![]() Chatter on the forums is likening the situation with Revlon to the recent Chapter 11 bankruptcy for Hertz, whose stock also went crazy after the initial fall and bankruptcy announcement. The prospect of a buyout is one of the reasons why the Revlon stock price is pumping right now, and it's being led by retail investors and Reddit's infamous WallStreetBets crowd. It's a scenario where shareholders could see their positions go to zero, depending on the outcome of Chapter 11.īut one ace up the sleeve could dramatically change shareholders' fortunes-a potential buyout. This is why a position in Revlon right now is mega risky. So while that means that shareholders could receive some cash hypothetically, the likelihood is that they'll be left with nothing. As a simple example, this could mean that Bank A, who lent Revlon $100 million, would agree to settle their debt for equity in Revlon 2.0. The most common outcome in these circumstances is that these creditors agree to accept equity in a new corporate entity in exchange for their debt. In the case of companies like Revlon with little in the way of tangible assets, this is unlikely. For companies with significant real assets such as property, plant and equipment or IP that could be liquidated, there may be a sizable portion of cash that administrators can access to pay these creditors. Unpaid wages, for example, are considered priority claims, so they get paid before any other debts can be cleared.Īfter that, secured creditors like banks are usually the first cab off the rank before moving down the line to unsecured creditors, bondholders and suppliers. Where you stand in that line depends on what type of creditor you are. Whenever a company declares bankruptcy, a big line forms of people and organizations who want their money back. Penney all having Chapter 11 bankruptcies in the past.Ĭhapter 11 bankruptcy aims to completely overhaul the capital structure supporting the business while keeping the customer-facing component as intact as possible, at least initially. It's actually a fairly common practice in corporate America, with big names like General Motors, K-Mart, Ford and J.C. It's often called a "reorganization bankruptcy" because it allows the business to shuffle debt around, write some off and potentially continue operating after this is all done. This can be the case under some circumstances, but Chapter 11 bankruptcy is specifically designed to allow a company to attempt to remain in operations. The term bankruptcy often leads to thoughts of a business closing down entirely and ceasing to exist. What happens after Chapter 11 bankruptcy? All in all, these assets total less than $1 billion, which is still a mile off their current debt levels. Broadly speaking, their only tangible assets consist of their current physical makeup inventory (makeup they've made but not yet sold) and some invoices they've sent out that haven't yet been paid to them. High debt and low cash flow is an even bigger problem for a company like Revlon because they have little in the way of assets. This is a company with over $3.3 billion in debt and a market cap of just over $400 million, even after the recent price rise. While all of this has had an impact, Revlon's biggest problem is debt. ![]() Vastly reduced opportunities to leave the house meant less demand for makeup, and this has persisted somewhat in a post-Covid world where working from home has become much more mainstream. They've suffered from the same supply chain issues that have impacted many businesses in the cosmetics industry and beyond, increasing the cost of their ingredients and making it difficult to source some of them altogether. Of course, there's been plenty of other challenges not unique to Revlon. ![]() It's not just billionaire reality stars taking pieces of the pie from Revlon it's also countless smaller influencers who garner audiences on YouTube, TikTok and Instagram. This is particularly true in the cosmetics space, which is now dominated by influencers like Kylie Jenner. As a brand that started well before the internet was a thing, its business model has relied heavily on retail stores and space in other retailers like Walmart and Bed Bath & Beyond.Īs with all bricks-and-mortar retail, it's been a constant battle to keep up with upstart, online-first brands. Revlon has been going through such a rough time for many reasons. It's been a dramatic fall from grace for the once industry heavyweight. The company was started back in 1932 and was, for many years, second only to Avon in global cosmetic sales.
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