Revlon Lenders Allege Default With Debt Deal Nearing Close

(Bloomberg) -- A group of Revlon Inc. lenders opposing the company's refinancing plans claims the company violated the terms of its debt agreements last year in a transaction that could complicate its efforts to rework borrowings, according to people with knowledge of the situation.

Revlon fired back, vowing to “aggressively fight” the dissenting lenders if they continue their campaign. Revlon still expects to have the necessary votes to close its deal by the deadline of 5 p.m. Friday in New York.

The lenders group sent notice of an alleged default to Citigroup Inc. as administrative agent, with respect to a borrowing transaction that occurred last August, said the people, who asked not to be identified because the matter was private. The notice sent Wednesday and signed by lenders accounting for about 40% of the loan amount claims there was a breach of covenants after Revlon moved certain intellectual property to secure a $200 million loan provided by Ares Management Corp.

Lenders opposing the plans by billionaire Ronald Perelman's cosmetics empire earlier directed Citigroup to resign as agent, which the bank refused to do, the people said. The company is moving forward with its plans and continues to believe it isn't in violation of its loan agreements, they said.

Revlon contends a default didn't take place because the asset transfer was allowed under the debt documents with respect to the intellectual property of its American Crew brand, the people said.

“This group of objecting lenders has made one baseless accusation after another to try to block the company from securing financing that would strengthen our balance sheet and weather the Covid crisis,” a representative for the company said in an emailed statement. “Their disgraceful tactics are intended to hurt the company and its employees and their accusations are misleading and without basis.”

A representative for Citigroup declined to comment.

Revlon'4 2025 bonds fell 2.5 cents to 16.25 cents on the dollar Friday after Bloomberg reported on the plans, according to Trace bond trading data. Revlon shares fell 8% to close at $12.26.

Voting Deadline

Some of Revlon's lenders have objected to its $1.8 billion refinancing package because it would allow the company to siphon off collateral currently pledged to them to back the new debt. The debt deal needs more than 50% of the holders to participate for it to close.

The group of opposing lenders represented by the law firm Arnold & Porter includes Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, Bloomberg has reported. Lenders in favor of the plans include Ares, Angelo Gordon & Co. and King Street Capital Management, the people said.

A representative for Ares, Angelo Gordon and King Street declined to comment.

The refinancing plan is the latest by Revlon to ease its debt load and buy time to focus on a business turnaround. Discussions with the company over solutions to rework the debt had been ongoing, but were complicated by the coronavirus pandemic as some lenders, including Brigade and HPS, split off to form a dissenting group, the people said.

The company got some financial breathing room this week after it closed and drew on a new $65 million revolving credit facility provided by supporting lenders. That revolver will be included in the total holdings amount and could be the tipping point, giving Revlon the necessary votes to reach the consent threshold, the people said.

‘Serious Effects'

Lawyers for Revlon at Paul Weiss Rifkind Wharton & Garrison LLP said in a letter last week that the company's debt documents allow it to take out the new loans and warned that opponents to the borrowing would face “potential liability,” according to the document reviewed by Bloomberg.

“Because of Revlon's need for liquidity, any delay in the transactions could have serious effects,” according to the letter. Revlon Chief Financial Officer Victoria Dolan said in a separate statement that the company was confident it would overcome the opposing lenders and “secure the financing and liquidity necessary to support Revlon” and protect its employees.

Revlon, controlled by Perelman's MacAndrews & Forbes Inc., has struggled to remain relevant and stem falling sales amid competition from Estee Lauder Cos. and a host of smaller companies that have used social media to lure away customers. Revlon has more than 15 brands, including Elizabeth Arden and Elizabeth Taylor, which it markets in more than 150 countries.

If the deal closes by the Friday deadline, lenders who don't choose to participate will be stripped of their first-lien protections and left with third-lien positions, the people said. The dissenting lender-group had signed a co-operation agreement to oppose the deal that applies through July, said the people.