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Citibank and the $900 million “biggest blunders in banking history”

Citibank and the $900 million “biggest blunders in banking history”

In August 2020, Citibank mistakenly used its own money to repay a $900 million term loan it administered on behalf of Revlon that was held by multiple asset management groups.

Citibank and the $900 million

As Revlon prepares to negotiate its restructuring after filing for bankruptcy, the cosmetics group still does not know the identity of all its key creditors, a consequence of the bizarre banking mistake.

A mistake that Judge Jesse Furman of the US District Court for the Southern District of New York labelled the Bank’s mistake “one of the biggest blunders in banking history”.

Holders of $400 million of the loan quickly returned the erroneous payment. However, funds that owned $500 million of the loan, many furious with Revlon over a previous debt restructuring, kept the cash.

In 2021, Judge Jesse Furman, a federal judge in New York said those who held on to the repayment were legally entitled to do so. Citibank appealed against the decision.

With the higher court yet to render a final ruling, Revlon faces the possibility that the repaid lenders will be forced to give back the proceeds and become Revlon creditors again.

Citibank said in securities filings, however, that if the original decision is upheld it will assume the $500 million claim against Revlon, which says it is prepared for that potential fight, writing in court papers that it “reserve[s] all rights and defences with respect to any claim Citibank may assert against the debtors.”

The Revlon bankruptcy was already complex. In recent months, a liquidity crisis has engulfed the company, leaving the court-supervised Chapter 11 process as its only avenue to stay afloat.

According to the filing, the company’s debt exceeded $3 billion. It has only $13 million in cash and generated just $300 million in operating cash flow in the past 12 months.

Holders of the $500 million in loans not returned to Citibank included such prominent groups as Brigade Capital Management and HPS Investment Partners.

Their recalcitrance stems in part from a controversy over an $880 million loan taken out by Revlon in May 2020 amid the early pandemic crunch.

As a part of that transaction, the company transferred the intellectual property underlying such Revlon labels as Elizabeth Arden, Almay and American Crew to a new subsidiary called BrandCo, with the loan secured by those assets.

The new loan pushed an existing 2016 Revlon senior loan down the repayment rankings, a move that infuriated some of the investors who held that loan.

An August 2020 lawsuit filed by a subset of existing company lenders, who believed that Revlon had rigged the BrandCo financing approval vote among existing lenders, called the manoeuvre a “sham”.

Revlon has denied wrongdoing. That lawsuit was filed just a day after Citibank wired the $900 million repayment by mistake. It only intended to wire $8 million of interest but a data entry error lead to the principal repayment miscue.

Should the US appeals court let the funds keep the repayment, it will be a windfall for those groups because they will keep 100 cents on the dollar while the loan on the open market trades at distressed levels.

 

The post Citibank and the $900 million “biggest blunders in banking history” appeared first on Payments Cards & Mobile.

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