Revlon has been pulled back from the brink of bankruptcy after billionaires Ron Perelman and Carl Icahn ended a stand-off over the cosmetics company’s debt.
Mr Icahn had held out during a month-long attempt by Revlon to exchange $343m of bonds maturing in 2021 at a deep discount, as the company sought to get its debt load under control before a deadline next week that it had warned could tip it into bankruptcy.
The potential insolvency would have wiped out Mr Perelman’s 87 per cent ownership of the outstanding shares in Revlon, which he won control of in 1985 after a hostile takeover battle fuelled by Michael Milken’s junk bonds. The company is now run by his daughter Debra Perelman.
It would have also left Mr Icahn nursing losses as one of the largest holders of the bonds, according to people familiar with the situation.
But at the eleventh hour, the two billionaires who duelled in the late-1990s over Marvel Entertainment, the comic book empire, broke the deadlock.
Revlon said on Thursday that it had secured commitments from enough bondholders to stave off bankruptcy, with approximately $236m tendered, or just shy of 69 per cent of the outstanding debt. Such an outcome would not have been possible had Mr Icahn declined to tender at least some of his bonds, according to people familiar with the situation.
“As a result, the company does not expect that any bankruptcy or insolvency proceeding will be necessary,” the company said in a statement on Thursday.
MacAndrews & Forbes, Mr Perelman’s company, and Mr Icahn did not immediately respond to requests for comment.
Bondholders participating in the exchange have agreed to receive either 32.5 cents on the dollar or a mix of cash and a new loan. Those not participating will be paid back in full, the company said.
The battle had created a dilemma for other bondholders: hope that a sufficient number of other investors subscribe to the exchange offer for them to recoup all of their money, or accept the cut-price deal for fear that the company would otherwise default, resulting in an even lower return.
Revlon extended the exchange offer for the third time last week, when just 36 per cent of the bondholders had signed up.
Failure to complete the deal would have triggered early repayment of Revlon’s other senior debt, sending the company into bankruptcy, it had warned.
“While we still have challenges to face — namely the ongoing impact of the Covid-19 pandemic — we believe that we have the right strategy in place and will continue to execute against it,” said Ms Perelman.
Revlon’s stock price soared almost 50 per cent to $8.80 on Tuesday, and is up close to 100 per cent for the week at $10.77, as investors began to alter expectations for the company.
The company’s bonds doubled in value from about 36 cents on the dollar to 62 cents on Tuesday, where they have remained. More than $1m worth of bonds even traded at 100 cents before the deal had been announced, according to traders.
While Mr Icahn was crucial to the success of the exchange, many other smaller bondholders were also needed to accept the offer, with a large chunk of the bonds believed to have been held by unknown “mom and pop” investors, according to people familiar with the company’s debt. Revlon even set up a website to try and urge holders to come forward and participate in the exchange.
“If you do not act now to participate in the company’s pending exchange offer, repayment of your notes will be at risk. Your participation is extremely important,” the website warned.
Mr Perelman has sold a succession of assets in recent months, from his holding company’s stakes in Scientific Games and AM General to paintings by Henri Matisse and Joan Miró, and his 281-foot yacht C2, which is on the market for €90m. In August he told Vanity Fair that he wanted a “less complicated and less leveraged business life”.
The company’s debts became a flashpoint on Wall Street earlier this summer after Citigroup mistakenly wired about $900m of the bank’s own money to Revlon’s creditors. The bank remains in litigation with funds that have refused to return the cash. It is still seeking to recoup more than $500m of the sum.
Revlon, which has been a household name in the US since the second world war, had struggled with sagging sales even before coronavirus hit the cosmetics market. The company has reported losses for four straight years and has ceded ground to newer beauty labels including Fenty Beauty. In March, Revlon said it would lay off staff to cut costs.