Parts Supplier First Brands Preps for Bankruptcy With No Plan
It’s Unusual for Companies as Big as First Brands to File for Chapter 11 Without Restructuring Support Agreement With Lenders in Hand
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Auto part supplier First Brands Group is preparing to enter bankruptcy with no restructuring plan in place, a sign of how quickly the company’s fortunes are unraveling, according to people familiar with the situation.
It’s unusual for companies as big as First Brands to file for Chapter 11 without a restructuring support agreement with lenders in hand. But the firm is running out of cash, and creditors have been unwilling to give it more money to keep its operations going without court protection, according to the people, who declined to be identified because the negotiations are private.
On Sept. 24, a group of financial intermediaries that First Brands used to borrow money filed for bankruptcy in the Southern District of Texas. Patrick James, the owner of First Brands, is listed as president and CEO, which operated under the Carnaby Capital Holdings umbrella, and his signature appears in the bankruptcy document.
First Brands’ term loan due in 2027 fell as much as 11 cents on the dollar to about 32 cents Sept. 25 before paring some of the losses, according to brokers’ quotes seen by Bloomberg.
The rushed process means that creditors are facing significant uncertainty about how much they will get back from First Brands, which sells parts like windshield wipers, water pumps and filters, and has reported $6 billion of debt. It is preparing to file for Chapter 11 as soon as next week.
Lenders have been discussing a so-called debtor-in-possession (DIP) loan of around $1.25 billion, people familiar said. The creditors providing the proposed loan are set to have a portion of their existing debt rolled up into an additional component of the DIP, which will put them ahead of other lenders for repayment, the people said.
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All existing creditors will be invited to participate in the bankruptcy loan, but a lead group of so-called negotiating lenders will also receive a backstop fee to sweeten the deal, the people said. The company will not gain access to the entire loan at once and will have to meet certain milestones to unlock the funds, they said.
Messages with the company and its adviser, Lazard, were not returned.
First Brands’ loans have been plunging in recent weeks amid mounting concerns about its reliance on a financing method known as factoring that is used to turn promised revenue into immediate cash.
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The company had been looking to refinance its debt this summer, but that was put on pause after investors raised concerns about the off-balance sheet financing and debt-funded acquisitions. Its products are sold through mainstream retailers like Walmart and O’Reilly Auto Parts, according to Moody’s Ratings.
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Written by Reshmi Basu, Eliza Ronalds-Hannon and Irene GarcÃa Pérez
