Citigroup v Brigade Capital Management
A judgment that will surely strike terror into earnest hearts in the global trust and agency community, the US District Court’s stonking 105-page judgment in the Citigroup v Brigade Capital Management addresses a perfect storm of unexpected factors to come to a quite terrifying conclusion. This case has everything: it is as if all the ghastly phantoms of commercial legal practice converged in some mountain eyrie for a satanic feast on the bones of a poor, harmless, well-meaning global banking conglomerate.
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Facts
The facts are straightforward enough — though behind them there are complicated cross-currents and counterwinds that led the parties to behave the way they did. In any case, Revlon — you know, that Revlon: lippy, perfume, nail polish, that sort of thing; a struggling “heritage” brand — borrowed a ton of money from a syndicate of lenders in 2016 to acquire Elizabeth Arden. The structure of the financing was complex, involving senior and junior facilities, the pledge of certain collateral, but the important thing to know about the loan was that Citigroup acted as Revlon’s loan servicing agent. A loan servicing agent is an administrative role: It keeps a register of the lenders, who is owed what, and handles interest and principal payments to the lenders on the borrower’s behalf.
The loan service agent
The key concept here is “agent”, my little legal eaglets. Citigroup assumed no responsibility for Revlon’s obligations: it would generally require Revlon to pre-fund it with whatever is needed to make any payments to the lenders. If — as it seemed increasingly likely to as time passed — Revlon was unable to meet its obligations, Citigroup would not be in the firing line. Citi had no skin in the game.
“I ... just work here, you know,” said the Chief Risk Officer.
“Oh, no you don’t,” said his Chief Executive.
“Actually, nor do you, Michael,” said the activist hedge funds on the board.
In any case, you can just imagine the indemnities, disclaimers, waivers and exclusions of liability littered through Citigroup’s standard agency legal documents. If you think they were bad before, just shudder in horror at what they will be like now.
Revlon’s decline
Things aren't quite what they were for Revlon, when Charlie and Tweed used to fly off the shelves. It has become what they call in the trade a “distressed” name, and some of its debt has found its way onto the books of rather aggressive hedge funds, who did not appreciate Revlon’s rather graspy attempts to raise further finance. The lenders launched all kinds of litigation over this, a lot of which turned out not to matter.
The repayment
It came time for Revlon to make some interest payment on its loan; about $8m. We imagine Revlon put Citigroup in funds to that tune, as it was obliged to do in order for Citi to make the interest payment on its behalf. Then someone at Citigroup made what we can only describe as a “bit of a bish.”