Revlon Inc’s restructuring initiatives are being complicated by a 2020 US$900m banking error by Citigroup.
The mistake saw Citigroup’s Citibank division use its own money to repay the sum to several of the beauty giant’s historic lenders, meaning the cosmetics firm still does not know the identity of all its key creditors, according to the Financial Times.
Citibank said the $900m payment was the result of a data entry mistake – it only intended to send $7.8m in interest payment.
Holders of $400m of the loan quickly returned the erroneous payment.
However, some lenders thought it was money owed to them as part of a loan repayment due in 2023 and kept the cash.
In October 2021, Citigroup appealed to reverse a decision by a federal judge in New York in February that year, who said those who held on to the repayment were legally entitled to do so.
Now, with the higher court yet to make a final ruling, the Financial Times says Revlon faces the possibility that repaid lenders will be forced to give back the proceeds and become Revlon creditors again.
Revlon's Chapter 11 journey
Rumours that the US cosmetics maker was preparing to file for Chapter 11 protection began circulating earlier this month and were confirmed on 17 June.
A lifeline for Revlon could come in the form of India’s Reliance Industries, owned by Indian magnate Mukesh Ambani, which is believed to be pondering a buyout, according to India-based business and finance news channel ET Now.
Revlon has pointed the finger at crippling debt and supply-chain woes as reasons behind its financial turmoil.
It expects to receive $575m in debtor-in-possession (DIP) financing from its existing lender base upon receipt of court approval, which will help loosen debt constraints.
Upon announcement of Revlon’s Chapter 11 filing, Debra Perelman, Revlon's President and Chief Executive Officer, said: “Consumer demand for our products remains strong – people love our brands, and we continue to have a healthy market position.
“But our challenging capital structure has limited our ability to navigate macroeconomic issues in order to meet this demand.
“By addressing these complex legacy debt constraints, we expect to be able to simplify our capital structure and significantly reduce our debt, enabling us to unlock the full potential of our globally recognised brands.
“We are committed to ensuring the reorganisation is as seamless as possible for our key stakeholders, including our employees, customers and vendors, and we appreciate their support during this process.”
However, beauty industry experts have also laid the blame at Revlon’s sluggishness to shift from celebrity fragrance to niche fragrance, as well as its over-reliance on hiring famous faces to front legacy products, a strategy that has proved less and less alluring in the social media age.