Thursday, August 11 2022

Cosmetics giant Revlon filed for Chapter 11 bankruptcy protection Wednesday night as it grappled with a cumbersome debt load and a tangled supply chain.

The company said it expects to receive $575 million in debtor-in-possession financing from its existing lender base, which will help support its day-to-day operations.

The introduction “will allow Revlon to offer our consumers the iconic products we have delivered for decades, while providing a clearer path for our future growth,” Revlon President and CEO Debra Perelman said in a press release. issued Thursday morning.

“Our challenging capital structure has limited our ability to navigate macroeconomic issues to meet this demand,” Perelman added.

Revlon’s bankruptcy filing said the company is currently unable to meet nearly a third of customer demand for its products on time due to an inability to obtain a “sufficient and regular supply of raw materials.” Shipping components from China to the United States takes Revlon eight to 12 weeks and costs four times 2019 prices, he said.

Revlon is the first major consumer-facing company to file for bankruptcy protection in what has been a hiatus from years of retail angst. More than three dozen retailers filed for bankruptcy in 2020, marking an 11-year high, which experts say was a breakthrough of restructuring activity fueled by the Covid pandemic.

Through May 31, S&P Global Market Intelligence tracked 143 bankruptcies, across all industries, so far this year, which is the slowest pace since at least 2010. S&P only tracked three retail bankruptcy filings during the same period, the lowest count in at least 12 years, it said.

Now, however, as inflation rises, interest rates rise and consumers begin to cut spending on discretionary items, experts predict that more retail companies will come under pressure to restructure. Particularly as many of these companies deal with ongoing supply chain challenges that have left them with the wrong inventories.

The nail polish and lipstick maker, controlled by billionaire Ron Perelman’s MacAndrews & Forbes, had assets and liabilities between $1 billion and $10 billion, according to a U.S. Bankruptcy Court filing for the Southern District of New York.

Revlon had $3.31 billion in long-term debt as of March 31, a securities filing shows. The company’s market capitalization was nearly $123 million at the close of business Wednesday. Trading in Revlon shares was halted in the premarket session on Thursday.

In late 2020, as consumers stuck at home slashed their spending on beauty items, Revlon narrowly avoided bankruptcy when enough bondholders participated in its debt restructuring program. The company had warned in early November of that year that it might be forced to file for Chapter 11 protection.

Its sales of about $1.9 billion in 2020 were down 21% from 2019 levels. Although business rebounded in 2021, Revlon’s revenue is still below pre-pandemic levels.

Startups like Glossier, Kylie Jenner’s Kylie Cosmetics and Rihanna’s Fenty Beauty have also challenged Revlon in their competition for younger consumer dollars.

Perelman’s MacAndrews & Forbes acquired Revlon in a hostile takeover for around $1.8 billion in 1985. It went public 11 years later.

The business grew over the years through acquisitions, including Coty and Elizabeth Arden’s Cutex business. In addition to her namesake makeup brand, her portfolio also includes Almay, American Crew, and Britney Spears Fragrances.

Revlon could use its time in bankruptcy proceedings to prune its portfolio, given that it owns numerous brands, some of which are doing better than others, said David Silverman, senior director of retail at Fitch Ratings.

“If executed effectively, Revlon could emerge from bankruptcy with a cleaner balance sheet and better operating profile, improving long-term business prospects,” Silverman said.

PJT Partners is acting as financial advisor to Revlon and Alvarez & Marsal is acting as restructuring advisor.

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