Investors in Revlon have accused the struggling beauty company of “pillaging” intellectual property it had pledged as collateral for a $1.8 billion loan as part of a “brazen” scheme to raise new capital.
In a lawsuit filed Wednesday, UMB Bank, the administrative agent for the lenders, said the collateral, which includes trademarks and other rights associated with “many of the best known, well-established beauty brands in the world,” has been “ripped away and pledged to other lenders.”
Revlon secured the $1.8 billion loan in 2016 to help finance its acquisition of the iconic Elizabeth Arden brand. Since that deal, its business has been hit by the shift to online shopping and, lately, the coronavirus pandemic, which left it facing a financial storm earlier this year.
“This case is a stark example of a borrower that has ignored repeatedly its legal obligations to its lenders,” the suit says. “Covid-19 is no license to breach contractual commitments to lenders, to engage in transparent vote rigging, and to steal and reuse collateral for alternative purposes.”
According to The Wall Street Journal, UMB represents lenders including Brigade Capital Management, HPS Investment Partners, and Symphony Asset Management that “have spent months resisting Revlon’s restructuring tactics.”
In a statement, Revlon said the group had “repeatedly resorted to baseless accusations in an attempt to enrich themselves and hurt the company by blocking Revlon from exercising its contractual rights to secure the financing necessary to execute our turnaround strategy and navigate the Covid-19 crisis.”
The suit alleges Revlon initially siphoned off part of the collateral for the 2016 loan to secure a $200 million loan in 2019 from Ares Management, giving the new lender “its own, exclusive security interest in the very same property.”
The company then allegedly negotiated a “bigger, bolder transaction” in May 2020 that raised another $880 million and was “devastating” for the 2016 lenders.
To complete the deal, the suit says, Revlon devised an end-run around the consent threshold by arranging a “sham” revolver loan with friendly investors who provided the majority needed to approve the new financing.
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