Lender safeguards played a major role in Revlon Inc.’s contentious $1.8 billion debt overhaul last month.
Creditors including Brigade Capital Management and HPS had organized to block the company’s refinancing plan because it allowed the firm to siphon off collateral and use it to back new debt. Supporters of the plan included Ares Management Corp. and Angelo Gordon & Co.
The deal needed more than 50% of the holders signed on to close. At first, opposing lenders held a blocking position with a majority of the outstanding loan amount opting out. But Revlon secured a new $65 million revolving credit facility from the supportive lenders -- which the company says was permitted under its covenants -- ultimately giving it enough backing to push the deal through.
Some lenders continue to contest the transaction, arguing that Revlon needed the majority of debt holders of every tranche to agree, and maintaining that the company breached covenants when it moved certain intellectual property to secure a $200 million loan last year, according to people with knowledge of the matter.
Still any creditors that chose not to participate in the refinancing were demoted from having a first-priority claim on company assets to a third-lien claim.
“Revlon is strengthening its balance sheet and increasing liquidity to better deal with the issues at hand, including Covid-19,” Chief Financial Officer Victoria Dolan said in a statement to Bloomberg. “This group of objecting lenders is trying to block that. We are confident that we will overcome this effort to hurt our company.”
Representatives for Brigade, HPS, Ares and Angelo Gordon declined to comment.
Transactions involving collateral transfers have been among the most fiercely contested between creditors and private equity firms scrambling to protect their investments.
Paul Singer’s Elliott Management Corp. last month became locked in a fight with lenders of global bookings operator Travelport, which Elliott bought last year with Siris Capital Group. The owners shifted intellectual property estimated to be worth more than $1 billion to an unrestricted subsidiary -- putting it out of reach of the creditors -- to help it raise cash.
Lenders led by GSO demanded that Travelport unwind the transaction for violating indenture agreements, and declared the step a default. The owners, who argue it was permitted, told them they would reverse the asset transfer if the creditors provided roughly $500 million of new financing and rolled up some existing debt holdings at a discount.