Revlon has struck an agreement with creditors to give lenders and bondholders ownership of the bankrupt cosmetics maker and wipe out the interests of Ron Perelman, the tycoon who has controlled it for decades.
According to a restructuring support agreement made public on Monday, the company would aim to raise $650mn in new equity and seek to exit the Chapter 11 bankruptcy process by April in private hands. The majority of its new ownership would be held by senior lenders.
Revlon filed for bankruptcy in June as it struggled with a $3.3bn debt load, a working capital crunch and supply chain problems. The company’s shares subsequently underwent a fleeting rally as retail investors embraced it as a so-called meme stock.
However, difficult financing conditions and a weakening economy soured investors’ hopes. The new Revlon is set to have a total debt of $1.4bn, although its proposed enterprise value has not been finalized, said a person familiar with the negotiations.
The proposed settlement allows Revlon and its creditors to avoid a messy fight over its assets. The disputes stemmed from 2020, in the early days of the pandemic, when the company struck a deal to raise $880mn of new capital from hedge funds that claimed intellectual property such as the Elizabeth Arden and Almay brands as collateral.
Another group of investors which had not participated in the new financing later south of Revlon, alleging that the brand assets had previously been pledged to them in connection with a previous loan.
Later in 2020, Citigroup, an administrator of Revlon loans, mistakenly repaid $900mn of the earlier loan. A group holding $500mn of those loans chose not to return the mis-wired funds to the US bank.
Revlon told the New York bankruptcy court that uncertainty over the identities of its creditors made it more difficult to raise fresh capital and avoid a bankruptcy filing. A New York federal appeals court earlier this year ordered the hedge funds to return the mistaken funds to Citi, a decision that hastened negotiations of a restructuring settlement.
Perelman’s daughter, Debra, is the chief executive of Revlon. The restructuring agreement calls for her current employment agreement to be honored as well as a newly agreed severance plan.
Perelman first acquired Revlon in 1987. While it thrived for years with supermodel endorsers, it eventually became vulnerable to upstart beauty brands and was weighed down by the debt from its 2016 acquisition of Elizabeth Arden.
The restructuring plan will be voted on by creditors and requires approval by the bankruptcy court.