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First Brands Lender Can’t Dispense Cash From Inventory Sales
Decision Is Early Victory for Bank of America
Key Takeaways:
- A U.S. bankruptcy judge on June 17 ordered Aequum Capital Financial II to escrow proceeds from First Brands’ inventory sales amid a dispute with Bank of America.
- The ruling stems from competing claims over collateral tied to more than $40 million in loans and a broader $446 million asset-backed facility.
- The court will decide the lawsuit’s merits while creditors seek to pursue claims against Aequum and First Brands continues liquidating assets and shutting operations.
Aequum Capital Financial II is temporarily barred from distributing any cash it collects from the inventory sales taking place as part of bankrupt auto parts supplier First Brands’ liquidation, a judge ruled June 17.
The decision is an early victory for Bank of America in its lawsuit against Aequum. The two lenders each claim collateral rights over car parts built by First Brands. Aequum has been trying to sell the inventory in order to repay more than $40 million that an affiliate of First Brands owes on a revolving credit line.
U.S, Bankruptcy Judge Christopher Lopez agreed that any proceeds from the sale should be put in escrow until he resolves the lawsuit, which was filed in April. Aequum has asked Lopez to dismiss the suit, claiming it has no merit.
Before the judge ruled, Aequum lawyer William Dorsey argued that blocking Aequum’s access to the cash could put the company into default on its own loans. A representative of Aequum did not respond to a request for comment on the ruling.
Meanwhile, Aequum’s loan to a First Brands affiliate has drawn scrutiny from the official committee of unsecured creditors in the bankruptcy case. That committee is seeking permission to sue Aequum.
Aequum loaned an off-balance sheet unit, known as a special purpose vehicle, $44 million that was eventually funneled to a company connected to First Brands’ founder Patrick James, according to a court filing. James and his brother Edward have pleaded not guilty to various fraud charges and face a criminal trial. A representative for Patrick James has denied allegations of wrongdoing.
First Brands has been liquidating its assets and shutting or selling down its businesses. The company has fired thousands of employees and closed dozens of facilities.
Bank of America is an agent for a $446 million, asset-backed loan that was secured by First Brands’ inventory and other collateral. The case is First Brands Group, 25-90399, US Bankruptcy Court, Southern District of Texas (Houston).
