Photographer: Daniel Acker/Bloomberg

Revlon Inc. is telling investors that if it can’t restructure its debt in the coming days, it could file for bankruptcy. But some bondholders may be banking on the makeup company’s majority owner, Ron Perelman, bailing it out.

The makeup company has two weeks to complete a $343 million bond swap or otherwise eliminate the notes. If it fails, it would trigger a $1 billion loan repayment in mid-November. Revlon lacks the liquidity to pay down the debt if investors balk at the exchange, forcing it to weigh options including a Chapter 11 filing to stay in business, according to company debt documents.

So far, Revlon has had little luck convincing a majority of investors to sign onto a deal. It’s been extending deadlines and tweaking terms of the exchange. Its most recent effort garnered participation from holders of less than 14% of the bonds by an Oct. 23 early
deadline that’s since been extended.

“If bondholders don’t exchange, they’re betting Ronald Perelman or another stakeholder would put capital into this company, otherwise it files,” Bloomberg Intelligence analyst Phil Brendel said in an interview.

Unwinding an Empire

But the billionaire, who owns 87% of the company, has been
shedding assets in recent months. He’s put his Manhattan mansion, prizes from his art
collection and his superyacht on the
market — not exactly signs that he’s ready to invest more money in a struggling firm. Last month, Perelman, 77,
said he planned to “clean house, simplify and give others the chance to enjoy some of the beautiful things that I’ve acquired.”

​Revlon’s Chief Executive Officer Debra Perelman is Ron’s daughter, and the family dynamics may complicate the calculus around putting more money in the firm, Brendel said.

“Perelman’s recent sales are drawing attention due to their sudden and voluminous nature, appearing almost forced” Brendel said. “But Revlon isn’t like Perelman’s other portfolio companies with his daughter as CEO. That’s a factor to consider in an otherwise tough decision.”

Revlon said in a statement to Bloomberg that its “focus remains on completing the amended exchange offer, which incorporates feedback from ongoing discussions with many of our noteholders and other key constituents. As a company, we remain committed to taking the right actions to protect our liquidity, managing through the COVID-19 pandemic and ensuring that we have debt maturity runway to allow us to continue executing our turnaround strategy.”

A representative for Perelman’s holding company
MacAndrews & Forbes declined to comment.

Revlon hasn’t made a final decision about a bankruptcy that would keep it operating and talks between the company, advisers and creditors are ongoing, said people with knowledge of the matter who asked not to be named discussing a private transaction. Certain Revlon investors have been in private negotiations with the company that limit their ability to trade its debt, the people added.

Some lenders organized with law firm
Arnold & Porter Kay Scholer, while bondholders have been working with
Stroock & Stroock & Lavan, Bloomberg
reported in April. The company is getting advice from attorneys at
Paul Weiss Rifkind Wharton & Garrison and investment bank
PJT Partners Inc.

Retail Holders

Some large institutional investors support Revlon’s restructuring efforts, but the company is having difficulty completing an exchange because a chunk of the bonds are held by mom-and-pop buyers who are less familiar with the swap process, the people said. The company
created a website asking investors to turn in their holdings and included stark warnings about the firm’s future.

“If you do not act now to participate in the company’s pending exchange offer, repayment of your notes will be at risk,” the company said in a letter signed by CEO Perelman and posted on the website.

Investors must weigh whether to swap their holdings for as little as 27.5 cents on the dollar or risk the uncertainty of a bankruptcy. The debt last traded around 27.25 cents, according to Trace.

“Bondholders would recover very little, if anything, in the event of a bankruptcy,” JPMorgan Chase & Co. research analyst Carla Casella said in an interview.

Holders must turn in their bonds by Nov. 10, though terms of the deal are better if they do so by Nov. 5. In the latest version of the exchange, Revlon removed a 95% participation minimum in favor of a requirement that it must maintain at least $175 million in liquidity to close the deal.

Either way, if any of the notes remain outstanding by mid-November, it will trigger the broader loan repayment. Revlon estimates total liquidity was around $347 million as of October 16, including available credit plus around $267 million of unrestricted cash, documents show.

If the swap falters, a decision about a potential filing could come around the Nov. 10 final deadline, the people said. The company would also weigh factors like its recent financial performance and cash on hand to fund operations, they added.

A successful exchange would give Revlon more time to focus on its turnaround. Even before the pandemic dented makeup demand as people stayed home, the company was struggling to compete with
Estee Lauder Cos. and social media savvy makeup startups. Its products are carried in stores like
Walmart Inc.,
CVS Health Corp. and
Macys Inc. at a time when shoppers are increasingly migrating to specialty retailers like
Sephora USA Inc. and direct-to-consumer brands like
Glossier Inc. for makeup purchases.

Revlon has been seeking to exchange its 5.75% notes due 2021 since July, and sought feedback from creditors after an
initial proposal drew just 5% participation, the people said. The latest offer
amended certain terms to avoid the potential for select investors to strike side deals with the company outside the exchange, documents show. Bondholders can receive cash or a combination of cash and new loans.

“Without an asset sale or white knight,” Revlon may not have enough cash to pay off bondholders who don’t agree to the exchange, Casella said. “I don’t know how they get through this without filing. These are last-ditch efforts.”