Citibank: Citi’s $ 900 Million ‘Clerical Error’ Is Wall Street’s Worst Flaw In A Long Time

By Katherine Doherty and Jenny Surane

Even for Citigroup Inc., it was a lot of money. On Wednesday, the New York bank’s lending operations staff wired $ 900 million, apparently on behalf of Revlon Inc., to lenders at the ailing cosmetics giant controlled by billionaire Ron Perelman.

It was a mistake for the ages – a “clerical error,” as Citigroup told lenders – that has now plunged the bank into a battle between the Perelman Empire and a body of razor-sharp investment funds that have become his impatient creditors.

An involved financier likened the surprise payment to finding a fortune on the sidewalk. And, on Friday night, several hedge funds that claimed Revlon was in default on the loan showed no sign that they would return their money to Citigroup.

The capricious transfer of nearly $ 1 billion appears to be one of Wall Street’s biggest missteps in ages, and it’s getting the financial markets talking. The question everyone is asking: how did this happen?

A spokesperson for Citi declined to comment. A representative for Revlon said in an emailed statement that Revlon itself had not repaid the loan, or any part of it.

“It’s a billion dollar clerical error,” said Michael Stanton, a former restructuring and bankruptcy consultant. “It’s probably hitting some really big venues at Citibank.”

Acceleration request
At the center of the story is an increasingly gruesome battle between Revlon and a group of lenders who have sued the cosmetics company and demanded immediate repayment of a term loan that Revlon matures in 2023. In collaboration Along with UMB Bank, the lenders claim that Revlon transferred certain intellectual property rights that protected their loan as collateral for new debt.

The lenders, including Brigade Capital Management, Symphony Asset Management and HPS Investment Partners, are seeking a court order forcing the return of the collateral, which includes the trademarks. Citi, the administrative agent for the loan, was also named as a defendant in the lawsuit, although he is about to resign from his role as agent.

Around the same time the lawsuit was filed, the nearly $ 900 million – an amount equal to the total value of the loan’s principal, plus accrued interest – landed in lenders’ bank accounts, people say. close to the file. Now Brigade, Symphony and HPS are among those refusing to hand over the money, said the people, who have asked not to be named to discuss a private matter.

“That’s what investors asked for – they wanted their loan paid off,” said Phil Brendel, ailing debt analyst at Bloomberg Intelligence. “Given that their lawsuit is also against Citibank, it is not clear why they would return the money.”

The payout was a particularly welcome surprise given that the loan is trading at less than 30 cents on the dollar, signaling that investors have low expectations of a full recovery under normal circumstances.

Bloomberg

As of Friday, Citi had yet to receive the majority of the funds, although refunds continued to pour in, people said. The bank has launched an internal investigation into the matter, one of the people said.

The erroneous payment was first reported by LevFin Insights.

Revlon said he would fight the “baseless” UMB lawsuit and that the bank does not have standing to sue because he is not the loan officer.

“This group of lenders have repeatedly used baseless accusations in an attempt to enrich themselves and harm the business by preventing Revlon from exercising its contractual rights to obtain the financing necessary to execute our turnaround strategy and get through the Covid-19 crisis, ”Revlon said. in an earlier statement.

Revlon, controlled by Perelman’s MacAndrews & Forbes, has struggled to stay relevant and stem the sales decline in the face of competition from Estee Lauder Cos. and a multitude of small businesses using social media to attract customers. The cosmetics company has been hit hard by the pandemic and is looking to rework its $ 3 billion in loans.

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