Bankrupt First Brands Seeks to Raise New Financing Amid Fraud Probe

(Bloomberg) — Bankrupt auto supplier First Brands Group is seeking to raise new financing backed by bills receivable by reviving a vehicle that was once crucial to its operations but also contributed to its collapse.

Lazard Inc., one of the company’s advisors, is conducting a process to identify potential financing providers, according to people familiar with the matter. Interested parties include senior lenders that have already given First Brands $1.1 billion in bankruptcy loans, said the sources, who asked not to be named discussing private conversations.

Any receivables financing facility would have certain controls over cash flow from paying invoices and eliminate risks that eliminate other billers, the sources said.

A representative for First Brands declined to comment. Representatives for Lazard did not immediately respond to a request for comment.

First Brands has long relied on billions of dollars in short-term and costly invoice-based financing, such as factoring and supply chain financing, to pay its bills. Access to those funds dried up in late September when the company entered Chapter 11 on suspicion of misleading or defrauding its business lenders.

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Court records and testimony in the intervening weeks show that some of the funding was raised based on fraudulent or double-committed invoices and that related revenues allegedly “disappeared.” First Brands, which continues to operate in bankruptcy, filed a lawsuit last week against its founder and former chief executive Patrick James, accusing him of stealing the money for his own benefit. James resigned in October, leaving the task of sorting out the company’s finances to Charles Moore, a restructuring expert hired during rushed negotiations between First Brands and its creditors.

While investigations into financial abuses have weighed on turnaround initiatives, First Brands stakeholders see value in making money from new receivables it has accumulated but may not receive payment for months. According to industry experts, many major aftermarket auto supply retailers do not pay for parts they order until more than 270 days after delivery.

The key advantage of receivables financing facilities is that they carry lower interest rates than those associated with First Brands’ bankruptcy financing, the sources said. That would provide a cheaper way for the supplier to access liquidity as it tries to regain sales volume that it previously said generated $5 billion in annual revenue.

–With help from Jonathan Randles.

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