The cosmetics manufacturer Revlon is approaching the submission of chapter 11

Revlon Inc. is preparing to seek Chapter 11 protection as soon as next week after struggling for years with excessive debt, fierce competition in the cosmetics industry and recent inflation and supply chain pressures, said people familiar with the matter.

The cosmetics manufacturer, owned by billionaire Ron Perelman’s MacAndrews & Forbes, has been in restructuring talks with top-ranked lenders ahead of debt maturity beginning next year. A bankruptcy announcement could end Perelman’s control of Revlon, which his private equity firm acquired in 1985.

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The situation is fluid and a Chapter 11 filing is not safe, said a person familiar with the matter. Revlon shares fell 53% on Friday to $ 2.05 per share.

Ticker Safety Last Change Change%
FOX REVLON 2.05 -2.37 -53.62%

Revlon declined to comment. Sales rose by 8% in the last quarter as consumers’ shopping habits returned closer to prepandemic levels. But the company’s prospects are still challenged by the need to raise capital for liquidity needs, according to an April report from S&P Global Ratings.

Reorg Research previously reported that Revlon was planning to file for bankruptcy.

The company’s next due date is in September 2023 and involves a loan of $ 866 million that was accidentally repaid in 2020 by administrative agent Citigroup Inc. with its own money instead of Revlons. Some lenders returned the money to Citi, but others kept about $ 500 million of the accidental payment.

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Citi sued them for the money, but was denied the request by a federal judge last year. The bank has appealed, and an appeal decision is pending. Revlon still owes the loan, but the appeals court decides.

Some of Revlon’s lenders believe there may be some logic in the company filing for bankruptcy sooner rather than later, before the appeal, according to a person familiar with their thinking.

Revlon

Revlon makeup products are displayed in a CVS store. (Photo by Justin Sullivan / Getty Images) ((Photo by Justin Sullivan / Getty Images) / Getty Images)

Bankruptcy law may be the best forum to resolve the messy interplay between Citi’s accidental payment and Revlon’s need to restructure its debt, this person said. Citi declined to comment.

If Citi loses the appeal, it can also apply for repayment of the loan from Revlon by the due date, said a person familiar with the matter. But Citi’s legal rights to seek repayment of the loans at maturity are not entirely clear, others said.

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Maturity of the rest of Revlon’s $ 3.3 billion in debt accumulates rapidly in 2024 and 2025. About half of the company’s debt matures by 2024, and the maturity date in 2025 on a $ 1.7 billion loan accelerates to 2024 if the company is not able to repay a bond maturing that year.

Revlon

SAUSALITO, CA – AUGUST 09: Revlon makeup products will be on display at a CVS store on August 9, 2018 in Sausalito, California. Revlon reported second-quarter earnings that were lower than analysts’ expectations with revenue of $ 606.8 million compared to ((Photo by Justin Sullivan / Getty Images) / Getty Images)

The company’s lenders were in conflict with each other even before Citi’s accidental payment. In 2020, a group of hedge funds accused the company of unlawfully depriving their collateral rights to intangible assets including American Crew, Elizabeth Arden, Almay and other brands.

Revlon used these branded properties to raise new funding to help it cope with the Covid-19 pandemic. Lawsuits about the debt transaction were put on hold when Citi paid the lenders by mistake.

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If the appeals court orders the money back, the legal dispute is expected to resume and lenders, which include Brigade Capital Management, HPS Investment Partners and others, are likely to join restructuring negotiations, said people familiar with the matter. They did not immediately respond to requests for comment.

—Andrew Scurria contributed to this article.

Write to Soma Biswas kl soma.biswas@wsj.comBecky Yerak at becky.yerak@wsj.com and Alexander Gladstone at alexander.gladstone@wsj.com