By Craig Clough

Law360 (August 12, 2020, 10:59 PM EDT) -- UMB Bank hit Revlon with a lawsuit in New York federal court Wednesday accusing the company of unlawfully shifting its collateral trademarks away from a group of creditors that extended nearly $1.8 billion to the cosmetics giant.

The 117-page suit, which also names Citibank, Jefferies Finance LLC and a slew of subsidiaries and other companies associated with Revlon Inc. as defendants, says that following the $1.8 billion loan, Revlon breached the agreement and made a series of deals and sham moves with other lenders using the same collateral.

The valuable American Crew and Elizabeth Arden brands were among the collateral that was shifted to newer loans in a desperate effort to steer away from a financial storm already gathering before the COVID-19 pandemic, UMB Bank NA said. Revlon's shifting of the collateral amounted to "theft," the bank said.

"This case is a stark example of a borrower that has ignored repeatedly its legal obligations to its lender," UMB Bank said. "COVID-19 is no license to breach contractual commitments to lenders, to engage in transparent vote rigging, and to steal and reuse collateral for alternative purposes. Moreover, Revlon's weak financial position called for greater scrutiny and respect for creditors' rights even before the pandemic."

Following the $1.8 billion loan orchestrated in 2016 to aid Revlon's acquisition of Elizabeth Arden, a leading global beauty company, the cosmetics company started to falter due to a loss of market share, according to the suit.

Revlon's "traditional reliance on established fashion icons as ambassadors for its brands was failing to generate the same buzz as fashion upstarts and self-made experts who were savvy with social media platforms," UMB Bank said.

The collateral pledged to the 2016 lenders was shifted to others, starting with a 2019 deal with co-defendant Ares Management Corp., according to the suit. That $200 million deal was closed by moving the intellectual property associated with Revlon's American Crew brand to a new subsidiary. Ares was then provided with a first-priority lien on the American Crew IP, and the new subsidiary then leased back the right to use the American Crew IP to co-defendant Revlon Consumer Products Corp., according to the suit.

"The bottom line was simple: In August 2019, in direct breach of the 2016 credit agreement, RCPC took some of the 2016 term lenders' collateral, moved it to a new entity, and gave its new lender, Ares, its own, exclusive security interest in the very same property," UMB Bank said.

But Revlon "was just getting started" when it made that deal, the bank said. The company set up a "bigger, bolder transaction" earlier this year that eroded nearly all of the remaining IP collateral away from the 2016 loan, the bank said.

Among the tactics Revlon employed were similar transfer and leaseback deals, but it also issued "sham" revolving loans to rig a lender vote in favor of a new loan, according to the suit, which added that the revolving loans were designed to "vanish only days after being issued."

The lawsuit includes 22 causes of action against various defendants for their alleged roles in the loan transactions, although not every defendant is named in each. The causes of action include breach of contract, actual fraudulent transfer, gross negligence and willful misconduct, conversion, unjust enrichment, and tortious interference with contract.

UMB Bank is seeking among other things a declaration that the defendants have materially breached the 2016 credit agreement in several respects; a rescinding of the 2020 loan or a declaration that it is void and not enforceable; and unspecified damages.

Revlon excoriated the plaintiff in a statement to Law360 on Thursday.

"This group of lenders has repeatedly resorted to baseless accusations in an attempt to enrich themselves and hurt the company by blocking Revlon from exercising its contractual rights to secure the financing necessary to execute our turnaround strategy and navigate the COVID-19 crisis," Revlon said. "We will defend ourselves vigorously against this meritless lawsuit and will continue to act in the best interests of our company, our employees and our other stakeholders."

UMB Bank did not immediately respond to a request for comment.

UMB Bank is represented by Michael Carlinsky, Robert Loigman, Benjamin Finestone, Adam M. Abensohn, Anil Makhijani and Bennett Murphy of Quinn Emanuel Urquhart & Sullivan LLP.

Counsel information for Revlon and the other defendants wasn't immediately available.

The case is UMB Bank NA v. Revlon Inc. et al., case number 1:20-cv-06352, in the U.S. District Court for the Southern District of New York.

--Editing by Aaron Pelc.

Update: This story has been updated with a comment from Revlon.

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