By Becky Yerak and Alexander Gladstone
When Citigroup Inc. accidentally used its own funds to repay
nearly $900 million owed by Revlon Inc., lenders were surprised at
their unexpected payoff, according to internal chat and email
messages unearthed in litigation and made public by the bank. One
lender couldn't resist a joke at Citi's expense.
The mistaken payment has put the bank at loggerheads with Revlon
lenders including HPS Investment Partners LLC, Brigade Capital
Management LP and other hedge-fund managers, straining longstanding
business relationships and touching off a high-stakes dispute in
New York federal court.
In an internal chat after the payments were made, one HPS
employee mimicked a conversation involving the Citi banker who was
responsible, according to court papers filed by the bank
Saturday.
"How was work today honey?" the unnamed employee wrote. "It was
ok, except I accidentally sent [$900 million] out to people who
weren't supposed to have it."
The employee also wrote that he felt bad for whoever at the bank
had "fat fingered" the payment.
Citi, the loan agent hired by Revlon to distribute interest and
principal payments on its debt, is pointing to these messages and
other communications written in the hours and days following the
payment as evidence the investors were aware they had been paid in
error. Lenders have argued they had no reason to think the
transactions were erroneous until Citi claimed as much and demanded
repayment.
In court papers filed Friday, the lenders said they were
justified in keeping what they received because no reasonable
lender would believe that one of the world's biggest financial
institutions would transfer by accident the full amount they were
owed by Revlon, down to the penny.
A person familiar with the matter said the messages from HPS and
cited by Citi were written only after the bank requested the
payment be returned.
Lenders also said billionaire and controlling Revlon shareholder
Ron Perelman has bailed out the beauty products company before,
giving them reason to believe the company had come up with the
funds to clear its loan debt.
Mr. Perelman has bailed out Revlon numerous times, the investors
said, pointing to his perceived acumen for finding pockets of
liquidity within his portfolio companies to refinance and pay down
maturing debt to avoid a bankruptcy.
"Every time Revlon's future looks imperiled, Mr. Perelman pumps
more money into the company," the lenders said in a court filing.
Mr. Perelman, they said, has had a longtime "love affair" with the
cosmetics company, which he acquired in 1985.
And indeed, Mr. Perelman did come to Revlon's rescue last week
when his private-equity firm MacAndrews & Forbes put up some of
its own capital to get a bond restructuring across the finish line
and save the cosmetics company from bankruptcy. At least twice
before in the past two years, he has made loans to Revlon, most
recently lending it $30 million last year.
Citi has blamed its payment in August on a human processing
error that turned what was supposed to be a small interest payment
into a disbursement more than 100 times as big, made with the
bank's own funds instead of Revlon's.
Mistrust between Citi and the lenders was building even before
then. They believed that Citi was helping Revlon to restructure its
debt and weather the Covid-19 pandemic in ways that would depress
the value of their investments and lower their chances of being
fully repaid.
They began preparing a lawsuit through UMB Bank NA, a loan agent
they chose to replace Citi. Shortly before the lawsuit was filed,
Citi made the $900 million payment.
As soon as Citi realized its mistake, executives began trying to
claw the money back. Some firms, such as Carlyle Group Inc., KKR
& Co. Inc. and Octagon Credit Investors LLC, granted the bank's
request, people familiar with the matter have said.
Others refused, touching off a legal dispute that is scheduled
for trial in December.
Lenders said that even Revlon's corporate treasurer has
testified that nothing in the payment notification indicated it was
a mistake.
"Witnesses have testified that, in their decades of experience
on Wall Street, they had not seen a similar error where a bank had
paid lenders the exact amount of principal and accrued interest
under a loan in error, " the lenders said in a court filing.
Citi responded by citing communications in which lenders used
words like "unbelievable," "erroneous," "accidental" and
"overpayment" when discussing the matter. An employee at lender
Medalist Partners Corporate Finance LLC said Citi was getting "a
taste of their own medicine," court papers said.
At New Generation Advisors LLC, an employee involved in the
matter wrote in an internal message that "mistakes like this can be
hard to undo" and that he "thankfully" had prevented the investor's
share of the money from being returned to Citi, according to court
papers.
"Someone's losing their job over this," another employee wrote
back.
Write to Becky Yerak at becky.yerak@wsj.com and Alexander
Gladstone at alexander.gladstone@wsj.com
(END) Dow Jones Newswires
November 16, 2020 16:42 ET (21:42 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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