Revlon will exit bankruptcy at the end of April after a federal judge on Monday approved its plan to shed $2bn in debt and end nearly 40 years of control by billionaire investor Ron Perelman.
The US cosmetic group’s lenders will take control of Revlon’s new equity. Shareholders, including Perelman, who acquired the company via a 1985 hostile takeover and controlled 85 per cent of the stock, will be wiped out. Perelman’s daughter, Debra, will stay on as chief executive of the company, which also owns Elizabeth Arden, Juicy Couture and Almay, saw its market capitalisation reach as high as $2bn in 2015.
Judge David Jones of the federal bankruptcy court in New York on Monday described the settlement agreement as a “remarkable achievement” adding that creditor recoveries would be “better than anticipated”.
The cosmetics group filed for bankruptcy protection in June 2022 in the middle of a supply chain crunch that was exacerbated by the fallout from a 2020 administrative error in which Citigroup mistakenly wired $900mn of the bank’s own funds to Revlon lenders.
When some of those creditors refused to return $500mn of the money, the resulting legal dispute hampered Revlon’s ability to negotiate for a cash infusion and forced it to seek bankruptcy protection. A federal appeals court eventually ordered the recalcitrant recipients to send the money back to Citigroup.
Under the bankruptcy plan approved by Jones, senior lenders to Revlon will receive 82 per cent of its new equity and the junior lenders the rest. The company’s new equity, which is to be privately held, is to be set at $1.6bn, making its enterprise value, including debt, $3bn.
The group of creditors who were accidentally repaid by Citigroup and forced to return the money will end up with equity worth roughly 20 cents on the dollar of their existing claim, according to court filings.
Another group of creditors led by Angelo Gordon, which loaned Revlon $880mn in May 2020, will receive that money back in full and roughly 60 cents on the dollar for earlier loans that they also provided. That group is leading a $675mn equity raise for the new Revlon that allows them to buy shares at a 30 per cent discount.
One fund participating in the equity raising said it was happy with the outcome because it had acquired the debt cheaply. “We are extremely happy. This is effectively a best-case scenario for us. These are world class brands.”
One of the junior creditors, who did not join in the 2020 financing deal, said Revlon should have been forced into bankruptcy back then. That investor also declined to participate in the discounted equity raising, saying: “Anyone excited to write this cheque is lying. It’s a massive investment for a company with a really uncertain future.”
The bankruptcy case wrapped up within 10 months, but Revlon estimated its lawyer and professional fees would reach $250mn, a figure a lawyer for the creditors committee described to the judge on Tuesday as “astounding”.
The Revlon case has been closely watched by private equity and distressed debt investors for clues as to whether bankruptcy judges would crack down on refinancing deals that pitted existing investors against one another. The Revlon judge declined to intervene, letting the 2020 financing stand.