UBS Funds Face Half-Billion-Dollar Exposure to First Brands

(Bloomberg) -- Funds under the UBS Group AG umbrella face more than half a billion dollars of exposure to bankrupt auto-parts supplier First Brands Group through various investment strategies, with one ranking as the biggest unsecured creditor, court documents show. 

The auto-parts supplier filed for Chapter 11 protection in Texas late Sunday following a failed attempt to refinance $6 billion of loans and creditor concern over the company’s use of opaque off-balance-sheet financing. The board committee appointed as part of the bankruptcy is investigating First Brands’ use of that off-balance sheet funding.

UBS Hedge Fund Solutions is the largest unsecured creditor with a $233.7 million claim for providing supply chain financing, while O’Connor — a hedge fund business that UBS recently agreed to sell to Cantor Fitzgerald — has a similar claim for $116.1 million. 

Meanwhile, UBS Asset Management has secured claims for more than $160 million including holdings tied to term loans and a sidecar facility put in place in June to raise funds from private credit providers.

That firm is also part of a group of secured lenders providing First Brands with fresh capital in the form of a $1.1 billion bankruptcy loan to help keep it running during the court process. 

“This event affects many private credit and working capital providers across the industry,” a spokesman for UBS told Bloomberg. “In this highly fluid situation, we are working to determine the potential performance impact on the small number of our affected funds, and are focused on protecting the interests of our clients.”

Earlier this year, Cantor agreed to buy UBS’s O’Connor unit, which has about $11 billion in assets under management and six investment strategies. The transaction is expected to close in the fourth quarter. This would end more than three decades of ownership by the Swiss bank and place the hedge fund back in control of one of its early founders.

--With assistance from Jonathan Randles, Myriam Balezou and Olivia Fishlow.

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