Revlon will exit bankruptcy through a debt reduction deal worth $2.7 billion

Revlon Inc was approved by a U.S. bankruptcy judge on Monday for a reorganization plan that will reduce Revlon's debt by $2.7 billion and allow the cosmetics company to exit bankruptcy next month.

‍

A United States Bankruptcy Judge in Manhattan, David Jones, who has been overseeing the company's Chapter 11 bankruptcy, has said Revlon had reached a "hard-fought, multi-faceted settlement" which resolves a series of enterprise-threatening risks to the company, including litigation among its lenders that has been "debilitating."

‍

The agreement under which Revlon's lenders are to be taken over by the company's lenders in exchange for a debt reduction agreement will wipe out the equity value of existing shareholders in the company. Following its exit from bankruptcy, the reorganized company plans to sell new equity shares in order to raise $670 million in order to fund its reorganization.

‍

There was strong support for Revlon's reorganization in the hands of 88% of the 4,500 creditors who voted on the plan, and those creditors hold 98% of the company's debt. In a filing with the court on Friday, Revlon said that the reorganization will provide the company with a "fresh start" and ensure that it has a solid foundation to grow in the future.

‍

In June, Revlon filed for bankruptcy, claiming it was too cash-poor to pay critical vendors in its cosmetic supply chain because its $3.5 billion debt load and pandemic-related disruptions had left it in a difficult position to make timely payments to its 91-year history of selling lipstick, nail polish, and other beauty products.

‍

Revlon, which entered bankruptcy in 2016, reached settlements with two warring factions of lenders who financed Revlon's purchase of cosmetics and fragrances company Elizabeth Arden as part of its bankruptcy process. During the course of the dispute, the lenders clashed over the terms of a 2020 loan that gave one faction of lenders additional control over Revlon's intellectual property.

‍

The lenders participating in Revlon's bankruptcy plan will receive the majority of the company's equity, estimated to be worth $2.75 billion to $3.25 billion, under the 2020 loan plan. Those who did not participate in the 2020 loan have the option of receiving up to $56 million in cash, or they can forgo cash payments and receive up to 18% of the company's post-bankruptcy equity shares instead.

‍

It is estimated that up to $44 million will be paid to junior creditors, such as retirees who have unpaid pension claims and consumers who have filed personal injury lawsuits against Revlon.

The existing equity shares of Revlon will be wiped out when the company emerges from bankruptcy.

‍

MacAndrew & Forbes, which is owned by Ron Perelman, held 85% of the company's shares at the time it filed for bankruptcy protection. Retail investors were attracted to the rest of the company's stock last year, and shares traded above $8 per share early in the company's bankruptcy before the price collapsed.