By Dietrich Knauth
Jan 7 - Bankrupt auto-parts maker First Brands could run out of cash by the end of the month, and it is seeking additional funding from its lenders and pursuing near-term asset sales in order to buy more time to restructure a business that has been plagued by fraud allegations, its attorneys said Wednesday.
First Brands has $190 million in remaining cash after borrowing $1.1 billion to start its bankruptcy, the company’s attorney Sunny Singh said at a court hearing in Houston, Texas.
That cash will only sustain business operations through the end of January, which could undermine the company’s efforts to investigate fraud in its pre-bankruptcy financing agreements, Singh told U.S. Bankruptcy Judge Christopher Lopez, who is overseeing the company's Chapter 11.
The company is in talks to borrow more money from its lenders, and it will soon seek court approval to sell off some assets by the end of the month, Singh said.
“We unfortunately don’t have a lot of time to run an extended sale process,” Singh said.
The additional financing will buy more time to stabilize First Brands’ business, investigate fraud, and allocate value among the company’s creditors, Singh said.
First Brands, which sells filters, brakes, lighting systems and other auto parts, filed for bankruptcy protection in late September and accused its former CEO, Patrick James, of looting the company as it unraveled in 2025.
The collapse of the company, which was backed by some of the largest financial institutions on Wall Street, prompted concerns about a wider breakdown in the opaque markets for private credit.
First Brands said in a lawsuit that James caused the company to incur at least $2.3 billion in liabilities by selling unpaid customer invoices to third-party financial institutions. James used doctored or non-existent invoices to support the agreements, he double-sold some invoices to more than one buyer, and he caused the company to keep some customer payments that should have been turned over to the purchaser of an invoice, according to the company's lawsuit.
James has denied the allegations, and Lopez has appointed an independent examiner to investigate and report on fraud within the company.
The company’s creditors are still in the dark about the true value of First Brands’ business and how deep the fraud went at the company, according to Robert Stark, an attorney representing First Brands’ junior creditors.
"We still don't know if this case is a business with fraud attached, or a fraud with business attached," Stark said at the hearing.
First Brands’ junior creditors had made new fraud allegations on Monday, accusing the former CEO’s brother Edward James of taking kickbacks from Onset Financial, a lender which allegedly charged “usurious” interest rates on some loans to the company. Attorneys for Edward James and Onset denied that allegation during Wednesday’s court hearing.
Lopez rejected some of the junior creditors’ immediate demands to seek more information from Edward James and Onset, saying that the examiner should be allowed to investigate those claims without the junior creditors’ getting involved for now.
(Reporting by Dietrich Knauth in New York, Editing by Alexia Garamfalvi and Diane Craft)
