First Brands Seeks to Resume Borrowing Against Receivables Amid Fraud Probe
Bankrupt auto supplier First Brands Group is seeking to raise new financing backed by receivables invoices, reviving a tool that was once crucial to its operations but also had a hand in its current crisis.
The move is being highly scrutinized, as the supplier entered Chapter 11 in late September under suspicion of misleading or defrauding providers of trade credit, Bloomberg reported Tuesday (Nov. 11). To pay its bills, the company long relied on billions of dollars in short-term, invoice-based financing, such as factoring and supply-chain finance, access to which immediately dried up upon filing bankruptcy.
Lazard Inc., one of the company’s financial advisers, is managing the process of identifying potential providers for the new funding. According to the report, individuals familiar with the private negotiations indicate that interested parties include senior lenders who are already backing First Brands’ $1.1 billion bankruptcy loan. A critical selling point for the new financing arrangement is that it would incorporate specific controls on cash flow derived from invoice payments. This structure is intended to mitigate the risks that previously wiped out other invoice lenders.
The decision to pursue receivables financing comes even as investigations into alleged previous misdeeds dominate the company’s attempted turnaround. Court filings and testimony revealed allegations that some previous financing was based on false or double-pledged invoices, with related proceeds alleged to have “vanished.” First Brands recently escalated the situation by suing its founder and former chief executive officer, Patrick James, for allegedly pilfering funds for personal gain. James resigned in October, leaving Charles Moore, a hired restructuring expert, to untangle the firm’s complex finances.
Despite these severe allegations, stakeholders maintain that monetizing First Brands’ new customer invoices has significant value, enabling the company to access immediate cash. The urgent need for liquidity is amplified by industry payment cycles, as many major aftermarket auto supply retailers often do not pay for parts shipment until more than 270 days have elapsed. Furthermore, the proposed receivables financing agreements are attractive because they offer lower interest rates than the supplier’s existing bankruptcy financing. This would provide First Brands, which has previously claimed annual revenue of $5 billion, with a cheaper route to accessing liquidity as it tries to regain sales volume.
PYMNTS reported in October that the collapse of First Brands and its missing $2.3 billion exposed how opaque supply chain financing conceals risks such as hidden leverage and double-pledged receivables, prompting fears of broader fragility across the marketplace.
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