First Brands Probes Billions of Off-Balance Sheet Financing
Auto Parts Supplier Filed for Bankruptcy
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A newly appointed First Brands Group board committee is investigating the company’s use of roughly $2.3 billion in off-balance sheet financing, which fueled investor concerns before the auto parts supplier fell into bankruptcy.
The obligations were incurred by special purpose vehicles connected to a company subsidiary and involve the use of factoring, First Brands Chief Restructuring Officer Charles Moore said in a Sept. 29 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 $1.1 billion in Chapter 11 financing that will 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 committee is comprised of independent managers Neal Goldman and William Transier, who will work with bankruptcy law firm Weil, Gotshal & Manges LLP and restructuring adviser Alvarez & Marsal, where Moore is a managing director.
First Brands has about $800 million in additional supply chain financing liabilities, which are in the form of unsecured debt, as well as $6.1 billion 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.
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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 $900 million in annual debt servicing costs, along with the off-balance sheet liabilities.
The company, led by independent directors, and its lenders intend to use the time in Chapter 11 to “evaluate and pursue a value-maximizing transaction,” Moore said. Its first court hearing is scheduled for Oct. 1.
The case is First Brands Group, number 25-90399, in the U.S. Bankruptcy Court for the Southern District of Texas.
