Last August, Citigroup Inc. wired $900 million to some hedge funds by accident. Then it sent a note to the hedge funds saying, oops, sorry about that, please send us the money back. Some did. Others preferred to keep the money. Citi sued them. Yesterday Citi lost, and they got to keep the money. I read the opinion, by U.S. District Judge Jesse Furman, expecting to learn about the New York legal doctrine of finders keepers—more technically, the “discharge-for-value defense”—and I was not disappointed. But I was also treated to a gothic horror story about software design. I had nightmares all night about checking the wrong boxes on the computer.
The story—we have discussed it before—is that, in 2016, Revlon Inc. took out a seven-year syndicated term loan. Citibank N.A. is the administrative agent on the loan; it gets interest and principal payments from Revlon and passes them on to the lenders. Revlon ran into a bit of trouble and, as companies do these days, it did some creative stuff with its debt: In May 2020, it convinced some of the term-loan lenders to strip collateral from the term loan so it could be used to back new debt. The lenders who were part of this “incredibly aggressive” deal got to roll over into the new, effectively more senior debt; the other lenders were left with worse debt and got mad. Some of them got together to work on a lawsuit, which they filed on Aug. 12.