit agreement, which the letter says the release described as “a new 5-year $880 million senior secured term loan facility.” The letter states that the “Required Lenders believe that the amendments to the 2016 Credit Agreement were unlawfully adopted and, accordingly, are void and without effect.”
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As a result, the purported 2020 Credit Agreement, which could not be entered into absent the impermissible amendments to the 2016 Credit Agreement, is similarly void and without effect,” the letter said (emphasis added).
The letter argues that the amendments to the 2016 credit agreement are “invalid” because “they were not approved by the contractually mandated majority of lenders, constituting the Required Lenders” under the 2016 credit agreement. According to the letter, “shortly before” the anticipated closing on the new credit agreement, the company “learned” that the required lenders opposed, and would not consent to, the amendments. In response, the letter says, the company then “purport[ed] to issue a new set of Revolving Commitments under the 2016 Credit Agreement” and permitted lenders who subscribed to those new commitments to be counted in the vote to approve the amendments. The letter insists that “the issuance of the new Revolving Commitments was a sham, effected solely to manipulate the vote on the proposed amendments,” and that “the Revolving Commitments were issued solely to overcome the expressed will of the Required Lenders, and were designed to vanish almost immediately upon the closing of the 2020 Credit Agreement.” The letter asserts that the inclusion of the “fake” revolving commitments in the voting pool was “improper, rendering the purported amendments to the 2016 Credit Agreement, as well as the 2020 Credit Agreement itself (which is dependent upon those amendments), void.”
“Even absent the vote manipulation scheme,” the letter argues that the purported revolving commitments were not validly issued and thus should not have been included in voting on the amendments to the 2016 credit agreement. According to the letter, before the purported issuance of the new revolving commitments, there was a continuing
event of default under the 2016 credit agreement “by virtue of a prohibited sale-leaseback transaction” under the company’s 2019 credit agreement with Ares Management Corp. Under the 2016 credit agreement, the letter continues, new loan commitments “cannot become effective when there is a pending Event of Default.” The letter disputes the company’s assertion that there had not been any impermissible sale-leaseback transaction and maintains that “there was a continuing Event of Default at the time the Revolving Commitments purportedly were issued, the purported Revolving Commitments are invalid, the resulting voting on amendments to the 2016 Credit Agreement was invalid, and the 2020 Credit Agreement is invalid.”
The letter argues that even if the new revolving commitments were validly issued, the company failed to obtain requisite approval for the amendments to the 2016 credit agreement. According to the letter, adopting the proposed amendments to the 2016 credit agreement “would adversely affect the rights of term loan lenders under the 2016 Credit Agreement in respect of payment differently than such amendments would affect holders of the Revolving Commitments because, among other reasons, the Revolving Commitments are designed to vanish between 10 and 15 business days after closing on the 2020 Credit Agreement.” Under those circumstances, the letter asserts that approval of the amendments required the company to obtain the consent of “more than 50% of the term loan lenders.” The letter claims that the company “made no such attempt to obtain approval” and that such approval “could not have been obtained.” The letter argues that this “failure invalidates the purported amendments to the 2016 Credit Agreement and the entirety of the 2020 Credit Agreement.”
Moreover, citing the company’s financial condition and alleged intent to “hinder and delay existing term lenders under the 2016 Credit Agreement,” the letter argues that the liens and obligations issued in connection with the 2020 credit agreement are voidable transfers.
In reserving their rights, the required lenders notes that the letter “does not endeavor to list all of the reasons why the new loan facilities purportedly issued by the Company are invalid.” The required lenders indicate that all existing and prospective lenders “should be on notice” of the issues raised in the letter.
The letter confirms the company is
working with Paul Weiss and the “anchor lenders under the purported 2020 Credit Agreement” are represented by Davis Polk.
Revlon did not immediately respond to a request for comment.
--Andrew Berlin