Auto Parts Maker First Brands Files for Bankruptcy
Move Caps Weeks of Turmoil Sparked by Creditor Concern
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First Brands Group Holdings has filed for Chapter 11 bankruptcy, capping weeks of turmoil sparked by creditor concern over the auto supplier’s use of opaque off-balance sheet financing.
A group of creditors are set to provide the company with $1.1 billion in debtor-in-possession financing to keep operations running, according to a statement Sept. 29. Without court protection, creditors had been unwilling to provide fresh financing, leaving cash running short at the firm whose brands range from Anco and Trico wiper blades to Fram filters.
The bankruptcy petition shows a complex web of entities tied to First Brands that are based in several U.S. states such as Delaware and Texas, and more than a dozen countries including Brazil and Luxembourg.
The Cleveland-based company listed liabilities between $10 billion and $50 billion, and assets between $1 billion and $10 billion, according to its Sept. 28 filing in the Southern District of Texas. Those figures were in response to predetermined ranges included in all Chapter 11 petitions, and the exact size of the discrepancy has not been disclosed yet. The move follows bankruptcy filings by affiliated entities First Brands had used to raise money.
The bankruptcy follows mounting scrutiny of the company’s reliance on borrowing against its future cash flows, drawing short sellers including Apollo Global Management and Diameter Capital Partners. The sprawling group is helmed and owned by Patrick James, a businessman with a limited public profile.
Some 70% of the auto supplier’s revenues were channeled through factoring, people familiar with the company’s finances have said.
First Brands didn’t immediately reply to an emailed request for further comment on Sept. 29 out of working hours.
Its growth was fueled largely by debt-funded acquisitions of products that are sold through mainstream retailers like Walmart and O’Reilly Auto Parts, according to Moody’s. It mostly borrowed in the leveraged loan market, and has reported $6 billion of debt.
Walmart ranks No. 1 on theÌýTransport Topics Top 100 list of the largest private carriersÌýin North America.
Scrutiny intensified in August when First Brands paused a proposed refinancing of its debt, and investors asked the company to obtain a so-called quality-of-earnings report, which involves a third-party reviewing the accounts.
Funds including Apollo Global Management and Diameter Capital Partners have now closed their short positions. Apollo used a complex arrangement that didn’t require it to own any of the company’s loans, which is typically necessary for shorting.
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The collapse of First Brands plays into long-standing concerns about companies’ usage of supply-chain financing to create debt that often remains off the balance sheet. The practice was at the center of the collapse of Greensill Capital and contributed to the demise of Credit Suisse Group AG.
First Brands expects its global operations to continue without interruption during Chapter 11, noting that its international operations are not part of the court-supervised restructuring process in the statement.
The case is 25-90397, filed in the U.S. Bankruptcy Court for the Southern District of Texas.
Written by Irene GarcÃa Pérez, Harry Suhartono and Libby Cherry
