Mon 03/22/2021 19:30 PM
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Around the time certain lenders under Revlon’s 2016 term loan agreement returned hundreds of millions in mistaken payments to Citibank last year, they delivered letters to the financial services firm reserving their rights to reclaim those payments, potentially through litigation, if Citibank were to lose its lawsuit against the Revlon lenders that refused to return $504 million in mistaken transfers, according to sources. Continue reading as our Americas Core Credit team analyzes and reviews the rights to reclaim payments in the Citibank/Revlon trial and Request a Trial for access to the linked documents as well as our analysis and reporting on hundreds of other stressed, distressed and performing credits.

The correspondence adds to the complexity of one of the biggest financial transaction errors in recent memory and the implications for the error for the capital structure of the distressed cosmetics retailer.

The ruling from the U.S. District Court for the Southern District of New York against Citibank has been appealed to the U.S. Court of Appeals for the Second Circuit, which has indicated it will consider oral arguments in August or September. Citibank has also sought an injunction to freeze the funds held by the non-returning lenders pending its appeal, and the defendants have objected to this request. That motion is set for hearing on April 9.

Citibank’s potential subrogation claim against Revlon has become a focal point for stakeholders since Judge Jesse Furman’s ruling. In a best-case scenario for Revlon, the Feb. 16 ruling may allow the debt-laden company to eliminate hundreds of millions in debt while avoiding litigation over last year’s controversial recapitalization transactions. If Citibank does not prevail on appeal and is also forced to return payments to funds that returned those payments to Citibank after the mistaken wires in August, then Citibank could possibly end up as the sole lender under the 2016 loan agreement.

Citibank said in its annual report last month that as a result of the court’s decision in favor of the defendants in the wire transfer litigation, “Citi now has rights as a creditor related to the Revlon loan.”

Revlon and Citibank did not immediately respond to requests for comment.

--Harvard Zhang, Kevin Eckhardt
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