Citigroup on Monday asked a federal court to force Brigade Capital to return $175m that the bank sent to the hedge fund by mistake — a portion of the $900m erroneously transferred to creditors of the troubled cosmetics company Revlon.
The mistaken payment, which Citigroup attributed to an “operational mistake”, occurred last Tuesday. The New York-based bank moved to recover the funds within hours of the transfers, which on average were more than 100 times the value that each lender was due to receive. But it has so far failed to recoup the full amount.
Citigroup was meant to have sent Brigade only $1.5m in accrued interest on the term loan the hedge fund held, according to the lawsuit. Instead, the bank wired $176m of its own funds to Brigade.
“We quickly caught our payment error and are taking the appropriate actions to recover those funds,” Citigroup said in a statement.
Revlon’s business has been hit hard by the coronavirus pandemic and Brigade is one of a group of creditors, including Symphony Asset Management and HPS Investment Partners, that has sued the company over its debt restructuring plans. Symphony and HPS also received mistaken payments.
The term loan held by the group was sealed in 2016 to help Revlon pay for its acquisition of Elizabeth Arden. Its value has collapsed over the past six months, however, and it traded at 26 cents on the dollar this month compared with 77 cents at the start of the year.
The holders accuse the company of improperly using intellectual property as collateral for other debt in 2019 and 2020. In a lawsuit filed last week, they charged that Revlon was “stealing away the 2016 Term Lenders’ collateral”.
Citigroup’s attorneys at the law firm Mayer Brown wrote in their complaint that “Brigade has taken the baseless position that Citibank’s overpayment — more than 100 times the amount of the intended transfer — served to pay off Revlon’s entire principal balance as well”.
They added: “Brigade’s actions are not just unconscionable; they threaten the integrity of the administrative agency function and the trust in the global banking system.”
Citigroup has discussed the situation with its regulators, according to a person familiar with the matter. Brigade, Symphony and HPS declined to comment.