Jefferies fund holds $715 million in First Brands’ trade debt: Report

(Bloomberg) -- An asset manager controlled by a unit of Jefferies Financial Group Inc. sank nearly a quarter of its $3 billion trade finance portfolio into receivables tied to auto parts supplier First Brands Group Inc., the bank disclosed on Wednesday.

Point Bonita Capital’s portfolio has about $715 million invested in receivables due by First Brands’ customers including Walmart Inc. and AutoZone Inc., with the auto-parts supplier responsible for directing payments to Point Bonita, Jefferies said in a statement. Problems with the receivables emerged on Sept. 15 as the company stopped making these payments.

Jefferies also said most of its own exposure to the now-bankrupt company came through Point Bonita, a division of the firm’s Leucadia Asset Management that manages trade-finance assets on behalf of third-party investors. Leucadia has a $113 million equity stake in that fund, according to the statement.

Additionally, Jefferies has a 50% stake in Apex Credit Partners, which held about $48 million of loans to First Brands through collateralized loan obligations.

Analysts at Morgan Stanley estimated that Jefferies would face $44.6 million in potential losses tied to First Brands. They noted that would be a “manageable” hit to the company’s tangible shareholders’ equity.

The disclosure reveals more about Jefferies’ ties with First Brands, a supplier of wiper blades and oil filters that filed for bankruptcy last week after a debt refinancing was derailed by investor scrutiny. Jefferies had been marketing the refinancing for the company, and many of Wall Street’s biggest names have faced losses on their exposure to First Brands.

Court documents from earlier this month showed funds under the UBS Group AG umbrella face more than half a billion dollars of exposure to the auto supplier.

It’s the latest blow up in the murky world of trade finance, a sector that has been hit by numerous frauds in recent years, often leaving banks and insurers facing losses. The biggest bust in the industry came in 2021, when Greensill Capital filed for insolvency after channeling bank deposits and insurance funds into short-term loans to risky companies, ultimately contributing to the collapse of Credit Suisse Group AG.

Jefferies noted that First Brands has indicated in bankruptcy filings that its special advisers were investigating whether receivables had been turned over to third-party factors upon receipt and whether receivables may have been factored more than once.

(Updates with Morgan Stanley analyst commentary in fifth paragraph. An earlier version of this story was corrected to explain nature of Jefferies’ exposure to First Brands.)

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