Bankrupt auto supplier First Brands Group is actively pursuing new financing, leveraging receivables invoices, a mechanism that was both integral to its past operations and a factor in its eventual downfall. Lazard Inc., acting as one of the company’s advisors, is orchestrating a process to identify potential providers for this crucial funding. Among the interested parties are senior lenders who are already involved in providing a substantial $1.1 billion bankruptcy loan to First Brands.

This renewed focus on receivables financing is particularly notable given the circumstances surrounding First Brands’ entry into Chapter 11 in late September. The company had previously depended on billions of dollars in short-term and expensive invoice-based financing, including factoring and supply-chain finance, to meet its financial obligations. However, access to these funds ceased when the company faced allegations of misleading or defrauding trade credit providers.

Court documents and testimony subsequently revealed that some of this prior financing was allegedly secured using false or double-pledged invoices, with significant proceeds reported to have “vanished.” In response to these findings, First Brands, which continues its operations during bankruptcy, recently filed a lawsuit against its founder and former chief executive officer, Patrick James. The lawsuit accuses James of misappropriating company funds for personal enrichment. James resigned from his position in October, leaving Charles Moore, a restructuring expert, with the task of unraveling the company’s intricate finances.

Despite the ongoing investigations into these past financing irregularities, stakeholders within First Brands recognize the inherent value in monetizing the new receivables that the company is currently accumulating. Industry experts highlight that many major aftermarket auto supply retailers typically do not issue payments for ordered parts until more than 270 days post-shipment. Therefore, securing financing against these future payments is critical for immediate liquidity.

A key advantage of the proposed receivables financing facilities is their significantly lower interest rates compared to those attached to First Brands’ existing bankruptcy financing. This cost-effective access to liquidity is deemed essential for the supplier as it strives to rebuild its sales volume, which historically generated an impressive $5 billion in revenue annually. To mitigate past risks, any new receivables financing facility will incorporate specific controls over the cash flow derived from invoice payments, ensuring a more secure and transparent financial structure.