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The collapse of US auto parts maker First Brands, which borrowed billions in private markets, is causing alarm on Wall Street.
The company has declared bankruptcy with total liabilities exceeding $10 billion, marking one of the most dramatic declines in the private debt market in recent years.
In its bankruptcy filing, First Brands, owned by Malaysian-born businessman Patrick James, did not disclose specific liabilities but estimated them at between $10 billion and $50 billion, while its assets were valued at between $1 billion and $10 billion.
Details of the company's finances may take time to become known, given the chaotic state of the bankruptcy, which was fueled by concerns about the use of off-balance sheet financing.
First Brands had previously told lenders it had $5.9 billion in long-term debt as of March, against nearly $1 billion in cash, but many creditors now fear it has billions more dollars in murky financing tied to its invoices and inventories.
The document filed on Sunday lists several investment firms as creditors with exposure to First Brands' so-called factoring (invoice financing), including an asset management unit of US investment bank Jefferies.
The company's need to seek bankruptcy protection was accelerated when one of its banks recently seized some of its cash, as previously reported by the Financial Times. First Brands secured a $1.1 billion bailout from its creditors in bankruptcy, a loan it will use to keep the business afloat as it restructures its operations and seeks to reduce its debt.
The speed with which First Brands' financial position deteriorated has shocked debt investors and raised questions about due diligence standards in emerging credit markets.
Combined with the collapse of subprime auto bank Tricolor (which traded debt securities for subprime auto purchases), First Brands' rapid decline raises concerns about significant losses for some of Wall Street's most well-known players and the possibility of broader repercussions for corporate debt markets.
The large-scale bankruptcy could cause a shockwave in the auto parts industry, which is already being hit by US President Donald Trump's tariff policies because of its heavy reliance on overseas manufacturing.
Over the past decade, James has transformed his group from a niche industrial business in Ohio into a sprawling multinational through a series of debt-financed deals. In addition to its U.S. factories stretching from California to Pennsylvania, First Brands has operations as far away as Romania, Mexico and Taiwan.
The company's international operations were not included in the bankruptcy filing on Sunday. First Brands has named Charles Moore, CEO of Alvarez & Marsal, as head of the restructuring.
The bankruptcy filing is the second in a week related to James, following the bankruptcy of a series of special purpose vehicles that provided off-balance sheet financing for the auto parts group.
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