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Lenders to First Brands Group are rushing to shore up the car parts supplier with a new loan as it contemplates a bankruptcy filing.
First Brands, a privately held group that had boomed through debt-fuelled acquisitions, has rattled US credit markets in recent days on concerns that billions of dollars of debt could be hit in a restructuring.
On top of nearly $6bn borrowed through private loans, the company has billions of dollars more in financing facilities linked to its customer and supplier invoices, much of which is not reflected in its official debt figures.
That off balance sheet funding could eclipse $4bn, split across debt underpinned by money customers owe First Brands and borrowings backed by its inventory, said people with knowledge of this financing.
A group of the company’s largest lenders is working with restructuring advisers to see if they can offer a rescue loan that ranks ahead of its existing debt.
One option under discussion is whether this could be used to repay some of its off balance sheet debt, which could require payment in the near-term if the banks and funds that provided those financings are unwilling to roll over their exposure.
However, it is unclear how the company could create a new tier of senior debt. As a result, First Brands is considering filing for bankruptcy to raise a debtor-in-possession loan, which would have first priority over the company’s long list of existing lenders, two of the people added.
The creditor group is being advised by law firm Gibson Dunn and advisory firm Evercore. First Brands has hired the investment bank Lazard and the law firm Weil Gotshal to advise on restructuring discussions, while advisory firm Alvarez & Marsal is also working with the company to help establish how much funding it needs.
First Brands did not immediately respond to a request for comment.
The speed with which First Brands’ finances have deteriorated has shocked debt investors, who were already unnerved by the sudden collapse into bankruptcy of US subprime car lender Tricolor Holdings.
First Brands put a proposed deal to refinance its debt on hold last month, after some investors raised questions around aspects of its accounting and financial disclosure. The company appointed Deloitte to produce a so-called “quality of earnings” report to assuage these concerns, informing lenders it would relaunch the $6bn loan deal when this review was completed.
However, the company’s loans have plunged over the past week as lenders have grown concerned it will instead have to restructure its debt, with its top-ranking secured loans trading at less than 50 cents on the dollar on Friday.
The sell-off in First Brands’s debt comes after the Financial Times earlier this month reported US private equity group Apollo Global Management had built a short position against the group’s debt.
Apollo was joined in the trade with hedge fund Diameter Capital Partners — in which it owns a stake — and both groups recently closed the position, said people familiar with the matter. Bloomberg earlier reported they had exited the trade.
The market is also trying to come to grips with the size of the financing linked to First Brands’ invoices.
Several private credit firms have exposure to these invoice-linked facilities, including a specialist trade finance fund managed by Jefferies, the US investment bank. Jefferies has deep ties to First Brands, having also led the planned refinancing deal that was halted in August.
Hedge fund Millennium had also provided financing against the company’s invoices. Millennium did not respond to a request for comment.
While First Brands recently told lenders it held more than $800mn of cash at the end of June, some lenders are concerned that pressure on its invoice financing could quickly burn through this cushion, said two people familiar with the matter.
First Brands is owned by Patrick James, a Malaysian-born businessman who has faced accusations of fraud in civil lawsuits from lenders that were ultimately dismissed. The dearth of public information on the low-profile automotive mogul has further stoked jitters among some of the group’s lenders.
The origins of the company stem from a 2014 deal in which James’s Ohio-based holding company Crowne Group acquired Missouri-based windscreen wiper maker Trico. The group went on to pursue further acquisitions of rival car parts makers and renamed itself First Brands Group in 2020.
Additional reporting by Kate Duguid, Sujeet Indap and Jill Shah in New York
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