The US car parts company First Brands Group, which makes things such as spark plugs, wiper blades and motor oil, has gone into liquidation. A US bankruptcy court rejected a complex restructuring plan negotiated between the company, its lenders and unsecured creditors. First Brands had put forward a proposal to pay back creditors by pursuing litigation against insiders.
The company’s crisis and collapse has caused anxiety on Wall Street in recent months. The speed of its implosion spooked investors, and caused losses for some of the largest investment firms. It also sparked wider concerns about fund managers’ exposure to troubled borrowers in the opaque markets for private credit.
In an oral ruling, judge Christopher Lopez at the bankruptcy court in Houston described the Chapter 11 reorganisation plans as “unconfirmable under any circumstances,” citing breaches of bankruptcy laws, in part because it sought to defer payment on at least $222m in debts racked up during the company’s bankruptcy. First Brands owes billions more, accumulated before its bankruptcy, and its efforts to sell off businesses generated only a fraction of what it owes to its creditors. Lopez said: Unfortunately, time was not on the debtor’s side.
The sales process did not render the types of sales prices I’m sure everybody wanted. The company failed in its quest to find a buyer for the whole business and only sold a few divisions. It sold its Horizon towing business for $64m, its Toledo Molding + Die business for $80m and its Walbro business for $50m.
First Brands’ preferred liquidation plan would have set up litigation trusts to help pursue lawsuits in the hope of raising additional money for creditors over time. But under the proposal, the lawsuits would need to bring in $1.9bn before the company could fully repay the administrative claims that must be paid first, Lopez said, according to . Creditors who opposed the bankruptcy plan, as well as the US Justice Department’s bankruptcy watchdog, expressed doubt that the company’s litigation would result in a meaningful recovery from people like the company’s indicted founder, Patrick James.
James and his brother Edward James were indicted on fraud charges in January, but have pleaded not guilty. First Brands filed for bankruptcy in September with $14m in cash and more than $9bn in liabilities. The company borrowed an additional $1.1bn from its lenders early in its bankruptcy but burned through most of that cash by January, forcing it to rely on prepayments from key parts buyers like Ford and General Motors.
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