First Brands blamed its Chapter 11 filing on “geopolitical uncertainty and headwinds from newly imposed tariffs”. — Bloomberg
NEW YORK: A newly appointed First Brands Group LLC board committee is investigating the company’s use of roughly US$2.3bil in off-balance sheet financing, which fuelled investor concerns before the auto-parts supplier fell into bankruptcy.
The obligations were incurred by special-purpose vehicles connected to a subsidiary and involve the use of factoring, First Brands chief restructuring officer Charles Moore said in a Monday bankruptcy court filing.
Factoring is a type of financing used to turn expected revenues into immediate cash.
Moore discussed the investigation, which began before the bankruptcy filing and is ongoing, as part of a broader description of the company’s business and why it sought court protection.
First Brands’ restructuring advisers are working with a group of lenders that have offered to provide US$1.1bil in Chapter 11 financing to give the business “a much-needed capital injection that will enable First Brands to resume normal operations”, Moore said.
A special committee formed by First Brands’ board earlier this month is investigating “pre-petition factoring and other off-balance sheet financing processes”, Moore said.
The two on the committee, independent managers Neal Goldman and William Transier, will work with bankruptcy law firm Weil, Gotshal & Manges LLP and restructuring adviser Alvarez & Marsal, where Moore is a managing director.
The committee is also investigating the potential commingling of certain assets, according to court papers.
In 2023 and 2024, First Brands affiliates entered into inventory finance agreements with funds managed by Evolution Credit Partners, according to court documents.
Those affiliates held about US$376mil in inventory under those agreements as of Aug 2, according to court documents.
But that inventory may have been commingled with collateral securing First Brands’ asset based lending facility, Moore said.
First Brands’ advisers have reached out to stakeholders to make them aware of the situation and have begun working “to understand the facts”, he said.
First Brands has about US$800mil in additional supply chain financing liabilities, which are in the form of unsecured debt, as well as US$6.1bil in “on-balance sheet” debt consisting of a series of loans, according to court papers.
Those obligations were incurred largely through a series of acquisitions between 2019 and 2024, Moore said.
The company also attempted to refinance its debt, and starting in 2024 sought to raise as much as €1.5bil through a new term loan by separating its non-North American operations and brands into a new entity with its own capital structure, Moore said.
But the plan never materialised and after First Brands advisers discovered third-party factoring “irregularities,” the company immediately pivoted to Chapter 11, he said.
First Brands blamed its Chapter 11 filing on “geopolitical uncertainty and headwinds from newly imposed tariffs”, which resulted in unexpected expenses for the business.
Moore said it has more than US$900mil in annual debt-servicing costs, along with the off-balance sheet liabilities.
The company and its lenders intend to use the time in Chapter 11 to “evaluate and pursue a value-maximising transaction,” Moore said.
The case is First Brands Group LLC, number 25-90399, in the US Bankruptcy Court for the Southern District of Texas. — Bloomberg
