First Brands’ creditor says $2.3 billion ‘simply vanished’, seeks probe

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By Shivani Tanna

(Reuters) -Trade finance company Raistone, a creditor of First Brands, asked a court on Wednesday to appoint an independent examiner, claiming that as much as $2.3 billion “simply vanished” from the bankrupt U.S. auto parts supplier.

First Brands filed for bankruptcy protection last month after its lenders began investigating irregularities in the company’s financial reporting. The company has $11.6 billion in total liabilities, according to the court documents.

Its collapse has rattled debt investors and sparked concerns of broader stress in corporate debt markets, especially about rising risks in private credit where lending activity has surged in recent years.

“Under these circumstances – with up to $2.3 billion in assets unaccounted for – the appointment of an examiner to conduct an independent investigation is both mandatory and is critical to maximizing recovery for creditors,” Raistone said in the filing to the Texas Southern Bankruptcy Court.

First Brands had earlier appointed a special committee of independent directors to probe its off-balance-sheet financing and whether invoices were factored more than once. 

It believed it had an unpaid $2.3 billion hole on its balance sheet related to third-party factoring arrangements when it filed for Chapter 11 proceedings. Factoring is a financing method used by companies to sell outstanding customer invoices to investors in return for cash.

First Brands collected roughly $1.9 billion of factored receivables without remitting it to the proper owners, according to the filing.

After the Ohio-based company filed for bankruptcy, its attorney told Raistone in an October 2 email that they didn’t know if the company had received $1.9 billion.

Following this, Raistone requested an independent investigator.

“First, do we know whether FBG actually received $1.9 billion (no matter what happened to it)? Raistone’s lawyer said, according to an exhibit attached to the court filing. “Second, would you tell us how much is in the segregated accounts in respect of the factored receivables as of today?” 

In response, First Brands’ lawyer said ““#1 — We don’t know; #2 – $0”.

Raistone said that the investigation was “highly questionable,” raising doubts if the committee will conduct a thorough and robust investigation.

First Brands did not immediately respond to a Reuters request for comment.

Privately held First Brands, which produces automotive replacement components such as filters, brakes and lighting systems, became a major industry player through debt-financed acquisitions of rival auto parts companies.

Earlier in the day, Jefferies revealed that Leucadia Asset Management has about $715 million in receivables linked to First Brands Group. UBS likewise said it is evaluating the fallout, noting exposure of over $500 million to the parts maker.

(Reporting by Shivani Tanna in Bengaluru; Editing by Muralikumar Anantharaman and Kim Coghill)