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First Brands Group’s $1.1bn rescue loan faces a legal challenge from a Utah-based private asset-backed finance specialist, which has emerged as the largest known creditor to the bankrupt US auto parts company.
Onset Financial — a firm in Draper, Utah, which describes itself as a “dominant force and leader in the equipment lease and finance industry” — built up $1.9bn of exposure to auto parts manufacturer First Brands in the years before it collapsed into bankruptcy, according to legal filings.
This makes the specialist firm the biggest known creditor to First Brands, which has now disclosed that it built up almost $12bn in debt and off-balance sheet financing. Onset’s exposure eclipses some of the biggest names on Wall Street, which are facing the prospect of multibillion-dollar losses in a chaotic bankruptcy process.
Onset on Tuesday filed a “preliminary objection” to a $1.1bn “debtor-in-possession” (Dip) loan that First Brands has agreed with other creditors. This first-ranking loan is intended to provide the Ohio-based manufacturing firm with emergency funding.
In its filing in the Southern District of Texas bankruptcy court, the Utah-based firm’s lawyers wrote that “First Brands owes Onset approximately $1.9bn” and that the relationship between the private finance firm and the auto parts company “dates back to 2017”.
“When the dust settles, this Court will see that Onset was the single most significant provider of liquidity to the Debtors,” Onset’s lawyers wrote.
Dip loans are a crucial component of US bankruptcy processes that help stabilise a business as it aims to continue trading. Challenges to these loans are common, but Onset’s status as the largest known creditor makes its objection significant.
People familiar with First Brands’ inventory financing flagged that a number of private credit firms in Utah had exposure to the bankrupt business.
The filing revealed that Onset advanced “over a billion dollars” of financing to First Brands over the past year, providing funding to support its “working capital needs, fund acquisitions, and help the company navigate both pending and imposed tariff regimes”.
The financing took the form of sale-leaseback transactions relating to First Brands’ inventory.
Onset describes itself as the “rightful owner of the inventory and equipment it leased to First Brands” and described a previous filing from the bankrupt company’s new chief restructuring officer as “both inaccurate and incomplete”.
Onset’s lawyers said that it anticipated it would have to “aggressively” defend its rights in the bankruptcy.
Charles Moore, a managing director at Alvarez & Marsal who is acting as First Brands’ chief restructuring officer, previously made statements in a legal filing covering a range of matters, including that an investigation into First Brands’ off-balance sheet financing is examining whether collateral underpinning its financing was pledged “more than once” and “commingled” between lenders.
Moore’s statement did not say that investigators had identified or confirmed specific instances of wrongdoing, however.
In the same filing, Moore disclosed that Onset had faced significant payment issues on its lease financing as early as May and that the Utah-based firm had provided “forbearance” to First Brands on this debt.
Moore added that First Brands’ shareholder Viceroy Private Capital — a holding company linked to the group’s founder and owner Patrick James — pledged a 15 per cent stake in the auto parts firm to Onset in August.
While Onset is little-known outside its niche in equipment and inventory finance, its corporate website heralds its dominance of the industry. On its website and in its legal filing, the firm claims to have “funded over $5bn in equipment finance transactions”.
Founded in 2008, Onset’s website describes its sole shareholder and chief executive Justin Nielsen as having “built a powerhouse organisation” in equipment leasing, which through its charitable arm has “raised hundreds of thousands of dollars for local and national charities”.
The Financial Times reported last week that funds linked to Keystone National Group, a private credit firm based in Salt Lake City, had also built up exposure to First Brands’ inventory debt.
Keystone has previously estimated returns in excess of 50 per cent on First Brands’ inventory debt, according to filings with the Securities and Exchange Commission.
Onset declined to comment. A&M, First Brands and Keystone did not immediately respond to a request for comment.
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