Auto Parts Giant Turns to Controversial Financing Tool Again
First Brands Group, the bankrupt automotive supplier, is attempting to secure new financing backed by receivables invoices, reviving a financial tool that was once essential to its operations but ultimately contributed to its downfall. The company has engaged Lazard Inc. as an adviser to identify potential funding providers for this initiative.
According to sources familiar with the matter, several senior lenders who are already leading a $1.1 billion bankruptcy loan for First Brands have expressed interest in participating in the new receivables financing facility. The funding arrangement would include specific controls on cash flow from invoice payments, designed to avoid the risks that previously devastated other invoice lenders.
Fraud Allegations and Executive Exodus
First Brands had long depended on billions of dollars in short-term, expensive invoice-based financing methods, including factoring and supply-chain finance, to manage its cash flow. However, this funding source evaporated when the company filed for Chapter 11 bankruptcy protection in late September amid suspicions that it had misled or defrauded trade credit providers.
Court documents and testimony revealed that some financing had been obtained using false or double-pledged invoices, with allegations that related proceeds had mysteriously "vanished." The situation escalated when First Brands sued its founder and former CEO Patrick James last week, accusing him of misappropriating funds for personal benefit. James resigned in October, leaving the complex task of untangling the company's finances to Charles Moore, a restructuring specialist brought in during urgent negotiations with creditors.
Strategic Move for Cheaper Liquidity
Despite ongoing investigations into the financing irregularities that dominate its turnaround efforts, First Brands stakeholders recognize the value in monetizing new receivables the company continues to accumulate. The automotive supplier faces significant payment delays, with many major aftermarket auto supply retailers typically taking more than 270 days after shipment to pay for parts, according to industry experts.
The proposed receivables financing facilities offer a key advantage: lower interest rates compared to the company's existing bankruptcy financing. This would provide a more cost-effective method for the supplier to access liquidity as it works to restore the sales volume that previously generated $5 billion in annual revenue.
First Brands continues to operate under bankruptcy protection while navigating these complex financial challenges. Company representatives declined to comment on the new financing efforts, while Lazard representatives did not immediately respond to requests for comment.
