First Brands Warns Cash to Run Out by Jan. 31

First Brands’ products include Anco and Trico wiper blades and Fram filters. (George Frey, Houston Cofield/Bloomberg)

First Brands Group Inc. warned it will run out of cash by the end of January without an immediate financing injection, a shortfall that could force the bankrupt auto parts maker to shut down some businesses and sell other operations.

The company is in talks with existing lenders to secure enough funding to continue operating and cover bankruptcy costs, attorney Sunny Singh told a federal judge Jan. 7 during a hearing in the company’s multibillion-dollar Chapter 11 case.

First Brands has about $190 million in cash and is reviewing a term sheet for a new loan, Singh said, adding that details still need to be negotiated. The company plans to file an outline in the coming days for an auction of various assets, he said.

Since seeking bankruptcy protection in September, First Brands has been trying to unwind a complex web of so-called factoring transactions that restructuring advisers say left the company burdened with billions of dollars of debt. Much of that financing was raised using fake or inflated invoices, according to the advisers.

Under those arrangements, First Brands sold the right to collect payments from customers that had purchased its auto parts, generating billions of dollars in funding. Allegations of fraud tied to those transactions have injected uncertainty into the bankruptcy and are complicating efforts to preserve the company’s operations, creditor attorney Robert Stark said at the hearing.

READ MORE: Jefferies Wants First Brands Founder Questioned Under Oath

“We don’t know whether this case is a business with fraud attached or a fraud with a business attached,” Stark said.

Creditors are also battling over priority claims and collateral rights, including liens on the auto parts the company continues to manufacture and sell. Litigation stemming from those disputes threatens to derail attempts to maximize recoveries and stabilize the business, Stark said.

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The case is First Brands Group LLC, number 25-90399, in the U.S. Bankruptcy Court for the Southern District of Texas.

Also Jan. 7, First Brands founder Patrick James said Jefferies Financial Group was refusing to turn over documents that would “put the lie” to the financial firm’s claims that he defrauded it.

James on Jan. 7 asked a New York federal judge to order Jefferies to comply with a subpoena of documents, including internal communications and the due diligence records, related to the firm’s investment in $715 million in receivables at First Brands. The auto supply group filed for bankruptcy in September, with Jefferies as one of its biggest creditors. 

First Brands has sued James in bankruptcy court, alleging its founder and former CEO looted the company, possibly of billions of dollars, to fund a lavish lifestyle and also raised money by selling non-existent or doctored invoices. Jefferies has not sued James but has publicly stated that it believes it may have been a victim of fraud.

James, who is also facing a Justice Department investigation, has denied wrongdoing. 

His Jan. 7 petition comes a week after he moved to block a Jefferies subpoena to question him under oath. In a Dec. 31 filing, James said a Jefferies deposition was unwarranted and potentially prejudicial, since he was already due to face questioning in the bankruptcy case and the federal criminal probe. He suggested the request was retaliation for his seeking discovery from the firm. 

James and his brother, Edward, successfully blocked a similar request by a committee of creditors in the First Brands bankruptcy case. During a hearing Jan. 7 in Houston, U.S. Bankruptcy Judge Christopher Lopez agreed with the brothers that the committee’s information deposition demands should be denied. 

But Lopez’s ruling leaves open the possibility that the brothers will face questions from a court-approved examiner, who is likely to begin probing First Brands’ collapse in the coming weeks. Lopez said the main reason he was denying creditors the chance to question the brothers was so the examiner could take the lead in an investigation of the alleged fraud at First Brands.

Jefferies didn’t immediately respond to a request for comment on James’ petition. The firm said in a Jan. 5 filing that it needed to question James because he possesses “critical information” about the creation and sale of invoices. 

In his Jan. 7 petition, James said that the Jefferies documents he seeks “go to the heart” of the fraud claims. He noted that the firm played a “central role” in the financing arrangements under scrutiny and earned substantial fees from its First Brands relationship, including by underwriting a $300 million loan to the company. 

“Jefferies cannot simultaneously profit from these financing arrangements and then refuse to produce documents” that could exonerate him, James said in the filing.

The case is James v Jefferies Financial Group Inc., 26-mc-00007, US District Court, Southern District of New York.

Chris Dolmetsch contributed to this report.

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