Citi’s punishment of Revlon lenders extends to CLOs, trading

Investors that kept money that Citigroup Inc. accidentally sent to Revlon Inc. lenders are finding that the bank is freezing them out from more than just new debt, with the blocking extending to credit lines, trading activities and most other business ties.

Among its moves, the bank has denied the firms warehouse financing critical to putting together collateralized loan obligations, according to people with knowledge of the situation. Beyond the CLO business, Citigroup is curtailing trading activities with the firms, the people said, asking not to be identified discussing a private matter.

Bloomberg News reported on Tuesday that Citigroup has been blocking money managers still holding on to the Revlon payment from certain debt offerings led by the bank, unless the borrower specifically requests that the investment firms be invited to participate. New York-based Citigroup lost a court battle last month in its effort to recover the funds it had sent by mistake to Revlon lenders.

Firms targeted include Brigade Capital Management, HPS Investment Partners, Symphony Asset Management and Bardin Hill Investment Partners, which all have a CLO business that repackages leveraged loans into bonds of differing risks, the people said.

Chris J Ratcliffe/Bloomberg

Representatives for Citigroup, Brigade, HPS and Bardin Hill declined to comment. A spokesperson for Symphony had no comment.

The firms can tap other banks for credit lines and pay them to craft deals. But they are cut off from one of the biggest Wall Street players in the CLO market. Citigroup has topped the U.S. CLO new-issuance league charts for five out of the last six years, according to data compiled by Bloomberg.

Brigade, which amid its fights with Citigroup last year saw the bank resign as lead arranger for its $400 million CLO days before it was due to price, is expected to do its next deal with Barclays Plc. HPS, which once had an open warehouse with Citi, used another bank for that CLO, and for its latest reset transaction opted to hire JPMorgan Chase & Co., according to a person familiar with the matter.

Citigroup’s decision to cut business ties was anticipated and part of the calculation for money managers when deciding to keep or return the wayward funds and enter into legal dispute, the people said. The bank warned firms that if they kept the money, it would severely limit its business with them, according to the people.

The asset managers were paid back in full when Revlon loans were trading at 44 cents on the dollar in the secondary market, according to Bloomberg data.

Citigroup’s move also blocks the firms from leveraged-loan new-issue allocations, which are sold at a discount and can help achieve the critical arbitrage that makes a securitization work. The cutting of trading relationship also makes it more challenging for these firms to purchase leveraged loans in the secondary market when Citigroup is the agent for the debt.