Amid fallout from Citi’s (expensive) payment mistake in which it accidentally transferred $900M to Revlon lenders and lost a legal battle to recoup it, banks are inserting wording into debt documents to protect themselves. A group of large banks – including Citi – have been setting out to do that in recent weeks.

Why should we care?
Banks are still assessing the fallout from the Revlon debacle and how similar events could be avoided in the future. In February, a surprise court ruling resulted in Citi’s inability to recover $500M (some of the money was returned). In recent weeks, four leveraged loan issuers reportedly included “Revlon clawback language” in debt documents. And this week, Eagle Materials, Petco and industrial equipment maker Mesa Laboratories included erroneous payment language on U.S. loan deals (JPMorgan led the Eagle Materials and Mesa Laboratories deals, while Citi led Petco’s deal). Accidental payments covenants are legally binding clauses that allow banks to demand repayment of money that was sent by mistake. They also give banks the leeway to judge when a payment was made by mistake. Citi, which is also doubling down on its control mechanisms to prevent similar snafus, is putting in place other curbs, too. The bank is applying pressure on investment firms that kept payments the bank accidentally sent to Revlon lenders by blocking them from certain debt offerings.