Revlon Case - Lessons for the private credit Facility Agent?

The early 2021 decision describes memorably the Facility Agent’s accidental payment of some US$900 million as being ‘one of the biggest blunders in banking history’.

While some lenders did repay the cash, several refused. At trial the Facility Agent was unsuccessful in its claim that certain lenders should return the remaining US$500 million.

Common law

UK and Australian lawyers will be wondering, is this not just an example of unjust enrichment? The hold-out lenders should be obligated to return the cash, right?

New York Law

The trial judge concluded that under New York law the hold-out lenders could rely upon the ‘discharge for value defense’.

The rule apparently permitted lenders to keep money received so long as: (i) the money is owed, (ii) there is no misrepresentation and (iii) no notice of the mistake.

The Appeal

The decision is apparently being appealed. Globally Facility Agents will no doubt closely follow any developments and consider amending future deal documents to provide additional protections.

Lessons for private credit managers

For APAC private credit managers, the key lesson here is of the importance of facility agent due diligence. Your Facility Agent DD should be extensive and aimed at confirming:

(i) existence of robust controls on client money transfers, and (ii) testing sufficiency of human oversight over automated payment systems for large transfers.

Slick automation and payments technologies are great, but we still need clever people asking smart questions lest US$900 million somehow goes astray!