Revlon Inc. has filed for bankruptcy under Chapter 11 because it is unable to handle its huge debt burden in the midst of the supply chain bottleneck and sharp inflation.
According to the documents filed in court, the cosmetics business controlled by billionaire Ron Perelman requested judicial protection in the Southern District of New York. The company reported assets and liabilities totaling up to $10 billion. A firm that has filed for protection under Chapter 11 is allowed to keep functioning while it devises a strategy to pay back its debts.
The firm struggled throughout the pandemic and faced years of dwindling sales as customer preferences changed and upstart brands ate away at its market share before filing for bankruptcy. This event brings to a close a difficult chapter for the corporation.
During the depths of the Great Depression, the firm that is now 90 years old started its start in the beauty industry by selling nail paints. Subsequently, it expanded its product line to include lipsticks that complemented with its nail polishes. By 1955, the company had expanded its reach around the globe.
In 1985, MacAndrews & Forbes, which was owned by Perelman, successfully completed a contentious purchase of Revlon. Michael Milken was responsible for raising the necessary funds in the form of junk debt for the transaction. At one point, MacAndrews & Forbes filed a lawsuit against Revlon because the company had agreed to accept a lower offer from Forstmann Little & Co. This lawsuit eventually led to a landmark court decision in Delaware on the fiduciary duties of board members, which is sometimes referred to as the “Revlon Rule.”
The amount of debt carried by the corporation proved to be problematic, particularly when it raised more than $2 billion in financing via the sale of loans and bonds in order to complete the purchase of Elizabeth Arden in 2016. Additionally, the corporation owns brands such as Cutex and Almay, and it sells its products in over 150 different countries.
In recent years, it has had a difficult time competing with younger businesses who place a significant emphasis on their advertising on social media. Another blow was delivered by the pandemic, and more recently, the business struggled to find solutions to challenges in its supply chain and inflation, both of which lowered its margins.
Later, Revlon found itself entangled in one of the banking industry’s most infamous gaffes when Citigroup Inc. — intending to process a routine loan interest payment — instead mistakenly paid some Revlon creditors nearly $900 million when they should have been paying interest on the loan. Revlon narrowly avoided multiple previous defaults by cutting deals with creditors to rework its obligations out of court.