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Illustration: Sarah Grillo/Axios

The implications of Citigroup’s colossal payment mishap are still reverberating through the leveraged finance market.

Context: Last year Citi accidentally sent $900 million of its own money to Revlon’s creditors — and last month lost the first round of a legal battle to claw those funds back.

What’s new: Now other U.S. banks are looking to their future deals to figure out how to avoid suffering the same fate — being left holding a very expensive bag.

  • “All of the different banks that do a decent amount of this work as agents are very focused on this issue and what internal procedures they need to make sure this doesn’t happen again,” one restructuring lawyer, who's monitoring the situation but is not authorized to speak on it publicly, tells me.
  • One strategy banks have come up with is adding new “accidental payment covenant” terms into their debt agreements, which would allow them to demand repayment of any money sent by mistake, the Financial Times reports (subscription).

Between the lines: Investment firms are also working to figure out what it all means for the future of the lending agreements they enter into with companies.

  • So far, new loan documents for companies like Eagle Materials, Mesa Laboratories, and Petco Health and Wellness have all included the new preventative language, data and analytics firm 9fin notes.

The intrigue: For their part, one of Wall Street’s biggest players seems to be exacting its own form of revenge.

  • Citi is reportedly blocking the firms who took them to court over the Revlon debacle from participating in new deals, denying them access to certain types of financing and limiting their trading activity, Bloomberg wrote Thursday.
  • The target firms include Brigade Capital Management, HPS Investment Partners, Symphony Asset Management and Bardin Hill Investment Partners.

What to watch: What the blacklist ultimately means for the practical side of the market remains to be seen.

  • Just because someone is barred from something like buying the original loan, there are limitations around what could be done to prevent purchases in the secondary market, the lawyer said.

Go deeper

Updated 1 hour ago - Politics & Policy

Bipartisan police reform negotiations end without deal

Rep. Karen Bass (D-Calif.) with Sens. Tim Scott (R-S.C.) and Cory Booker (D-N.J.) in the Capitol in May 2021. Photo: Drew Angerer/Getty Images

Bipartisan talks on reforming police tactics and accountability, prompted by George Floyd's murder in May 2020, have ended without a compromise, Sen. Cory Booker (D-N.J.), a key negotiator, said Wednesday.

Why it matters: Lawmakers, led by Rep. Karen Bass (D-Calif.) and Sens. Tim Scott (R-S.C.) and Booker, had been working toward a bipartisan deal for months but things fell apart due to disagreements on qualified immunity and other issues.

Federal Reserve scales back expectations for economic recovery as Delta variant weighs

Fed chair Jerome Powell during a congressional hearing last year. (Photo: Stefani Reynolds/Bloomberg via Getty Images)

The Fed downgraded near-term expectations for the economy and the labor market, alongside hotter-than-expected inflation, in new estimates out on Wednesday.

Why it matters: It's the first time those closely-watched estimates reflect impact from the delta variant that's already rattled the labor market. Still, Fed chairman Jerome Powell said enough progress has been made to begin to pull back emergency-era measures that have supported the economy.

Biden speaks with Macron for first time since diplomatic crisis

President Biden and French President Emmanuel Macron have a conversation ahead of the NATO summit in Brussels, on June 14, 2021. Photo: Dursun Aydemir/Anadolu Agency via Getty Images

President Biden on Wednesday spoke with French President Emmanuel Macron for the first time since a diplomatic row erupted over a scrapped submarine order, per the White House.

Driving the news: Macron said that the French ambassador will return to Washington next week and will resume working with senior U.S. officials.