First Brands Bankruptcy and Management Issues Leaves Wall Street Suspicious
- Jack Borys
- Oct 14
- 2 min read
Major problems have arisen for First Brands Group, the automotive parts manufacturer, toward the back end of September. On the 29th, the company filed for bankruptcy in the Southern District of Texas claiming liabilities in the range of $10 to $50 billion, outweighing their assets between $1 and $10 billion. First Brands Group is experiencing difficulties because of their off-balance sheet financing and complex debt arrangements.
First Brands Group was originally founded in 2013 by Patrick James. James is the CEO and sole equity owner of the company. First Brands went through a rapid expansion period during the company’s early stages, acquiring multiple automotive parts makers. During this spree of acquisitions, First Brands managed to own up to 24 part making companies. They were able to do this because of the billions raised through off-balance sheet financing and from borrowing against money they were owed from their customers. Until recently, First Brands always maintained a decently sized cash buffer. The company was doing all this borrowing off of invoices to keep the debt low on the balance sheet disclosures, and to expand the amount of employees in the business to 26,000.
The main problems arose when the accumulated debt began to reach an obscure amount. First Brands Group filed for bankruptcy and then further investigation led to even more questions being asked. The technology group and major creditor, Raistone, arranged some off-balance sheet financing and found that an alleged $2.3 billion in assets had just “gone missing.” The question of where the assets went leaves a suspicious and uneasy feeling in the gut of Wall Street. A criminal investigation has opened up by the Justice Department according to people familiar with the matter in hopes to get to the bottom of how billions of dollars just vanished. The main focus of the investigation is to find out if First Brands was double-pledging their trade receivables to third party investors in hopes to borrow more money.
This issue with First Brands has Wall Street spooked because of the potential signs of worse to come. The worry is that the collapse of the automotive parts manufacturer was just the first domino in a much larger financial crisis. Severe problems in the financial markets have happened in the past due to internal management intricacies.
While First Brands Group’s bankruptcy raises serious questions about its financial practices, the ongoing investigation aims to provide clarity on the missing assets. Investors and the broader market will be watching closely, as the outcome could help restore confidence in the sector and prevent panic over the collapse of a single company.
Sources:
Comments