First Brands Aims to Assure Lenders by Chasing Trapped Funds

(Bloomberg) — Advisors at First Brands sought to reassure skittish creditors after the value of its $1.1 billion rescue loan plummeted, saying business had stabilized after filing for Chapter 11 and moving to unlock funds from claims it can’t currently access.

The firm said in a press release Friday that it is seeking permission from the court to access approximately $250 million held by First Brands clients or held in separate accounts as part of the bankruptcy process. These funds will support the rescue loan under which First Brands’ lenders have already agreed to expand the business.

The additional funds relate to customer receipts for orders that First Brands customers have already fulfilled, but which the company said it has not been able to access so far. The company said the issue “artificially impairs First Brands’ actual liquidity and cash flows and raises unfounded concerns about the Company’s financial condition.”

First Brands said it is also looking to restart factoring of customer invoices and seek expedited payment terms “to improve operational delivery.” The steps come at the same time as the auto parts supplier’s new management team seeks to cut costs and improve operations, the company said. Bloomberg News was the first to report the company’s plans to build a new factoring facility.

“Taken together, these actions represent sources of meaningful value creation and support the Company’s long-term strategic and financial objectives,” First Brands said.

Friday’s announcement comes after the value of the bailout loan fell to as low as 30 cents on the dollar earlier this week. It’s rare for the value of a Chapter 11 rescue loan to collapse so suddenly and suggests creditors are concerned about advisors’ ability to turn the business around.

In addition to seeking access to new cash, First Brands said on Friday that the vast majority of its key vendors continue to provide goods and services to the business.

Order trends from First Brands customers have also trended upward since the business sought court protection in September and are now approaching pre-bankruptcy petition levels, “reflecting continued confidence in First Brands’ product quality and customer service,” the company said.

–With help from Steven Church.

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