Citi Wins Freeze of Hedge Fund's $175 Million Revlon Loan Payment -- Update

By Becky Yerak and Alexander Gladstone 

A federal judge granted Citigroup Inc.'s request to freeze roughly $175 million the bank said it paid hedge-fund manager Brigade Capital Management LP by mistake on a loan owed by troubled cosmetics company Revlon Inc.

Brigade has taken the position it isn't obligated to return the money it received last week, its share of a nearly $900 million loan payment owed by Revlon.

The ruling by Manhattan U.S. District Judge Jesse Furman marks an initial victory for Citi before the judge fully evaluates the dispute over whether Brigade can keep the money. Another court hearing was scheduled for late August, when Brigade must explain why it shouldn't have to give the money back, according to the order.

Until then, Brigade can't withdraw, transfer or otherwise dispose of the money, the judge said.

Brigade declined to comment.

Citi, the administrative agent on a loan issued by Revlon in 2016, said the payment was made in error out of the bank's own funds. The $175 million sent to Brigade was part of almost $900 million that Citi wired to various lenders that have been locked in a feud with Revlon over the company's debt-restructuring tactics.

When Citi asked for the money back, Brigade refused, questioning whether the payments were really a mistake. Some other investors have also kept the money, reasoning it was theirs to begin with and they aren't required to lend to Revlon again after being repaid, according to people familiar with the matter.

Citi said it had meant to pay the lenders several months of interest. But the bank said it transferred payments to each lender that were "on average more than 100 times the interest that was actually due," blaming issues with the loan-processing system.

The payout from Citi delivered a windfall to lenders, fully repaying debt that wasn't yet due and that had been changing hands at less than 30 cents on the dollar as recently as last week.

In a letter to the court Tuesday, Brigade lawyer Robert Loigman said some of the lenders didn't buy Citi's "bald assertion that the wires were sent in error."

During a roughly 60-minute hearing Tuesday, Mr. Loigman said lenders should be able to presume that the payments they receive are correct and received in good faith without having to troll records and perform a forensic inquiry.

The payments were the exact amount, down to the penny, of principal and interest owed by Revlon, Mr. Loigman said.

"It is not believable that a sophisticated institution like Citibank could have transferred nearly $1 billion, in the exact amount outstanding under the 2016 credit agreement, in error," Mr. Loigman said.

During the hearing, Judge Furman at least twice brought up the fact that the payments were the exact amount owed and called that fact "significant." He also asked whether it was proper for Citi to sue Brigade instead of the individual funds that Brigade managed.

Citi lawyer Matthew Ingber said that Brigade controlled the funds and had to be aware the payment was a mistake because Revlon's financial statements showed it didn't have close to $900 million in cash on hand. Revlon had $415.7 million of liquidity as of June 30.

The bank is investigating how the mistake occurred. Brigade said it wonders how Citi could expect the lenders to know a payment was erroneous when the bank itself can't explain what went wrong. Brigade also questioned why it was the only lender sued so far given that it received only about a fifth of the money.

Some lenders have returned the money, and Citi is in talks with others about doing so, Mr. Ingber said. Brigade is the largest lender that has refused to return the money, he said.

Brigade, HPS Investment Partners LLC and Symphony Asset Management have been at odds with Revlon over financial maneuvers that moved valuable intellectual-property assets out of their reach. Since last year, Revlon has shifted brands including American Crew, Elizabeth Arden and others to new subsidiaries and pledged the assets as collateral to other creditors, raising financing to stay afloat.

The lenders last week launched a lawsuit against Revlon and Citi over those transactions, demanding they be unwound.

Backed by billionaire Ron Perelman's MacAndrews & Forbes, Revlon has been struggling with a large debt load, and more recently, headwinds stemming from the coronavirus pandemic's impact on American retailing.

Write to Becky Yerak at [e-mail] and Alexander Gladstone at [e-mail]

(END) Dow Jones Newswires

August 18, 2020 16:06 ET (20:06 GMT)

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