First Brands Group, a leading global supplier of automotive parts, disclosed that the company and certain affiliates voluntarily filed for Chapter 11 bankruptcy protection on Sunday in the U.S. Bankruptcy Court for the Southern District of Texas. The filing revealed over $10 billion in total liabilities, marking one of the most notable collapses in the private debt market in recent years.
The Ohio-based auto parts firm, owned by Malaysian businessman Patrick James, did not disclose exact liabilities but estimated them to range from $10 billion to $50 billion, while its assets were valued between $1 billion and $10 billion.
Complete details about the finances have not been revealed due to the disorderly nature of the bankruptcy, which was driven by creditors’ concerns over the auto supplier’s use of off-balance sheet financing.
In March, First Brands informed lenders that it has $5.9 billion in long-term debt. However, its bankruptcy filing reveals several additional billions in opaque financing tied to invoices and inventory. The filing referred to as Project Overdrive by restructuring advisors shows that this month, First Brands and its affiliated entities had over $8 billion in secured corporate debt and inventory-backed financing.
A special committee will be formed during the bankruptcy process to investigate the group’s off-balance sheet financing arrangements.
The urgency behind First Brands’ bankruptcy filing intensified after one of its banks recently seized a portion of its cash, according to a previous report by the Financial Times.
As part of the bankruptcy proceedings, First Brands has obtained a $1.1 billion lifeline from its creditors, which it will use to support operations while restructuring and reducing its debt.
First Brands clarified that the Chapter 11 proceedings apply solely to its U.S. operations, while its international business will continue without disruption for global customers, partners, or employees. The company’s international branches are not included in the court-supervised financial restructuring.
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