First Brands files for bankruptcy, threatening multibillion-dollar losses

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

First Brands Group has filed for bankruptcy protection while disclosing more than $10bn in total liabilities, marking one of the most spectacular collapses in private debt markets in recent years.

The Ohio-based auto parts company filed for Chapter 11 protection in the Southern District of Texas late on Sunday, formalising the abrupt unravelling of a business that has borrowed billions of dollars in private markets and raised concerns over riskier lending on Wall Street. 

In its bankruptcy petition First Brands, which is owned by Malaysian-born businessman Patrick James, did not disclose specific liabilities but estimated they were in a category between $10bn and $50bn, while it put its assets at $1bn to $10bn.

Full details of its finances could take time to emerge given the chaotic nature of its descent into bankruptcy, which was fuelled by concerns over its use of off-balance sheet finance.

First Brands previously told lenders it had $5.9bn of long-term debt in March, against nearly $1bn of cash, but many creditors now fear there are billions of dollars more in opaque financing linked to its invoices and inventory.

A special committee to be established as part of the bankruptcy will lead an investigation into those off-balance sheet financing arrangements, according to a person familiar with the matter.

Sunday’s petition listed several specialist investment firms as creditors with exposure to First Brands’ so-called “factoring” — invoice financing — including an asset management unit of US investment bank Jefferies.

The company’s need to file for bankruptcy protection was accelerated when one of its banks recently seized some of its cash, the Financial Times has previously reported.

First Brands has secured a $1.1bn lifeline from its creditors as part of the bankruptcy, a loan it will use to fund its operations as it restructures its business and looks to slash its debts.

The speed with which First Brands’ financial position deteriorated has shocked debt investors and drawn scrutiny of due diligence standards in the booming credit markets.

Two weeks ago, the group’s loans were still trading at levels that indicated relative complacency about its finances. By Friday, its top-ranking debt changed hands at a third of its face value, while more junior loans were quoted at cents on the dollar.

Along with the collapse of subprime auto lender Tricolor at the start of the month, First Brands’ swift fall has raised concerns of significant losses for some of the best-known players on Wall Street and the potential for wider fallout across corporate debt markets.

The large-scale bankruptcy could send tremors through the automotive parts industry, which is already reeling from US President Donald Trump’s tariff policies due to its heavy dependence on overseas manufacturing.

Over the past decade, James transformed his group from a niche Ohio-based industrial concern into a sprawling multinational enterprise, through a debt-funded deal spree.

On top of its US manufacturing plants stretching from California to Pennsylvania, First Brands has operations as far apart as Romania, Mexico and Taiwan.

The company’s international operations were not included in the bankruptcy petition on Sunday. First Brands has appointed Charles Moore, a managing director at turnaround specialist Alvarez & Marsal, as chief restructuring officer.

The bankruptcy filing is the second in the space of a week linked to James, after a series of so-called special purpose entities that provided off-balance sheet financing to the car parts conglomerate collapsed.