Revlon Inc. has been given the green light to exit bankruptcy after receiving approval for its reorganization plan from U.S. Bankruptcy Judge David Jones. This milestone allows the cosmetics company to reduce its debt by $2.7 billion and emerge from bankruptcy later this month. The approval of the plan signifies the resolution of various risks that Revlon faced, including legal disputes among lenders.

Under the reorganization plan, Revlon’s lenders will take ownership of the company in exchange for the debt reduction agreement, effectively eliminating the value of existing shareholders’ equity. As the company exits bankruptcy, it intends to raise $670 million through the sale of new equity shares.

The reorganization plan garnered substantial support from creditors, with 88% of the 4,500 creditors who voted on the plan backing it. These creditors hold 98% of Revlon’s debt. The company’s filing on Friday emphasized that the reorganization will provide Revlon with a “fresh start” and lay the foundation for sustainable growth in the future.

Revlon, known for its lipstick, nail polish, and other beauty products, filed for bankruptcy in June due to its $3.5 billion debt burden and the disruptions caused by the pandemic. The inability to meet payment obligations to crucial vendors in its cosmetics supply chain further aggravated the situation.

Throughout the bankruptcy proceedings, Revlon reached settlements with two groups of lenders involved in financing its acquisition of Elizabeth Arden in 2016. These lenders had previously clashed over a 2020 loan, which resulted in one faction gaining additional control over Revlon’s intellectual property assets.

As per the bankruptcy plan, the lenders associated with the 2020 loan will receive the majority of the company’s equity, with an estimated value ranging from $2.75 billion to $3.25 billion. Lenders not involved in the 2020 loan have the option to receive up to $56 million in cash or choose to forgo the cash payment and receive up to 18% of the company’s post-bankruptcy equity shares. Junior creditors, including retirees with pension claims and consumers with personal injury lawsuits against Revlon, will receive payments totaling up to $44 million.

Upon emerging from bankruptcy, Revlon’s existing equity shares will be rendered worthless. Prior to filing for bankruptcy, the majority of the company’s shares were held by MacAndrew & Forbes, owned by Ron Perelman. However, during the bankruptcy process, retail investors expressed interest in the remaining stock, resulting in a surge in its value, which was later lost.

Useful links:
1. Revlon Official Website
2. Revlon Bankruptcy Filing