Fri 06/17/2022 17:06 PM
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Relevant Documents:
Hearing Agenda
Demonstrative Exhibit
Interim DIP Order

Judge David S. Jones granted Revlon’s request for interim DIP financing at a continued first day hearing today, saying he was “satisfied” that the rollup of certain ABL obligations is in the estates’ best interests. The judge overruled oral objections from the U.S. Trustee and U.S. Bank as indenture trustee for the 6.25% senior notes due 2024, paving the way for the DIP to be funded today. Alice Eaton of Paul Weiss, counsel for Revlon, told the court that the debtors need immediate access to liquidity under the DIP ahead of the long weekend. Continue reading for more analysis on Revlon's Chapter 11 Filing from Reorg's Americas Core Credit team, and request a trial for access to all of Reorg's products. 

The debtors have obtained commitments from their “BrandCo” and ABL lenders to provide DIP financing in the form of a $400 million ABL facility and a $575 million term loan facility, with an incremental uncommitted facility in the amount of $450 million (to be used only to refinance or replace the DIP ABL facility or US ABL facility). On an interim basis, the debtors have access to $375 million from the DIP term lenders, of which $300 million would flow to critical vendors and working capital and $75 million would be used to refinance the foreign asset-based term loan, or ABTL, as well as amounts under the DIP ABL sufficient to refinance the two senior tranches of the prepetition ABL.

A second day hearing is scheduled for July 22 at 10 a.m. ET. Counsel from the Office of the U.S. Trustee said that the UST hopes to form an official committee of unsecured creditors within a week.

Reorg provided live updates from today’s hearing, which are available HERE.

Although none of Revlon’s secured creditor groups opposed the DIP financing request, they took plenty of opportunities to exchange barbs regarding key intercreditor disputes relating to the Citibank mistaken transfers and the 2020 BrandCo transactions.

Benjamin Finestone of Quinn Emanuel, counsel for a group of 2016 term loan lenders that did not return Citibank’s accidental transfers - the “discharged-for-value term lenders” - said “it’s a fortiori that avoidance actions should be preserved” for unsecured creditors. These include “avoidance actions against the DIP lenders themselves,” Finestone argued, adding that the BrandCo transactions’ destructive effect on his clients’ holdings is a “huge issue for the final order.”

Reprising a theme from Thursday’s hearing, Finestone again contended that Citibank was replaced by UMB as 2016 term loan agent at his clients’ direction. Finestone called it “laughable” that the debtors propose to pay Citibank’s professional fees as part of the adequate protection package for the 2016 term loan lenders, arguing that the bank is not doing its job as administrative agent and is not even processing trades. Keith Simon of Latham, counsel for Citibank, responded briefly to say that “we of course disagree” with Finestone’s comments on Citibank.

In response to a question from Judge Jones, Eaton noted that the debtors did not “market test” the DIP proposal because they did not expect the BrandCo and ABL lenders to consent to being primed. James Savin of Akin Gump, counsel for the “returning lenders” group, responded that “whether there could be priming or a replacement DIP could come in” is a question that should be reserved for the final DIP hearing. Eli Vonnegut of Davis Polk, speaking for the ad hoc BrandCo lenders group, agreed, saying “we’re not precluding” a DIP refinancing.

The court heard testimony from CRO Robert Caruso of Alvarez & Marsal and Steven Zelin of PJT Partners, the debtors’ financial advisor. Caruso discussed the immediate liquidity needs of the debtors and insisted that the debtors would suffer irreparable harm without the proposed DIP financing.

Zelin answered questions from the court about alternative financing sources, stating that there are no viable alternatives to the proposed DIP in light of “the size of the capital need” and because “the debtors don’t have any unencumbered collateral to speak of.” Zelin noted that one “sophisticated financing source” made an inbound inquiry regarding the possibility of acting as DIP lender. However, a conversation with that source “confirmed” to Zelin “that it would be hard to enter into a nonconsensual priming transaction” with a third party.

Brian Masumoto from the Office of the UST and Clark Whitmore of Maslon, counsel for unsecured notes trustee U.S. Bank, both expressed concern about rolling up the two most senior ABL tranches at the outset of the case and questioned the use of $75 million in DIP proceeds to refinance the foreign ABTL.

Ultimately, Judge Jones overruled the oral objections, entering the interim DIP order this afternoon after the close of the hearing. The judge observed that the debtors currently have cash on hand that is “essentially de minimis for an enterprise of this size and complexity” and said he was persuaded that “time is of the essence.” Judge Jones also remarked that he was satisfied that the debtors made efforts to secure better financing terms but were unable to do so and that the proposed DIP is the “best obtainable.” Additionally, the judge said that although “one could hypothesize” better individual terms, the proposed DIP financing is an integrated “package.”

After approving the DIP on an interim basis, Judge Jones also granted the debtors’ motion to authorize Revlon Inc. to act as foreign representative in Canadian insolvency proceedings, as well as their NOL motion and motion for an extension of time to file schedules.

The debtors filed a demonstrative exhibit today showing their simplified corporate structure, pro forma for the proposed DIP financing:

 
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