Revlon Inc has received the green light from a US bankruptcy judge to move forward with a $1.4 billion loan as it manages its Chapter 11 bankruptcy. This decision was made despite objections from junior creditors who expressed concerns about the loan’s terms potentially hindering their ability to recover funds from the cosmetics company’s bankruptcy.

To address these concerns, US Bankruptcy Judge David Jones ordered modifications to the loan agreement. However, he emphasized that it is crucial for Revlon to have access to the necessary funds to sustain its operations during the bankruptcy process. With a debt burden of $3.5 billion, Revlon filed for Chapter 11 in June, leaving the company with limited cash flow to make timely payments to its critical vendors within the cosmetics supply chain.

Revlon sought additional financing from a group called the BrandCo Lenders to support its bankruptcy case and fulfill its supply chain needs. Prior to the bankruptcy filing, this coalition had already provided Revlon with loans amounting to $1.88 billion.

At the start of the bankruptcy proceedings, the court approved an initial loan amount of $375 million for Revlon. The recent decision will unlock an additional $200 million to $1.05 billion, with a portion of the funds designated for paying off Revlon’s existing debts to the BrandCo lenders.

Judge Jones’ approval includes non-financial conditions, such as a timeline for Revlon to exit bankruptcy by April 2023 under favorable terms for the lenders. He also made adjustments to the loan agreement, granting Revlon more time to present a restructuring plan and providing junior creditors with increased authority to file lawsuits on behalf of the company.

Now, the junior creditors have the option to bring a lawsuit against the BrandCo lenders involved in the new loan. They claim that these lenders took advantage of Revlon stakeholders in a 2020 debt restructuring that leveraged Revlon’s intellectual property as collateral. Other lenders who participated in the 2020 transaction have already filed lawsuits. However, the BrandCo lenders argue that the transaction was necessary to keep Revlon afloat during the challenges posed by the COVID-19 pandemic and deny any allegations of fraudulent or aggressive behavior.

Moving forward, Revlon must proceed with caution to meet the court’s conditions, address the concerns of its junior creditors, and navigate the bankruptcy proceedings. With the approval of additional financing, the company now has an opportunity to stabilize its operations and work towards a successful restructuring that will be advantageous for all parties involved.

Useful links:
1. Chapter 11 Bankruptcy Basics
2. Understanding Collateral