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Citigroup urges appeals court to hit ‘rewind’ after Revlon blunder

Citigroup on Wednesday pressed a federal appeals court to let it recoup about $504 million of its own money that it accidentally wired Revlon lenders, saying its mistake did not entitle them to a huge windfall.

The bank’s lawyer Neal Katyal said the lenders had six “red flags” of the error, and had not expected the cosmetics company controlled by billionaire Ronald Perelman to repay them for another three years.

“If you hit rewind here, it’s not unfair,” Katyal told the 2nd U.S. Circuit Court of Appeals in Manhattan. “The parties get returned to the position that they bargained for.”

But one member of the three-judge panel said a key precedent from New York state’s highest court appeared to leave legal questions about Citigroup’s payment and the lenders’ response unanswered, and which perhaps that court should answer first.

“Each of those issues is really a question of policy,” Circuit Judge Pierre Leval said. “We would largely be guessing.”

The case stemmed from New York-based Citigroup’s August 2020 prepayment of an $894-million loan for Revlon, which lacked enough cash to repay it, that was not due until 2023.

Lawyer Neal Katyal, representing Citigroup, argued that hitting “rewind” on Citi’s early repayment of Revlon’s loan would be the most fair outcome.NurPhoto via Getty Images

Rather than return their share of the money, 10 asset managers whose clients included the Revlon lenders kept it.

They said Citigroup, acting as Revlon’s loan agent, paid exactly what was owed, and they had no reason to believe a sophisticated bank would err so badly.

The asset managers included Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, among others.

Citigroup said it inadvertently prepaid an $894-million loan for Revlon that was not due until 2023, and Citigroup wants to get some of that money back.Getty Images

On Feb. 16, U.S. District Judge Jesse Furman ruled against Citigroup, saying the prepayment was a “discharge for value,” and the asset managers were not on notice of Citigroup’s blunder.

Those managers deserve “finality,” their lawyer Kathleen Sullivan told the appeals court.

She also said the prepayment seemed plausible because Perelman had previously bailed out Revlon.

Billionaire Ronald Perelman controls the Revlon cosmetics company, whose repaid loan is at the heart of a legal battle Citigroup is waging.Getty Images

“They’d seen it before,” she said.

But Katyal said the banking industry wires $5.4 trillion each day, and mistakes will happen.

Industry groups have said a ruling against Citigroup could expose banks to excessive liability risks, and destabilize the approximately $1.2 trillion U.S. syndicated loan market.

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