Citigroup Inc. is punishing investment firms that kept payments the bank accidentally sent to Revlon Inc. lenders by blocking them from certain new debt offerings led by the bank, according to people with knowledge of the matter.
The bank is choosing to not invite these money managers, who hung on to over $500 million, to its new-issue debt deals, the people said, asking not to be identified discussing a private matter. Firms targeted include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, the people said.
These firms and others tangled in a lawsuit with Citigroup can still participate if an issuer specifically requests for them to be able to join their offering, one of the people added.
Representatives for Citigroup, Brigade, HPS and Symphony declined to comment.
The move follows the surprise ruling by a federal judge that thwarted Citigroup’s efforts to recover funds it sent by mistake to Revlon’s lenders last year while serving as administrative agent for the cosmetics company’s loan. The New York-based bank sued 10 firms that manage assets for Revlon creditors after they refused to return the money, but Judge Jesse Furman said prior court decisions forced him to conclude that the lenders could keep it.
While the bank is appealing the decision, a failure to overturn it leaves Citigroup responsible for the bulk of the almost $900 million remaining on the loan that Revlon hasn’t itself paid. Citigroup has now claimed rights as a Revlon creditor, and could seek repayment from the company if the ruling isn’t reversed.
At least two firms that received the errant payments opted to return it last year after the bank threatened to retaliate, according to people familiar with the matter. Citigroup, for its part, had to revise its fourth-quarter results last month after writing down a portion of the Revlon loan.
It’s not clear how big of a blow Citigroup’s actions will be for the targeted firms, some of which focus on buying discounted assets in secondary trading rather than new offerings. But it’s difficult to avoid Citigroup in debt markets.
Leading role
The bank is one of the largest underwriters of new bonds and loans. Citigroup was the third most-active manager for new high-yield bonds in 2020, for example, helping arrange 324 deals for a volume of about $32 billion, according to Bloomberg league table data.
These firms can still participate in deals led by banks not involved in the dispute, such as No. 1-ranked JPMorgan Chase & Co. and runner-up Bank of America Corp. The latter two accounted for about $90 billion of offerings last year in junk bonds.
The lead bank on a new bond offering starts by sending out a deal announcement with specifics such as size, maturity, timing and access to financial documents to a large group of investors. As potential buyers consider investing in the debt, the bank’s sales team communicates with individual firms to answer questions and share early pricing discussions and color on how the book is building.
Those locked out of the new-issue process can’t buy debt as it’s issued, and instead must wait to trade in the secondary market. This could put the exiled firms at a disadvantage because many new bonds trade a few points higher after they have priced.
