On Monday, September 29, the American automotive parts manufacturer “First Brands” filed for bankruptcy protection, revealing debts exceeding $10 billion. In recent weeks, the company’s financial situation rapidly deteriorated, shocking debt investors.
In its statement, First Brands indicated that over the past few years, a series of acquisitions led to massive debts, placing the company in distress. Currently, the company has obtained $1.1 billion in debtor-in-possession financing from its primary lien loan creditors to support its ongoing operations.
According to bondholders and bankruptcy experts, the financial troubles of this automotive parts supplier, coupled with the recent bankruptcy of subprime auto lender Tricolor Holdings, have unsettled debt investors and exacerbated market concerns about corporate debts.
The collapse of First Brands has raised questions among investors about whether it will trigger a chain reaction in the automotive parts industry. However, experts point out that the supply chain of auto manufacturers will not be broadly affected, as First Brands mainly produces aftermarket automotive parts.
Headquartered in Ohio, First Brands is owned by businessman Patrick James. The company stated that its bankruptcy filing only involves its U.S. operations, with its global business remaining unaffected and continuing to operate. In its bankruptcy filing, the company estimated liabilities ranging between $10 billion and $50 billion, and assets between $1 billion and $10 billion.
Sources familiar with the matter revealed that the full financial situation of First Brands is expected to be disclosed in the coming days.
Prior to the bankruptcy filing by First Brands, investor confidence had sharply declined as several affiliated companies declared bankruptcy. Bankers and creditors have been intensively restructuring the company’s debts.
First Brands is a privately-held company specializing in the production of automotive replacement parts such as filters, brake systems, and lighting systems. The company became a significant player in the field by acquiring competitors through debt financing.
Its well-known brands include Raybestos brake solutions, TRICO wipers, and FRAM filter products.
Last week, credit rating agency Fitch downgraded the credit rating of First Brands, citing that the company’s options for managing debt were increasingly limited, with only over-the-counter solutions remaining.
Over the past week, as bondholders prepared for the imminent debt restructuring, the value of First Brands’ loans plummeted.
The case number is 25-90397 and has been filed in the United States Bankruptcy Court for the Southern District of Texas.