For corporate lenders, clashes with fellow creditors can pay off — especially if the borrower is destined for bankruptcy, WSJPro Bankruptcy reported. The recent chapter 11 case of Revlon Inc. shows why. A rescue financing deal completed in 2020 gave investment firms Angelo Gordon & Co., Glendon Capital Management LLC and other lenders dibs on the company’s intellectual property, and their collateral rights were honored in the chapter 11 case the cosmetics giant subsequently filed. Those lenders will recover an estimated 78 cents on the dollar, according to Revlon’s bankruptcy filings. A competing lender group including Symphony Asset Management and HPS Investment Partners LLC was shut out of the 2020 deal and failed in its attempts to unwind it. They will now recover roughly a fifth of their claims when Revlon leaves chapter 11, court filings show. The outcome marks one of the first times that bankruptcy courts have sorted out the so-called creditor-on-creditor violence that has become more common among distressed borrowers. Companies in recent years have become increasingly creative in designing rescue deals to stay out of bankruptcy, sometimes by shifting collateral from one creditor group to another to secure new borrowing and buy time for a turnaround. By looking for, and taking advantage of, loopholes in existing credit agreements that can either benefit themselves or give them an advantage over other financiers, lenders can allow new money to enter the capital structure with some new seniority. That means that struggling businesses and their owners, often private-equity backers, can come up with new funding, potentially without the portfolio companies filing for bankruptcy.
