First Brands says it needs US$600 million or ‘it’s game over’

FIRST Brands Group lawyers said the company needs access to its roughly US$600 million of remaining bankruptcy financing to keep the auto-parts firm from shutting down immediately.

That request, made during a Thursday court hearing in Houston, represents the rest of the US$1.1 billion financing being offered by a group of First Brands lenders.

US Bankruptcy Judge Christopher Lopez last month authorised the company to make an initial US$500 million draw on the loan and is expected to rule on the latest request later Thursday.

“We are talking high stakes, as high as they get,” company attorney Sunny Singh said during the hearing. If the judge sides with holdout creditors and rejects the financing package, Singh said “it’s game over” and the firm will liquidate.

First Brands has struggled to overcome objections from creditors who accuse the firm of stripping them of their collateral rights in inventory and equipment without compensation, as the bankruptcy code typically requires. 

Onset Financial, one of the main creditors still fighting the proposed bankruptcy-funding package, accused First Brands in court papers of ignoring its collateral rights and urged Lopez to reject the funding request.

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Attorneys for First Brands and competing creditors have already announced deals that would, in essence, save for another day potential fights over company invoices and other collateral pledged to lenders and firms that had deals with off-balance-sheet special-purpose vehicles. 

First Brands lawyers also provided more details about their investigation into the company’s past business practices and founder Patrick James - whom they allege pilfered the firm. James has denied the allegation.

Restructuring advisers now guiding First Brands have made significant progress in understanding how the business actually operated under former management, company attorney Matthew Barr said during Thursday’s hearing. 

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But he added that more work is needed to determine which creditors have liens or rights to certain collateral. Also, the business has been working with First Brands’ so-called factoring firms, which provide immediate cash to businesses by purchasing their receivables.

First Brands - which owns FRAM, TRICO and Raybestos among other brands - has entered into a common-interest agreement with a committee of company creditors as part of an ongoing investigation by an independent board committee, Barr said.

Advisers have established a whistleblower hotline, collected more than 7 million documents, interviewed current and former employee and are pursuing records from more than 600 banks, he said.

The company has also collected mobile phones, computers and other electronics for forensic imaging and placed “numerous litigation holds” on current and former employees, according to Barr.

He went on to say that a review of First Brands’ operations, which employ roughly 26,000 workers globally, should be completed by the end of January. Barr said the effort will determine what units should be sold or shut down - including a German plastics business that filed for insolvency there earlier this week.

The attorney added that First Brands is taking new orders and processing existing ones. The company also expects to have greater inventory at the end of this month than it did in October, according to Barr.

He said that First Brands’ interim chief executive officer, Charles Moore, has been regularly meeting with the firm’s largest customers and negotiated trade agreements to continue receiving goods, services and payments. BLOOMBERG