Citigroup’s $900 million loan blunder to face OCC, Fed scrutiny

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Citigroup has started briefing bank regulators on how it mistakenly sent almost $900 million in payments to Revlon’s lenders amid a bitter a fight between the cosmetics company and creditors.

The bank is in contact with watchdogs including the Office of the Comptroller of the Currency and the Federal Reserve about the situation, according to people familiar with the matter, who asked not to be named discussing private discussions. Citigroup last week told Revlon’s lenders the payments were tied to a clerical error.

The roughly $900 million — an amount equal to the full principal value of the loan, plus accrued interest — landed in the lenders’ bank accounts last week. While some opted to return the funds to Citigroup, others —including Brigade Capital Management, Symphony Asset Management and HPS Investment Partners — have at least initially refused to give the money back.

Bank regulators aren’t likely to settle that dispute. Rather their focus will be on making certain that any lapses at the New York-based bank can’t be repeated and that they don’t reveal deeper problems that pose a threat to its stability.

Citigroup had been in the process of resigning as administrative agent on the loan prior to the blunder. Representatives for the bank and regulators declined to comment.

Meanwhile, Citi asked a federal court on Monday to order Brigade to return its share of more than $900 million that the bank mistakenly wired to Revlon’s lenders, some of whom are locked in a bitter fight with the struggling cosmetics giant.

In a lawsuit filed in New York, Citigroup said it was supposed to make an interest payment on Revlon’s behalf but instead sent a payment that was more than 100 times greater.

Brigade has kept about $175 million of the $900 million and has refused to repay the funds “despite crystal-clear evidence that the payments were made in error,” Citigroup said in its complaint.

Brigade is among a lender group also including HPS Investment Partners and Symphony Asset Management who sued Revlon over its debt-restructuring tactics.

A representative for Brigade declined to comment.

Brigade “should have known that a surprise repayment of principal could not be made under the governing credit agreement,” Citigroup said. “And it was well aware that virtually no company, let alone a distressed retail and consumer company such as Revlon, would ever make such a substantial repayment while dealing with the significant financial consequences caused by the ongoing pandemic.”

Revlon, controlled by Ron Perelman’s MacAndrews & Forbes, has struggled to remain relevant and stem falling sales amid competition from Estee Lauder Cos. and a host of smaller companies using social media to lure customers.

Saddled with nearly $3 billion of debt, the retailer has been hit hard by the pandemic and is seeking to rework its borrowings.

Because of the lender suit, Citigroup had already been in the process of resigning from its administrative role before the payment mishap, the people said.

The case is Citibank NA v Brigade Capital Management, 20-cv-6539, U.S. District Court, Southern District of New York (Manhattan).

Bloomberg News
Commercial lending Commercial lines Citigroup Revlon OCC Federal Reserve