First Brands, Auto Parts Supplier, Files For Bankruptcy Protection With Over $10 Billion In Debt

First Brands, a global leading supplier of automotive aftermarket parts (which owns products such as Fram oil filters and Anco wipers), filed for bankruptcy protection on Monday after the recent plunge in the value of its company loans. The Chapter 11 case involves only its U.S. operations, while the company's international operations will continue to run uninterrupted throughout the Chapter 11 proceedings, ensuring complete continuity for international customers, partners, and employees.

Previously, the market lost confidence in First Brands' financial disclosures and its use of off-balance-sheet debt. According to people familiar with the matter, First Brands' lenders and independent directors are currently investigating whether the company made false statements in its financial reports. First Brands' bankruptcy filing has garnered widespread attention on Wall Street, sparking concerns that market bubbles may have concealed potential weaknesses of corporate borrowers and failed to adequately compensate investors for risk.

First Brands heavily relies on accounts receivable financing, supplying auto parts to customers with delayed payments and financing based on borrowings from external investors against invoiced accounts receivable. According to people familiar with the company, First Brands' lenders have been informed that the company may have significantly more debt than accounts receivable, with a difference approaching $2 billion. Some individuals involved in the company's supply chain financing projects have also learned that certain automobile inventory used as collateral may have been moved out of their control. According to them, First Brands has appointed independent directors to review these issues and other matters related to off-balance-sheet arrangements.

First Brands listed liabilities of at least $10 billion in its Chapter 11 bankruptcy filing submitted to the Houston U.S. Bankruptcy Court. In a statement, First Brands announced that it has obtained $1.1 billion in debtor-in-possession financing from its first lien lenders to support its ongoing operations. This financing will provide the necessary funds for the company to maintain operations, fulfill customer orders, and meet its commitments to suppliers and partners from the outset of the Chapter 11 case.

Chuck Moore, Chief Restructuring Officer of First Brands, stated: "Today's actions mark an important step in stabilizing First Brands' operations and securing the long-term future of the company's world-class portfolio of aftermarket automotive parts brands. With the committed funding from our key financial partners, we remain focused on supporting our employees, collaborating with our valued suppliers, and providing top-tier aftermarket automotive technology to our global customers. We have full confidence in the strength of First Brands' industry-leading brand portfolio and the crucial role we play in the automotive supply chain."

Until last month, First Brands had been struggling to refinance its $6 billion corporate debt when lenders demanded more details about the company's earnings and factoring agreements. Factoring agreements are a type of supply chain financing where third-party investors assume the payment process and obligations. Concerns intensified when lenders learned that Apollo Global Management had previously shorted First Brands by purchasing credit default swaps on the company's debt. The value of First Brands' loans plummeted, marking one of the many challenges faced by the automotive industry.

First Brands, headquartered in Rochester, Michigan, manufactures parts such as filters, brakes, and lighting systems for the automotive aftermarket. It has become a significant player in the U.S. automotive parts market through debt financing acquisitions of competitors. Its well-known brands include raybetis brake solutions, TRICO wiper blades, and FRAM filtration products.