Citigroup v Brigade Capital Management: Difference between revisions

Citigroup v Brigade Capital Management (view source)

Revision as of 15:58, 18 February 2021

1,193 bytes added , 18 February 2021

no edit summary

Amwelladmin

Bureaucrats, Interface administrators, Administrators

82,891

edits

@@ Line 20: / Line 20: @@
 ====The repayment====
-It came time, in August 2020, for Revlon to pay about $8m in interest on its loan. It put Citi in funds, as it was obliged to. Then someone at Citi made what, on hindsight, we might regard as a “bit of a ''bish''.”<ref>You could, and I just might, write a whole article about the wisdom of the inevitable claims of “[[operator error]]” here: that that “someone” worked for an [[outsourced]] operation in a low-cost jurisdiction might be an irony beyond the capacity of those Citi executives who are still there, to see the funny side of. The application he was obliged to use to make that payment, called FlexCube, and the accompanying [[playbook]] explaining how to use it, was utterly baffling. Doubtless, Citi will put this down to “[[operator error]]”.</ref> Instead of instructing the interest payment, the [[operations]] team instructed a full repayment of ''[[principal]]''. Eight-hundred and ninety-three million dollars of the stuff. Nearly, as the bankers like to call it, a “[[yard]]”. [[Principal]] that was not, according to the loan, due to be repaid until 2023. Principal that was not in Revlon’s account with Citi, ''because Revlon didn’t have it''.
+It came time, in August 2020, for Revlon to pay about $8m in interest on its loan. Owing to the restructuring, this payment was only going to ''some'' of the lenders, who had negotiated with Revlon to switch into a new (and somewhat controversial) loan, which the remaining lenders were not happy about — hence their litigation. Anyway, that’s beside the point, except insofar as it illustrates the fog of war.
+Revlon put Citi in funds for the $8m interest payment, as it was obliged to. Then someone at Citi made what, on hindsight, we might regard as a “bit of a ''bish''.”<ref>You could, and I just might, write a whole article about the wisdom of the inevitable claims of “[[operator error]]” here: that that “someone” worked for an [[outsourced]] operation in a low-cost jurisdiction might be an irony beyond the capacity of those Citi executives who are still there, to see the funny side of. The application he was obliged to use to make that payment, called FlexCube, and the accompanying [[playbook]] explaining how to use it, was utterly baffling. Doubtless, Citi will put this down to “[[operator error]]”. [https://www.bloomberg.com/newsletters/money-stuff/latest Matt Levine’s excellent post on February 17] accords more with the commonsense view that ''batshit crazy'' software was the operating cause here.</ref> Instead of instructing the interest payment, the [[operations]] team instructed a full repayment of ''[[principal]]''. Eight-hundred and ninety-three million dollars of the stuff. Nearly, as the bankers like to call it, a “[[yard]]”. [[Principal]] that was not, according to the loan, due to be repaid until 2023. Principal that was not in Revlon’s account with Citi, ''because Revlon didn’t have it''.
 Citi had funded a nearly a billion dollars of its own money to pay a sum that was not due by a borrower with no money to lenders it was already in an argument with. ''Awkward'', right?
@@ Line 53: / Line 55: @@
 You might, therefore, be surprised to hear the lenders’ evidence about their own states of mind on receiving the funds was strikingly consistent: not ''one'' of them thought it could possibly be an error. The transcript catalogs their testimony: “Not in my wildest imagination ... [did I suspect that the payments could have resulted from an error] ... That just — the thought literally never crossed my mind.”
-Now you might think the loan service personnel in the New York lender community to have demonstrated themselves to be an uncommonly unimaginative and credulous bunch, therefore — the [[JC]] couldn’t possibly comment — but happily, their extraordinary lack of curiosity as to how, or why, a distressed debtor was suddenly paying down a massive loan with money it didn't have, worked to their great advantage. This is a finding of fact which it will be hard to overturn on appeal.
+Now you might think the loan service personnel in the New York lender community to have demonstrated themselves to be an uncommonly unimaginative and credulous bunch, therefore — the [[JC]] couldn’t possibly comment — but happily, their extraordinary lack of curiosity as to how, or why, a distressed debtor was suddenly paying down a massive loan with money it didn't have, worked to their great advantage. This is a finding of fact which it will be hard to overturn on appeal. On the other hand the judge seemed greatly impressed that it ''did not occur to the lenders'' that there might be a mistake. That is not the test for constructive notice. The test is ''should it have occurred to them''.
 ===Must the debt be “due”?===
@@ Line 68: / Line 70: @@
 There is a question as to whether this was a prepayment of principal per the terms of the contract. The contract allowed this, upon the Borrower delivering prior written notice to Citi, about which Citi must “promptly” notify lenders on receipt. Not only did the lenders not receive such a notification — since it wasn’t given, ''but nor did Citi''. That notice seems to be a condition precedent to prepayment under the contract, and was not delivered. Without it, Revlon would not be ''entitled'' to pay down the loan, even if it wanted to. To be sure, it is a low hurdle to cross, but Citi’s appeal team may feel it is a significant one all the same.
+When it comes down to it, this is why the “''Banque Worms''” precedent, as interpreted here, cannot be right, at least insofar as it is supposed to overwrite the terms of a contract: it would mean that a bank, as mortgagee, would be entitled to treat any payment into a mortgagor customer’s account, as a partial discharge in of that mortgage. ''All'' salary payments. That is plainly absurd.
 ==Redux: Citi and Revlon==