First Brands Sees New Call for Outside Trustee to Manage SPEs
UMB Bank Says First Brands’ Managers Are Unfairly Favoring Some Lenders Over Others
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First Brands Group’s bankruptcy advisers are facing a new challenge that could impact how a potential restructuring of the auto parts supplier is carried out.
UMB Bank contends First Brands’ new managers are unfairly favoring some lenders over others in an effort to send some of its $1.1 billionrescue financingto a German affiliate facing a cash crunch.
The bank is urging the Texas judge to appoint an independent trustee to manage certain special purpose entities that were used to obtain earlier financing backed by inventory from First Brands affiliate Ultinon, which makes automotive lamps and other accessories.
First Brands’ advisers have “an unavoidable conflict of interest” in their competing responsibilities between company creditors and lenders that extended financing to the SPEs, the bank said. A neutral, outside Chapter 11 trustee, will “address issues from an unbiased perspective,” it said.
Creditors of other SPEs made similar requests for a Chapter 11 trustee earlier in the bankruptcy. First Brands’ new management team and lawyers have been navigating potential disputes between different lender groups since the company filed Chapter 11 in September amid allegations of fraud.
UMB made the request in its capacity as administrative agent for lenders to a $45 million credit facility tied to the SPEs, according to court papers. The bank claims First Brand advisers “are abandoning” more than $55 million worth of property belonging to SPEs.
First Brands has said that the Ultinon business needs an emergency cash infusion and has sought permission to use some of its $1.1 billion rescue financing to keep it afloat. In a Nov. 21 filing, the company said Ultinon also requires long-term financing to “fully restore its operations and preserve the value of the business.”
First Brands didn’t immediately return a message Nov. 24 seeking comment on UMB’s motion.
UMB’s request comes after Judge Christopher Lopez agreed to appoint an outside examiner to review fraud allegations at First Brands. Earlier this month, the companyfileda lawsuit against its founder and former chief executive officer Patrick James, accusing him of siphoning roughly $700 million from the business in the years before it filed bankruptcy.
James has denied wrongdoing.
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