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Citigroup Sues Revlon's Creditor on $0.9M Accidental Transfer

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In one of the major mishaps in the Wall Street, Citigroup Inc. (C - Free Report) erroneously transferred about $900 million to the creditors of a renowned but troubled cosmetic company, Revlon, Inc. .

Though the lender has been able to recover some of the amounts in what it explained to be a “clerical error”, some of the creditors, including Brigade Capital Management, Symphony Asset Management and HPS Investment Partners, have opted to retain the extra amount as debt repayments.

The company is currently in talks with the regulators and is also briefing the Office of the Comptroller of the Currency and the Federal Reserve about the accidental transfer. Also, Citigroup filed a lawsuit against Brigade, demanding the latter to refund the extra amount.

Per a Bloomberg article, Brigade was to receive $1.5 million in interest on loan principal of $174.7 million. However, it mistakenly received $176.2 million.

The article quoted Citigroup, “And it was well aware that virtually no company, let alone a distressed retail and consumer company such as Revlon, would ever make such a substantial repayment while dealing with the significant financial consequences caused by the ongoing pandemic.”

The extra money came as a blessing for creditors as the loan is trading at less than 30 cents on a dollar, which reflects slight chances of a full recovery under normal circumstances.

The above-mentioned creditors were already in a suit with Revlon over debt-restructuring tactics. Further, the bank was already planning to resign as an administrative agent on the loan.

Our Take

The nearly $1-billion mishap is likely to have some impact on the Wall Street giant amid the coronavirus crisis, as businesses have been getting hampered due to coronavirus pandemic and the resultant economic slowdown.

Also, with new cases coming up since the reopening of the coronavirus outbreak-induced lockdowns, several states and economies are shutting down again. Thus, given the factors along with low rates, Citigroup’s performance might remain under pressure.

Shares of the company have slumped 34.2% over the past six months compared with the 30.7% decline recorded by the industry.

 

 

Citigroup currently carries a Zacks Rank #4 (Sell).

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