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Revlon Inc. is preparing to file for chapter 11 protection as soon as next week after struggling for years with too much debt, stiff competition in the cosmetics business and more recent inflation and supply-chain pressures, people familiar with the matter said.
The cosmetics maker, owned by billionaire Ron Perelman’s MacAndrews & Forbes, has been in restructuring talks with top-ranking lenders ahead of debt maturities that begin next year. A bankruptcy filing could end Mr. Perelman’s control of Revlon, which his private-equity firm bought in 1985.
The situation is fluid and a chapter 11 filing isn’t certain, a person familiar with the matter said. Revlon shares dropped 53% on Friday to $2.05 a share.
Revlon declined to comment. Sales rebounded by 8% in the latest quarter as consumer shopping habits returned closer to prepandemic levels. But the company’s outlook is still challenged by its need to raise capital for liquidity needs, according to an April report by S&P Global Ratings.
Reorg Research earlier reported that Revlon was planning to file for bankruptcy.
The company’s nearest upcoming debt maturity is in September 2023 and involves an $866 million loan that was paid off by accident in 2020 by administrative agent Citigroup Inc. with its own money rather than Revlon’s. Some lenders gave the money back to Citi, but others kept roughly $500 million of the accidental payment.
Citi sued them for the money but was denied its request by a federal judge last year. The bank has appealed, and an appellate decision is pending. Revlon still owes the loan, however the appeals court rules.
Some of Revlon’s lenders believe there may be some logic to the company filing for bankruptcy sooner rather than later, before the appellate ruling, according to a person familiar with their thinking.
Revlon makeup products are displayed at a CVS store. (Photo by Justin Sullivan/Getty Images) ( (Photo by Justin Sullivan/Getty Images) / Getty Images)
Bankruptcy court may be the best forum to untangle the messy interplay between Citi’s accidental payment and Revlon’s need to restructure its debt, this person said. Citi declined to comment.
If Citi loses its appeal, it also could seek repayment of the loan from Revlon by the maturity date, a person familiar with the matter said. But Citi’s legal rights to seek repayment on the loans at maturity are not entirely clear, other people said.
Maturities on the rest of Revlon’s $3.3 billion in debt pile up rapidly in 2024 and 2025. About half of the company’s debt is coming due by 2024, and the 2025 due date on a $1.7 billion loan accelerates to 2024 if the company is unable to repay a bond due that year.
SAUSALITO, CA – AUGUST 09: Revlon makeup products are displayed at a CVS store on August 9, 2018 in Sausalito, California. Revlon reported second quarter earnings that fell short of analyst expectations with revenue of $606.8 million compared to the ((Photo by Justin Sullivan/Getty Images) / Getty Images)
The company’s lenders were at odds with each other even before Citi’s accidental payoff. In 2020, a group of hedge funds accused the company of wrongfully stripping their collateral rights to intellectual property assets including the American Crew, Elizabeth Arden, Almay and other brands.
Revlon used those brand assets to raise fresh financing that helped it weather the Covid-19 pandemic. Litigation over the debt transaction was put on hold when Citi paid off the lenders by mistake.
If the appeals court orders the money returned, that legal dispute is expected to resume and the lenders, which include Brigade Capital Management, HPS Investment Partners and others, would likely join restructuring negotiations, people familiar with the matter said. They didn’t immediately respond to requests for comment.
—Andrew Scurria contributed to this article.