Make-up icon Revlon narrowly avoided filing for bankruptcy in 2020, but the pressure is increasing again. According to the Wall Street Journal on June 3, 2022, the company is in negotiations with certain of its lenders regarding debt coming due in 2023 and 2024:
A group of lenders including Angelo Gordon, Glendon Capital Management LP and King Street Capital Management are in restructuring discussions with Revlon about pushing out the due date on roughly $1.7 billion in debt that matures as early as 2024, people familiar with the matter said.
Centerview Partners is advising the lender group on negotiations, alongside legal counsel Davis Polk & Wardwell LLP, the people familiar said. The lender group holds as its collateral certain intellectual-property assets that Revlon pledged to them in a 2020 deal that drew criticism from some hedge funds.
Complicating matters is that there is enmity between various groups of lenders that dates back for years - one more example of increased litigiousness between creditors that we've seen played out of late.
From what we can tell, there are two BDC lenders with exposure to Revlon entities, including publicly traded First Eagle Alternative Credit (FCRD), and non-traded SCP Private Income Credit. The latter holds most of the $16.3mn of exposure - all in 2024 first lien debt. FCRD holds a $2.5mn "first out" in Revlon Consumer Products. Confusingly, the BDC in its latest earnings release, listed this as a new facility, but Advantage Data and FCRD's own filings show this loan on the books since IVQ 2021. Previously, FCRD was a lender in a 2023 maturity loan and may have been one of the lenders repaid by mistake by agent Citibank and who didn't refund the monies. (It's a long story).
In any case, FCRD and SCP Private Credit both valued their debt holdings at par as of March 31, 2022. Given the latest news - and clear liquidity issues at Revlon which caused the company to seek a temporary $32mn increase in its Revolver - we are adding the company to our underperformers list, with an initial rating of CCR 3 on the 5 point scale. Apparently - if the WSJ is to be believed - the company's debt is already trading at 46 cents on the dollar.
We don't track the non-traded BDC sector, but for FCRD this seems like trouble brewing, but given the small amounts at risk not a material challenge. More important might be is that moribund companies like Revlon - and there are many more like them - are beginning to underperform again. The pandemic-related funding by the Fed may have given Revlon and others a reprieve, but days of reckoning may lie ahead and in a much more expensive and less forgiving environment.
We will provide an update as this story develops. In the interim, we're adding Revlon to FCRD's list of underperforming portfolio companies from 7 to 8. See the BDC Credit Table.