Cosmetic company Revlon Inc, who filed for Chapter 11 in June, received a U.S. bankruptcy judge’s permission on Monday to proceed with a $1.4 billion loan. Junior creditors had argued that its onerous terms could block their chance to recover anything from the company’s bankruptcy. The Judge ruled Revlon must be allowed to borrow the cash it needs to continue its operations in bankruptcy. $REV shares moves sharply higher on the decision, up over 120% given the significance it had for the companies’ going concern.
Revlon filed for Chapter 11 in June when it said its $3.5 billion debt load left it too cash-poor to make timely payments to critical vendors in its cosmetics supply chain. Revlon sought additional financing from a coalition known as the BrandCo Lenders, which had loaned Revlon $1.88 billion in the years before it filed for bankruptcy. Without this Revlon would not be able to shore up its supply chain and fund its bankruptcy court case.
The BrandCo lenders have said the 2020 transaction kept Revlon afloat during the worst of the COVID-19 pandemic and was neither “fraudulent” nor “aggressive.”
U.S. Bankruptcy Judge David Jones in Manhattan had allowed Revlon to borrow $375 million at the start of the bankruptcy. Friday’s decision unlocks between $200 million and $1.05 billion in additional funds, some of which would be used to pay Revlon’s existing debts to BrandCo lenders.
Another significant factor is the judge’s approval also commits Revlon to non-financial conditions, including a schedule for exiting bankruptcy by April 2023 on terms favorable to the lenders.
Jones in his decision ordered some changes to the loan agreement, giving Revlon more time to propose a restructuring plan and giving junior creditors more authority to bring lawsuits on Revlon’s behalf.
The junior creditors may bring a lawsuit against the BrandCo lenders behind the new loan. They have alleged that those lenders previously “fleeced” Revlon stakeholders in a 2020 debt restructuring that used Revlon’s intellectual property as collateral. The 2020 transaction has already been subject to lawsuits by other Revlon lenders.
From the TradersCommunity News Desk