NEW YORK: A broad group of First Brands Group LLC lenders rushed to provide US$4.4bil of rescue funding to save the auto-parts supplier from imploding, lawyers say, as restructuring advisers investigate the company’s use of off-balance sheet financing that has roiled its creditors.
The lender group advised by law firm Gibson, Dunn & Crutcher LLP includes Beach Point Capital Management LP, Diameter Capital Partners LP, Redwood Capital Management LLC and UBS Asset Management (Americas) LLC, according to a Tuesday disclosure filed in Texas bankruptcy court.
The group advised by Gibson Dunn includes dozens of firms, according to the court filing.
The proposed financing includes US$1.1bil in fresh cash to stabilise First Brands’ business and a so-called roll-up of existing debt that would push certain existing obligations to the top of the repayment line, court papers said.
First Brands, which has roughly 26,000 employees, said its advisers and lenders had to move quickly and without complete information because the business “will be forced into a value-destructive liquidation process” if the financing isn’t approved by the court.
The events that forced First Brands to rush into Chapter 11 were described Wednesday during the company’s first bankruptcy hearing in Texas.
Lawyers for other creditors shared their concerns over First Brands’ balance sheet, including the potential commingling of assets, an issue that is now being investigated by an independent board committee.
Despite those misgivings, Judge Christopher Lopez indicated Wednesday that he’d authorise the company’s request to tap the Chapter 11 financing.
“It is clear that this debtor needs financing,” Lopez said.
Scott Greenberg, a lawyer representing the lender group, said his clients thought an earlier process led by Jefferies Financial Group Inc to refinance the debt at par was on track until he got a surprising call on Sept 4.
First Brands advisers said “to fasten our seatbelts”, he recalled, “because they were in desperate need of capital.”
The company initially believed it would require as much as US$600mil, an amount that grew to US$1.1bil as advisers continued to assess how much capital the business needs to stay afloat, Greenberg said.
Meanwhile, the value of First Brands debt plummeted as the press reported on potential problems with the company’s balance sheet, Greenberg said.
Still, lenders have agreed to continue funding the business.
First Brands faced other unexpected problems in the lead-up to the bankruptcy filing: around the Rosh Hashanah holiday, lenders learned that roughly US$30mil of First Brands cash was seized by a bank that had exposure to the company’s supply chain financing, Greenberg said.
In response, creditors agreed to provide US$24.5mil of bridge financing to fund payroll and critical vendor payments, he said.
“There are obviously more questions than answers, but our clients have stepped up to stop the hemorrhaging and hopefully stabilise the business,” Greenberg said.
First Brands has said it has formed a new, independent board committee which 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 earlier this week. — Bloomberg
