Shares of Revlon (NYSE:REV) are trading higher by more than 25% after it was disclosed that Morgan Stanley (NYSE:MS) had purchased 400,650 shares during Q2. The purchase increased the bank’s existing position by 1,793%, up from its existing position of 22,348 shares. Morgan Stanley has an average holding period of 33.7 quarters, or almost eight and a half years, for stocks in its 13F portfolio.
Back in June, the makeup and skincare company filed for Chapter 11 bankruptcy. Revlon stated that its debt load left it unable to make timely payments to its vendors. It also attributed a lack of “sufficient and regular supply of raw materials” as a reason for its bankruptcy filing. As part of the filing, the company received “$575 million in debtor-in-possession financing from its existing lender base.” Shares of REV stock are up more than 300% since the company filed for bankruptcy.
So, why exactly did Morgan Stanley make its purchase?
REV Stock: Morgan Stanley Buys Shares
The investment bank may be betting that Revlon will be rescued from bankruptcy. For example, car rental company Hertz (NASDAQ:HTZ) filed for bankruptcy in May of 2020. About a year later, a group of investment firms offered $6 billion to take over the company, rewarding HTZ investors with a hefty profit.
Meanwhile, a buyout of Revlon could possibly result in a short squeeze. As of July 31, REV stock carries a significant short percentage of float of 35.6%, which is equal to 2.76 million shares sold short. In the event of a buyout, the stock could take off.
Earlier this month, it was announced that the court had approved a $1.4 billion bankruptcy loan for Revlon. The loan was opposed by Revlon’s official creditors committee, who characterized the company as a “mess.” In response, Judge David Jones ordered “modifications” to the loan but stated that Revlon must be allowed to borrow cash in order to stay in operation.
The company reported its Q2 earnings on Aug. 9, posting net sales of $442.6 million, down 11% year-over-year (YOY). Furthermore, it reported a net loss of $275.6 million, down a staggering 307% YOY. The net loss was mainly attributed to $158.3 million of bankruptcy fees and foreign exchange currency losses of $15.9 million.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.