Home Private Equity PE-owned cosmetics maker Revlon files for bankruptcy

PE-owned cosmetics maker Revlon files for bankruptcy


Cosmetics giant Revlon has filed for bankruptcy, likely ending a decades-long bet on the beauty products company by Ronald Perelman, its billionaire controlling shareholder.

Mr. Perelman bought Revlon in 1985 and built a reputation for always riding to its rescue when its future looked bleak, often through rescue loans or cash infusions. Now he faces losing control of the cosmetics business as it confronts a heavy debt load, inflation and supply-chain pressures, and competitive threats.

Revlon filed for bankruptcy in the U.S. Bankruptcy Court in New York on Wednesday, giving itself a chance to shed debt and chart a path forward for the business, which was in talks with certain lenders ahead of the chapter 11 filing.

The company said it has lined up $575 million in bankruptcy financing from its existing lenders to help it get through the court proceedings and fund operations.

The New York-based company is among the last remaining holdings of Mr. Perelman, a private-equity financier whose deal for Revlon was one of the original high-profile leveraged buyouts. His investment firm, MacAndrews & Forbes Inc., owns roughly 85% of the business, which his daughter Debra Perelman runs as chief executive.

She said Thursday that while consumer demand for Revlon’s products remains strong, its capital structure “has limited our ability to navigate macroeconomic issues in order to meet this demand.”

“By addressing these complex legacy debt constraints, we expect to be able to simplify our capital structure and significantly reduce our debt, enabling us to unlock the full potential of our globally recognized brands” Ms. Perelman said.

In its heyday, Revlon was the second-largest cosmetics company by sales, behind only Avon. Over three decades later, the crown jewel of Ron Perelman’s corporate empire has become a liability. WSJ looks at why the company’s future is now in question. Photo illustration: Jacob Reynolds/WSJ

Mr. Perelman and his daughter have resigned from the board, according to a document filed by Robert Caruso, chief restructuring officer for the company.

Revlon narrowly avoided bankruptcy in 2020 after lockdowns emptied malls, salons and spas nationwide. Sales are now rebounding, but the company is also contending with inflationary pressures and debt and other liabilities of roughly $3.8 billion, court papers show.

Revlon found itself in a bind for years with too much debt, according to analysts, and lost some of its gloss as consumer habits changed and new competition emerged. The Covid-19 pandemic worsened matters by sapping consumer traffic in key shopping areas.

The company recorded widening losses of $610 million in 2020 and $207 million in 2021, the filings showed.

Investors have long assumed Mr. Perelman would continue finding ways to bail out Revlon. He did it so many times that Wall Street used the term “Perelman Put” to describe how he managed to find “pockets of liquidity” in his portfolio companies to keep them afloat, according to court papers filed by company lenders in 2020.

This time, however, Revlon was on its own. Last month, the company said its lenders agreed to temporarily expand its revolving credit lines by $32 million and that it was planning to raise additional financing through at-the-market stock sales.

Worsening supply-chain disruptions since the start of the pandemic and the lockdowns in key commercial hubs including China were among the recent challenges that have led to Revlon’s decision to file for bankruptcy, according to Mr. Caruso’s court filing.

The company’s inability to produce and obtain sufficient inventory caused lenders of its revolving credit line to reduce its borrowing base, Mr. Caruso also said.

Moreover, as Revlon started facing increasing constraints on access to credit, its suppliers began demanding cash in advance rather than shipping goods on credit, while the company battled with intensifying competition for raw materials among consumer products manufacturers, he said.

Facing a choice of whether to make $49 million in upcoming interest payments on its loans with the limited funds available, Revlon started discussions with three different lender groups last month. Even though the company proposed financings to bridge its liquidity needs, a significant number of the lenders were unwilling to “pursue such a transaction in the current environment,” Mr. Caruso also said in his court filing Thursday.

Additionally, Revlon has to navigate conflict sparked by its more recent efforts to stave off bankruptcy. The company shifted some of its brand assets away from its longtime lenders, to be used as collateral for a new financial lifeline. Those lenders sued in 2020, alleging Revlon had breached its debt agreements.

The loan’s agent bank, Citigroup Inc., then accidentally paid off the nearly $900 million outstanding with its own money. Some lenders returned the funds at Citi’s request, but others kept roughly $500 million of the accidental payment.

A federal judge last year said the lenders could keep that money, a decision Citi has appealed. Revlon could still be liable for the loan, however the appeals court ends up ruling.

In a court filing Thursday, Revlon asked Judge David S. Jones of the U.S. Bankruptcy Court in New York to issue a ruling stating that the company’s bankruptcy filing will have no impact on Citi’s appeal and that the automatic stay under the Chapter 11 case doesn’t apply to that dispute.

Revlon believes a “prompt resolution of the appeal” will help identify who holds $500 million of the loans and allow for negotiations with those parties.

From WSJ

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