Citi cuts Revlon lenders off from new debt, credit lines over S$500m error

New York

CITIGROUP'S freeze-out of firms that kept the bank's errant US$500 million sent to Revlon lenders excludes them from more than just new debt, extending into credit lines, trading activities and other lucrative businesses, said people with knowledge of the matter.

Among its moves, the bank has denied the firms warehouse financing critical to putting together collateralised loan obligations (CLOs), the sources said, asking not to be identified discussing a private matter. Beyond the CLO business, Citigroup is curtailing trading activities with the firms, they added.

Bloomberg News reported on Tuesday that Citigroup has been blocking money managers still holding on to the Revlon payment from certain debt offerings led by the bank, unless the borrower specifically requests that the investment firms be invited to participate. New York-based Citigroup lost a court battle last month in its effort to recover the funds it had sent by mistake to Revlon lenders.

Firms targeted include Brigade Capital Management, HPS Investment Partners, Symphony Asset Management and Bardin Hill Investment Partners - which all have a CLO business that repackages leveraged loans into bonds of differing risks, the sources said.

Representatives for Citigroup, Brigade, HPS and Bardin Hill declined to comment. A spokesperson for Symphony did not immediately respond to requests for comments.

The firms can tap other banks for credit lines and pay them to craft deals. But they are cut off from one of the biggest Wall Street players in the CLO market. Citigroup has topped the US CLO new-issuance league charts for five out of the last six years, according to data compiled by Bloomberg.

Brigade, which saw Citi resign last year as lead arranger for its US$400 million CLO days before it was due to price, is expected to do its next deal with Barclays. HPS, which once had an open warehouse with Citi, used another bank for that CLO, and for its latest reset transaction opted to hire JPMorgan Chase & Co, according to a person familiar with the matter.

Citi's decision to cut business ties was anticipated and part of the calculation for some of the money managers when they opted to keep the wayward funds and enter into legal dispute, the sources said. The firms were paid back in full when Revlon loans were trading at 44 US cents on the dollar in the secondary market, according to Bloomberg data.

Citigroup's move also blocks the firms from leveraged-loan new-issue allocations, which are sold at a discount and can help achieve the critical arbitrage that makes a securitisation work. BLOOMBERG