AFTER filing for Chapter 11 bankruptcy in September, a major auto parts supplier has been given a big break by its bankruptcy judge.
These developments will provide the company with an immediate and significant influx of cash, which will allow it to both continue operating and begin tackling its long-term debt problems.
First Brands Group owns a significant number of automotive parts brands[/caption]
The loan will allow First Brands Group to remain operational as it navigates its financial future[/caption]
First Brands Group (FBG) has been approved by United States bankruptcy judge Christopher Lopez to proceed with the first phase of a $1.1 billion bankruptcy loan.
This approval will result in a $500 million influx of cash to the business, while the disbursement of the rest of the loan will be decided on at a later hearing.
“It is clear that this debtor needs financing,” Lopez said in court while approving the first phase of the loan plan, per Reuters.
FBG said it needs the loan to stabilize itself after being disrupted by both President Donald Trump’s tariffs and its ongoing debt issues.
The Trump administration’s tariffs raised the prices for imported auto parts, which cut into the company’s profits and forced an expensive restructuring of its supply chain.
Internal estimates from the company claim that Trump’s tariffs cost it $219 million from April to August of this year.
Combined with its high debt, FBG had difficulty absorbing these additional costs of business. Despite having $1.1 billion in annual earnings, it spent $900 million on debt service costs alone.
The loan is intriguingly being provided by the company’s existing lenders despite the already significant exposure they have.
The lenders are seemingly aware of this extra risk, and are concerned they’re “lending good money after bad,” per Scott Greenberg, an attorney for the lenders.
He elaborated that despite the risk, the loan is being extended due to the lenders wanting to keep FBG in business while the true depth of its financial troubles is ascertained.
The company currently believes it has a $2.3 billion hole in its balance sheet thanks to invoice factoring, which is the act of selling invoices to third-party financial institutions so it could get paid by the institutions before its customers paid their debts.
FBG is looking into whether it double-sold certain invoices to more than one buyer, and whether or not it held onto customer payments that should’ve been given to the appropriate third-party institutions.
The company currently has $11.6 billion in total liabilities, and was initially reported as having between half-a-billion to $1 billion in total assets.
First Brands Group did not immediately return The U.S. Sun’s request for comment.
The company sells multiple different auto parts products, including full replacement brake systems, specific brake components, filtration products, fuel and water pumps, wiper blades, lift supports, and ne and remanufactured general replacement parts.
The brands under FBG’s ownership which offer these products include Raybestos, Centric Parts, StopTech, Fram, Luber-finer, Trico, Anco, Michelin licensed wiper blades, AirTex, Carter, Autolite, StrongArm, Carlson, and Cardone.
It also has a diverse towing and trailering portfolio, which includes Reese, Drawtite, Bulldog, Tekonsha, Fulton, Westfalia, Hopkins universal owned and licensed brands, and Philips licensed aftermarket lighting.
BANKRUPTCY BEDLAM
FBG is only the most recent auto industry company to face such trouble, with Texas-based used car dealership Tricolor Auto Group filing for Chapter 7 bankruptcy in September.
In July, AutoCanada all but fully pulled out of the US market. At the time, it claimed the move was an effort to both pay down its debt and focus on strengthening its presence at home.
Even other auto parts suppliers are feeling the heat, as was the case with Marelli Holdings Co. Ltd. when it filed for Chapter 11 bankruptcy in Delaware back in June. It most notably provides parts for Nissan and Stellantis group brands.
