First Brands – When Financing Signals Distress
The recent bankruptcies of First Brands Group, a U.S.-based automotive parts manufacturer, and Tri-Color Holdings, a subprime auto lender headquartered in Dallas, have drawn global attention to the private credit and specialty finance markets. Both companies operated in sectors familiar to alternative lenders, and both collapsed amid allegations of irregular financing structures, poor governance, and excessive leverage.
At Garrington, we’ve been following these developments closely. In this analysis, we take a deeper look at First Brands, what happened, what it reveals about credit discipline, and why our approach to lending remains guided by structure, transparency, and integrity.
Executive Summary
First Brands Group, a U.S. auto-parts manufacturer, entered Chapter 11 following the discovery of major financing irregularities. Its capital structure included extensive off-balance-sheet receivables arrangements, with evidence of overlapping collateral pledges and opaque funding structures that complicated lender visibility and accelerated the company’s collapse.
The case is not an indictment of factoring or structured working-capital finance. Instead, it highlights how high-cost liquidity, layered leverage, and weak transparency can turn valid financing mechanisms into fragile ones when governance and oversight fail to function effectively.
What Happened, Concisely
- Bankruptcy filing and liabilities. First Brands filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York, citing liabilities exceeding $10 billion across affiliated entities.
- DIP financing. The court approved $500 million from a $1.1 billion DIP package led by existing creditors to stabilize operations while the company investigates its accounting and financing practices.
- Factoring in irregularities and internal probe. An internal committee and external auditors are examining a reported $2.3 billion shortfall linked to off-balance-sheet factoring, potential double-pledging of receivables, and commingled inventory valued at approximately $376 million.
- Major creditor exposure. Jefferies disclosed that its Point Bonita Capital fund holds approximately $715 million in receivables tied to First Brands, underscoring the extent to which these structures have penetrated institutional credit markets.
- UBS and O’Connor exposure. UBS reported more than $500 million in exposure to First Brands through various funds and supply-chain-finance vehicles managed by its O’Connor division.
- Side-letter scrutiny. The Financial Times reported that “side-letter” arrangements between First Brands and certain lenders allowed transactions outside existing covenant limits, adding opacity to the capital structure.
- Affiliated filings and speed of collapse. Bloomberg noted that several subsidiaries filed in advance of the parent company and that First Brands entered bankruptcy without a formal restructuring plan, reflecting the suddenness of its liquidity crisis.
What the Case Illustrates
1) Complexity without transparency conceals risk.
Receivables and factoring arrangements are legitimate financing tools. They become dangerous when lenders lose visibility into collateral eligibility, ownership, and claim priority. The First Brands probe into double factoring and commingled assets demonstrates how the lack of transparency can undermine even structured facilities.
2) High-cost liquidity late in the cycle is a distress signal.
When a multi-billion-dollar enterprise turns to factoring at thirty-plus percent rates, it is not pursuing efficiency; it is fighting for survival. Such financing reflects the exhaustion of traditional credit channels and foreshadows insolvency.
3) Market interconnection magnifies contagion.
Exposure from Jefferies and UBS-managed funds illustrates how quickly weaknesses in one borrower can spread through the private credit ecosystem. What appears isolated can have a ripple effect on multiple portfolios.
4) In distress, governance and control define recovery.
With lenders now contesting collateral priority, those with direct liens, perfected security interests, and cash dominion are positioned to recover most effectively.
Garrington’s Perspective
At Garrington, lending is not measured by the amount of capital we deploy, but by the consistency with which it returns. That discipline begins with verified collateral, enforceable security, and transparent borrower relationships.
We maintain senior secured positions, implement cash-flow controls, conduct ongoing audits, and engage directly with decision-makers. We prefer to be the lead or sole senior lender, ensuring alignment and authority throughout the lending cycle. We review over a thousand opportunities annually, but fund only a select few through a deliberate approach that prioritizes resilience over quick wins.
Lessons reaffirmed:
- Use case matters. Factoring serves best as working-capital finance for growth, not as a bridge to solvency.
- Control, not complexity, defines safety. We engage in complex opportunities only when structure and transparency support real control.
- Cash flow reveals truth. Continuous monitoring ensures that our fundings supports production, not balance-sheet repair.
For Our Investors
- Security is only as strong as a lender’s visibility and enforcement rights.
- High-cost liquidity drawn late in the credit cycle is a clear warning sign.
- In recovery scenarios, cash dominion and perfected liens often determine outcomes.
- Proper discipline in private credit is not defensive; it is strategic, consistent, and built on integrity.
Closing Perspective
The collapse of First Brands is not a reflection of a flawed industry or financial instrument; rather, it is a result of a specific set of circumstances. It is a reminder that even sophisticated structures can fail when governance, alignment, and transparency erode.
At Garrington, we view private credit through a long-term lens. Integrity, accountability, and disciplined underwriting are not optional; they are essential to creating durable value for both borrowers and investors. Strength in private credit stems from structure, stewardship, and the conviction to remain aligned with principles and purpose, even when markets become complex.
As the First Brands restructuring unfolds, we remain engaged and informed. The broader message is already evident: in private credit, trust is earned through consistency and maintained through control.
Sources
1.Reuters — “First Brands obtains bankruptcy judge approval for $500 million rescue financing,” Oct 1 2025
2.Reuters — “First Brands investigating off-balance-sheet factoring irregularities,” Sept 30 2025
3.Reuters — “Jefferies discloses $715 million fund exposure to First Brands bankruptcy,” Oct 8 2025
4.Reuters — “UBS examines hit to funds with $500 million First Brands exposure,” Oct 8 2025
5.Financial Times — “Jefferies under scrutiny for side-letter financing tied to First Brands,” Oct 3 2025
6.Bloomberg — “First Brands prepared rushed bankruptcy with no plan in place,” Sept 25 2025
7.Auto Finance News — “Court approves limited DIP operations as First Brands probe widens,” Oct 2 2025
