Revlon Lenders Seek Restitution of Lien Rights in Bankruptcy Case

Revlon feature

A group of Revlon lenders has filed a lawsuit alleging the iconic beauty retailer, now in bankruptcy court, conspired with banks and lenders to steal away first-priority liens on Revlon’s well-known brands and intellectual property in order to secure new capital as the company was failing.

At the same time, Revlon is entertaining offers to purchase its assets as way to quickly exit the Chapter 11 case. The company filed for bankruptcy protection in June.

In a separate court action last month, a judge order Revlon’s creditors to return $504 million that was sent to them in error by Citigroup. The creditors are appealing that decision, saying New York law entitles them to keep the funds if they were unaware that the payment was a mistake.

The new lawsuit, filed Monday in U.S. Bankruptcy Court for the Southern District of New York, seeks to undo a complex series of transactions, returning to the plaintiffs the lien rights to the Revlon IP and/or monetary damages to be awarded at trial. Also named as defendants are Jefferies Group, which acted as an agent in an allegedly fraudulent 2020 transaction, and lenders Oak Hill Advisors and Ares Capital.

The numerous lien holders listed as plaintiffs in the action include Allstate, JP Morgan Chase, FedEx’s pension fund and many Cayman listed entities. They have an interest in more than 50% of the $1.8 billion in term loans which Revlon used to fund the $870 million acquisition of Elizabeth Arden in 2016, among other things. The plaintiffs state theses liens on valuable Revlon assets used as collateral were a critical piece of securing the credit facility.

In the lawsuit, the plaintiffs allege Revlon conspired with a minority group of 2016 lenders to fraudulently collateralize new loans totaling over $1 billion in two transactions. In the first, the lawsuit states, Revlon secured a $200 million term loan in August 2019 by transferring first-party liens on IP assets associated with men’s grooming brand American Crew to a new subsidiary, called BrandCo, in breach of its contract with the plaintiffs.

In a second transaction in May 2020, the lawsuit states, Revlon conspired with the minority group to secure an additional $880 million in new debt financing. This was purportedly done by stripping away the remaining IP that backed the 2016 credit facility, using it as collateral via BrandCo for the new transaction. This IP included trademarks and other rights associated with Elizabeth Arden, Almay, Mitchum, CND, crème of Nature, Lottabody, Roux, Fancifull, Curve, Charlie and several other Revlon-owned brands.

At that point, the lawsuit states, Revlon was facing the prospect of insolvency, with falling sales, growing net losses and the price on its 2016 debt reaching 40 cents on the dollar. Also, the plaintiffs allege, the parties did all this while fully aware that the 2020 transaction positioned the NewCo lenders to “take a deteriorating investment and convert it into an unlawful windfall in these very bankruptcy cases.”

“Absent judicial intervention, the [lenders] are poised to reap the fruits of defendants’ scheme by wrongfully seeking to recover in these bankruptcy proceedings as first-priority lien holders on collateral in which they have no valid interest and on debt that [Revlon] had no valid basis to issue,” the plaintiff lenders state.

The plaintiffs further claim Revlon and the NewCo lenders fraudulently manipulated the company’s capital structure in order to divest them of their security interests in the liens.