Revlon formally declared Chapter 11 bankruptcy in June. Declaring Chapter 11 bankruptcy, however, is not the same thing as shutting down a company entirely. As Investopedia explains, “Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs, debts, and assets, and for that reason is known as “reorganization” bankruptcy.” It lets a company stay in business and restructure its obligations.
So Revlon may be able to get its debt discounted by creditors and then make a comeback in the near future. Or the company could be sold out of Chapter 11 to a new owner who agrees to assume debt as part of the purchase.
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But it does not bode well for Revlon’s future if big firms like Mittleman Brothers are dumping their stock. The firm explained the move to its investors in a letter saying, “bankruptcy introduces significant costs, uncertainties, and risks that could confound fairness, and so reducing the weighting into these periodic price spikes makes sense.”
And the selloff comes just two months after Mittleman Brothers took the opposite position at the time that Revlon declared bankruptcy. At the time the firm said it would hold on to its Revlon stock saying, “believing that Revlon’s existing equity should retain substantial value even through a chapter 11 reorg., and that this is a liquidity problem, not a solvency problem.“
The collapse of Revlon was already complex. In recent months, a financial crisis has gripped the corporation long held by billionaire Ron Perelman, leaving it with only the court-supervised Chapter 11 process as a means of survival.
According to the company, the bankruptcy filing was not caused by a lack of demand for its beauty goods, or high competition, but rather by supply chain glitches, inflation, and labor interruptions, which left it short on cash and working capital.
The move came as little surprise as Revlon has been having troubles for some time now. The company is reportedly suffering from supply chain issues and did not survive the world Covid crisis in very good shape. Revlon is also said to be unable to match the competition posed by much stronger firms like Estée Lauder Cos. But it already saw declining sales even before that all began in 2020.
At the end of Q1 2022, Revlon reported $3.31 billion of debt. At the same time the company reported only $132 million of liquidity as of March 31, 2022. Revlon also represented an annual expense of nearly $248 million in 2021 just for making the payments on its debt.