Bankrupt First Brands Seeks to Raise New Financing Amid Fraud Probe

(Bloomberg) -- Bankrupt auto supplier First Brands Group is seeking to raise new financing backed by receivables invoices, reviving a tool that was once crucial to its operations but also had a hand in its demise. 

Lazard Inc., one of the company’s advisers, is running a process to determine potential providers of the funding, according to people familiar with the matter. Interested parties include senior lenders already leading a $1.1 billion bankruptcy loan to First Brands, the people said, asking not to be identified discussing private negotiations. 

Any receivables financing facility would have certain controls on the cash flow from payments of the invoices, sidestepping risks that had wiped out other invoice lenders, the people said. 

A representative for First Brands declined to comment. Representatives for Lazard didn’t immediately respond to a request for comment. 

First Brands long relied on billions of dollars in short-term and costly invoice-based financing — like factoring and supply-chain finance — to pay its bills. Access to those funds dried up when the company entered Chapter 11 in late September under suspicion of misleading or defrauding providers of the trade credit.  

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Court filings and testimony in the intervening weeks indicate some of the financing was raised based on false or double-pledged invoices, with allegations that related proceeds had “vanished.” First Brands, which continues to operate in bankruptcy, last week sued its founder and former chief executive officer Patrick James, accusing him of pilfering the money for his own gain. James resigned in October, leaving the job of untangling the company finances to Charles Moore, a restructuring expert hired during rushed negotiations between First Brands and its creditors.

Even as investigations into those financing misdeeds dominate its attempted turnaround, First Brands stakeholders see value in monetizing the new receivables it’s accumulating but won’t see payment on for months. Many major aftermarket auto supply retailers don’t pay for the parts they order until more than 270 days after shipment, according to industry experts. 

A key selling point of the receivables financing facilities is that they carry lower interest rates than those attached to First Brands’ bankruptcy financing, the people said. That would provide a cheaper way for the supplier to access liquidity as it seeks to regain the sales volume it has previously said generated $5 billion in revenue per year.   

--With assistance from Jonathan Randles.

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