Citi wins appeal in $500 million Revlon transfer deal


The dispute centers on the “discharge for value” defence, established by a 1991 New York court ruling that creditors can keep money sent to them in error if they do not realize that the payment is an error.

900 million dollar mistake

Citibank was trying to send an interest payment to Revlon lenders managed by Angelo Gordon & Co., who were swapping their positions in a 2016 term loan for positions in another credit facility. Instead, the bank accidentally paid all of the creditors on the loan, over $900 million. He managed to recover nearly half of the funds, but other lenders refused to return their sums, saying Revlon had already defaulted and should have repaid them.

In a painfully bad moment, Citibank was about to step down as administrative agent on the loan when it wired the huge sum to the lenders.

Furman ruled for creditors in February 2021, saying they shouldn’t have known the transfer was a mistake. The decision was a boon for a group of creditors who had been embroiled in a bitter battle with Revlon and Ronald Perelman, the billionaire whose holding company controls the cosmetics maker, over its May 2020 restructuring.

Separately, Citigroup sued Revlon in bankruptcy court in August, asking the court to resolve any doubts about its right to repayment under Revlon’s term loan. He filed the lawsuit after Revlon hinted it might challenge the bank’s status as a creditor.

At a hearing last year, Neal Katyal, a Citibank lawyer, told the three-judge appeals panel that the lenders should have been skeptical about the payments because they never received formal notice saying Revlon’s term loan was repaid. He noted that the loan was trading as low as 20 cents on the dollar and that some creditors believed Revlon was insolvent, and said six of the 10 lenders weren’t even aware of the transfers until Citibank told them. informed of it.

‘Red flags’

“All those red flags” should have caused them to ask “one of the millions of questions that would have led to the discovery of the error,” Katyal said.

Kathleen Sullivan, representing the lenders, told the panel that the ruling should stand because those receiving funds from a third party “shouldn’t have to wonder” whether the payments are legitimate.

“It would have been unreasonable to think that this was an unprecedented mistake on the part of a bank like Citibank,” she argued. “That would have been borderline irrational.”

A number of law professors, advocacy groups and industry associations have sided with Citibank, saying Furman’s move has already disrupted the functioning of the market and changed the expectations of its participants. One of the briefs supporting the bank’s position was filed by the Loan Syndications and Trading Association, a nonprofit group that represents more than 500 companies involved in loan origination, syndication and trading. commercial companies, including Citigroup and most of the creditors in the case.

The group said that while the syndicated loan market is largely automated, participants regularly return incorrect payments.

“Mistakes happen,” he said.


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