What are we doing right here, people?
It appeared just like the Fed had killed the fairness markets however possibly meme shares are simply cockroaches? Revlon shares have zoomed in matter of days from about $1/share to $8/share, the latter implying a present market capitalisation of roughly $400mn — not unhealthy for a corporation that has been in chapter court docket for lower than every week.
The apparent parallel to Revlon is Hertz, an organization that certainly had monumental residual fairness worth by the point it left chapter final 12 months. Like Hertz, Revlon was compelled to file for chapter when a liquidity disaster — principally margin calls ensuing from a crash in used automotive costs in Spring 2020 — engulfed the corporate.
But don’t count on a 2023 growth in cosmetics use like there was a surge in post-pandemic journey (and a bounce in used automotive costs).
The backside line stays that Revlon, past its present money crunch, stays overlevered (eg bancrupt) with its collectors virtually sure to personal the corporate after chapter.
This is the corporate’s pre-petition debt stack:
Add in $575mn of DIP chapter financing and, say, $200mn of administrative bills (eg skilled charges), that provides as much as greater than $4bn value of claims forward of present shareholders. (The investor Ron Perelman owns about 85 per cent of the 54mn shares excellent, making the current every day buying and selling of almost 200mn shares much more exceptional.)
Revlon stated final week in court docket papers that it forecast 2023 Ebitda of $315mn. Applying a beneficiant 10x a number of to that, will get an enterprise worth of roughly $3,200mn.
Note that the “absolute priority rule” in Chapter 11 chapter signifies that for a safety to get a restoration, every other safety extra senior in precedence must be paid off in full. That seemingly leaves some senior time period mortgage holders impaired (recall the actual story of the Revlon case is the order of precedence of the 2 massive leveraged loans excellent).
For some sense about how bleak this all is, let’s go to the bond market the place, based on Finra Trace knowledge, Revlon junk bonds have doubled in value this week from 6 cent on the {dollars} to . . . 12 cents:
Source: www.ft.com