The Mistake That Led To Citi's Infamous $900M "Fat Finger" Has Finally Been Exposed

"Downside of work from home,” a portfolio manager at HPS quipped in a chat message among HPS employees. "Maybe the dog hit the keyboard.” “How was work today, honey?” the same person wrote, imagining both sides of a dinner table conversation. “It was OK, except I accidentally sent $900 million out to people who weren’t supposed to have it.” Some creditors agreed to return the funds, allowing Citigroup to recoup about $400 million. But in spite of numerous requests from the bank, HPS and almost a dozen other creditors refused to budge, arguing that they were entitled to keep the cash.

According to Bloomberg, the fallout over the transfer wasn't a total surprise. Battles between creditors and lenders became more common during the pandemic as revenue dried up for some firms. And in the age of "covenant lite" loans, and the systematic watering-down of once-ironclad loan agreements, the space for legal disputes has expanded. A PM from another credit fund that wasn't involved in the dispute complained that bond covenants have become "Swiss cheese."

“We all know that these docs have really become Swiss cheese,” says Chad Valerio, a portfolio manager at Onex Credit Partners, which isn’t involved in the Revlon dispute. “When a company is backed up against the wall and when a sponsor is trying to figure out how to extend their option, or a creditor is trying to figure out how to get a better outcome for themselves, people are going to get really creative and do what they have to do.”

Citi has infamously burned bridges with all of the intransigent lenders in the aftermath of the dispute, cutting them out of future loan deals. But what does Citi expect these lenders to do, simply sit still while management strips away a firm's most valuable assets?

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