An independent investigation into First Brands Group’s bankruptcy is probing whether receivables may have been financed multiple times, after the company accrued US$2.3bn in factoring liabilities.
US car parts supplier First Brands filed for bankruptcy in Texas on September 28, leaving a group of supply chain finance funders facing exposures of hundreds of millions dollars.
Later court filings show First Brands Group companies owe around US$6.1bn in on-balance sheet debt, US$2.3bn in off-balance sheet financing, US$800mn in supply chain finance liabilities and a further US$2.3bn in factoring liabilities.
A declaration filed on September 29 by Charles Moore, a managing director at Alvarez and Marshal, who was appointed chief restructuring officer of the group this month, reveals that an investigation into the company’s position is now being carried out by a special committee of independent directors.
Moore says First Brands’ factoring practices are being examined to determine whether receivables had been turned over to third-party factors upon receipt, and whether the same receivables may have been factored more than once.
Any funds received from receivables that have been factored will be segregated pending the results of the investigation, it says.
The filing also says advisors have recently discovered that inventory pledged as security to Ohio-headquartered Evolution Capital Partners “may have been commingled” with collateral securing a separate asset-backed loan facility.
The Evolution facility allowed First Brands companies to purchase inventory that could then be used as a borrowing base to obtain loans from Evolution, it says.
The asset-backed loan facility was a senior secured revolving credit facility with commitments totalling up to US$250mn, for which Bank of America acted as administrative and collateral agent.
Moore says stakeholders have been made aware of the situation and work is ongoing to understand the facts.
First Brands, Evolution and Bank of America did not comment when contacted by GTR.
The claims follow First Brands’ application for Chapter 11 bankruptcy protection on September 28. The filing revealed that creditor claims relating to supply chain finance facilities totalled as much as US$866.5mn across 12 creditors.
Creditors listed include 1977 O’Connor, Wafra, Pemberton Capital Advisors and CIT Group. None commented when contacted.
GTR has been unable to reach or identify some of the creditors. The creditor with the second-largest exposure, at US$208mn, is listed as Trade Finance Company, but the UK-headquartered company of that name says it has not engaged in business with First Brands.
A sales manager at working capital platform Raistone is listed as the creditor contact for six funders with exposure for supply chain finance, including Trade Finance Company. Raistone has not responded to a request for comment and the sales manager could not be reached.
Raistone is also listed as having its own undetermined claim through factoring arrangements, alongside Jefferies’ asset management arm Leucadia Asset Management, Evolution and Katsumi Global.
Moore’s declaration says First Brands undertook a global refinancing effort ahead of its bankruptcy, but this process was paused in August after potential lenders requested a quality of earnings report.
The company had also incurred “significant costs” as a result of fluctuations in US tariff policies, with some inventory becoming as much as 73% more expensive, it says.
Moore says First Brands incurred landed inventory cost increases of nearly US$100mn between April and August this year, and believes the company incurred further costs in efforts to hedge against the risk of supply disruption, including spending US$60mn to frontload inventory purchases.
Additional reporting by Jacob Atkins.
