Bankrupt Auto Supplier Seeks New Financing Amid Fraud Probe
First Brands Group, the bankrupt auto parts supplier, is attempting to secure new financing backed by its receivables invoices, even as it faces a fraud investigation into its previous use of similar funding tools.
Key Developments
- First Brands seeks receivables financing despite ongoing fraud probe
- Lazard Inc. managing the search for funding providers
- Company sued founder Patrick James for allegedly pilfering funds
- New financing would offer lower rates than bankruptcy loan
Financing Revival Efforts
Lazard Inc., one of First Brands’ advisers, is identifying potential providers for the receivables financing. Senior lenders already backing the company’s $1.1 billion bankruptcy loan are among interested parties, according to sources familiar with the negotiations.
The proposed financing facility would include controls on cash flow from invoice payments, addressing risks that previously wiped out other invoice lenders. Both First Brands and Lazard declined to comment on the matter.
Previous Financing Collapse
First Brands had long depended on billions in short-term invoice-based financing—including factoring and supply-chain finance—to manage operations. This funding disappeared when the company entered Chapter 11 bankruptcy in late September amid suspicions it misled or defrauded trade credit providers.
Fraud Allegations Surface
Court documents and testimony reveal some financing was obtained using false or double-pledged invoices, with allegations that related proceeds had “vanished.” The company recently sued founder and former CEO Patrick James, accusing him of diverting funds for personal gain.
James resigned in October, replaced by restructuring expert Charles Moore, who now faces the challenge of untangling the company’s finances.
Current Business Reality
Despite the ongoing fraud investigation, stakeholders recognize the value in monetizing new receivables that won’t be paid for months. Industry experts note many auto supply retailers take over 270 days to pay for parts after shipment.
The lower interest rates of receivables financing compared to bankruptcy loans would provide cheaper liquidity as First Brands works to restore its $5 billion annual revenue stream.
