Hedge funds shouldn’t be able to keep roughly $500 million they were mistakenly paid by Citigroup Inc. on a loan owed by now-bankrupt cosmetics company Revlon Inc., a federal appeals court ruled yesterday, WSJ Pro Bankruptcy reported. The U.S. Court of Appeals for the Second Circuit said a lower court erred in allowing Revlon lenders including Brigade Capital Management, Symphony Asset Management LLC and HPS Investment Partners LLC to retain the “huge windfall” they collected from the bank’s back-office blunder. The court ruling is a major blow to the investment firms in their long dispute with Citi, which in 2020 prematurely paid off with its own money a nearly $900 million loan balance owed by a struggling Revlon. Some lenders returned roughly $385 million at the bank’s request when it realized its mistake. Others refused, touching off a legal dispute with Citi, the administrative agent in charge of distributing periodic interest payments from Revlon. Those lenders could now find themselves fighting it out with Revlon to collect as much as they can on the original loan, though their prospects for repayment are uncertain after the company filed chapter 11 in June. The appeals court said the investment firms weren’t entitled to the money because Revlon’s debt wasn’t yet due when it was paid down. A judge on the three-member panel, Michael Park, wrote that allowing them to keep a mistaken payment would “topple the settled expectations of participants in the multitrillion-dollar corporate-debt market” and be “brutally unfair.”
