First Brands’ bankruptcy is worrying Wall Street

The bankruptcy of auto parts supplier First Brands has investors anxious about the state of private credit lending on Wall Street. The Ohio-based company disclosed ~$11.6 billion in debt in September.

On Monday, its founder and CEO, Patrick James, stepped down amid the Chapter 11 bankruptcy process. The firm, which produces filters, brakes, and lighting systems, has debts stemming from debt-fueled acquisitions. It owns 24 auto companies, per its website.

Court documents reveal First Brands listed liabilities between $10 billion and $50 billion against assets of between $1 billion and $10 billion.

There is suspicion about its accounting practices, including allegations that the company pledged the same invoices to multiple lenders.

Private credit sector is anxious
First Brands doesn’t owe money to traditional banks, but to less-regulated private lenders, a $3 trillion industry that has grown with limited regulation and transparency. These deals are often not disclosed to the public markets.

In the case of First Brands, investment bank Jefferies faces the largest exposure at $715 million, while firms like UBS and BlackRock are also owed substantial sums.

Analysts and academics warn that the case mirrors past financial scandals such as Greensill Capital and Enron, exposing risks in the private debt market.