Bankruptcy Case: REVLON INC.

The bankruptcy of REVLON INC. on June 15, 2022 is among the largest bankruptcies in the US stock market this year. The manufacturer of cosmetic products has got into financial troubles some time ago and was heavily indebted.

Our BRAINKRUPTCY risk measure has consistently indicated that REVLON INC. was already financially distressed since the beginning of 2019. From that point in time until the bankruptcy filing date, the stock of REVLON INC. has lost more than 80% of its value.

The relationship between our BRAINKRUPTCY risk measure and stock performance is even more striking when the financial loss is tracked for recent years. There was a pronounced relationship between high and increasing bankruptcy risk and the financial loss that resulted from the declining stock price. Since late summer 2021, the stock of REVLON INC. and our BRAINKRUPTCY risk measure have been evolving as if it is an exemplary relationship that is illustrated in an economic textbook. As of late summer 2021 and with a one-month lead, our BRAINKRUPTCY risk measure has predicted a further collapse in the stock of REVLON INC.

The comparison between REVLON INC. and the companies in the same industry also indicates severe financial distress in the months leading up to the bankruptcy filing date. A lower SIC 2 industry rank shows that a company is suffering greater financial distress than other companies within the same industry; thus, the company with an industry rank of 1 is exposed to extremely high financial distress. Since the beginning of 2022, the industry rank of REVLON INC. has steadily deteriorated. Before REVLON INC. filed for bankruptcy, it was the company with the lowest SIC 2 industry rank and, therefore, exhibits the highest bankruptcy risk within its industry.

• The BRAINKRUPTCY risk measure helps identify financially distressed companies and upcoming bankruptcies at an early stage.

• The BRAINKRUPTCY risk measure helps prevent large financial losses in these financially distressed companies.

• The interaction between the bankruptcy risk of an individual company and the relative view of the company within its industry creates detailed and valuable insights.