Lifting the hood on First Brands’ super high-yield SPE debt

First Brands Group is the latest car crash successful recognition markets drafting a assemblage of rubberneckers.

The rapid unravelling of the US shaper of spark plugs, brake components and windscreen wipers ticks a batch of boxes for an intriguing fiscal fiasco story: the imaginable for multibillion-dollar losses; a mysterious owner; question marks implicit its usage of off-balance expanse financing. 

On Thursday, mainFT broke news that revealed that astatine slightest immoderate of those off-balance expanse structures present look to beryllium collapsing:

Entities tied to First Brands Group and its laminitis Patrick James person filed for bankruptcy extortion successful the US, compounding issues astatine the car parts supplier whose troubles person roiled recognition markets.

Carnaby Capital Holdings and respective entities that raised indebtedness linked to First Brands filed for Chapter 11 proceedings connected Wednesday, raising the likelihood that the concern is itself connected the brink of bankruptcy.

First Brands, a US shaper of windscreen wipers and substance pumps, has travel nether aggravated scrutiny for its usage of off-balance-sheet indebtedness tied to invoices and inventory. Some lenders fearfulness this financing was poorly disclosed successful the main operating entity’s equilibrium sheet, making it hard for creditors to cognize however overmuch indebtedness it had successful total.

To get a consciousness of conscionable however messy this could get, the Carnaby bankruptcy filing states the companies progressive person estimated liabilities of betwixt $1bn and $10bn, against assets of conscionable $500mn-$1bn.

The proprietor of Carnaby is listed successful the petition arsenic Viceroy Private Capital, LLC. A public notice from Romania’s contention assembly describes Viceroy arsenic a US entity that is “part of the radical of companies controlled by Patrick James, which owns the Romanian subsidiary Trico Wipers Ploiești SRL”. Trico is portion of First Brands Group.

The bankruptcy petition besides lists a fig of “SPE Subsidiaries”; presumably an acronym for “special intent entities”:

FTAV readers are a astute bunch, truthful we won’t person to accidental retired large the assorted firm scandals that person progressive originative fiscal engineering utilizing SPEs.

The SPE naming normal mightiness beryllium based astir places successful Ohio, the US authorities that Malaysian-born James acceptable down roots successful decades ago, fixed that Broad Street is successful the metropolis of Columbus and different names lucifer areas of the Buckeye State.

While First Brands has made liberal usage of invoice factoring and reverse factoring — financing techniques made (in)famous during the 2021 illness of Greensill Capital — the names of galore of the entities bespeak that they were apt utilized for inventory finance. This is different portion of the firm concern instrumentality kit that is besides often lumped nether the umbrella of “working superior finance”, wherever recognition is typically raised against banal successful warehouses and such. 

You whitethorn beryllium wondering: conscionable what benignant of output tin you gain connected this stuff?

You mightiness presume that involvement would beryllium humble fixed that these forms of financing are typically secured and short-term successful nature. But, if money filings are immoderate indication, you would beryllium wrong.

Filings for AB CarVal’s Credit Opportunities Fund showed that astatine the extremity of past twelvemonth it held a fewer cardinal dollars of short-dated facilities for some First Brands and Carnaby Inventory III: