First Brands, a manufacturer of automotive components including spark plugs and brake parts, filed for bankruptcy in late September 2025, triggering alarm across Wall Street. The company disclosed liabilities ranging from $10 billion to $50 billion against assets valued between $1 billion and $10 billion.[1][2]
Bankruptcy Filing and Hidden Debt Crisis
The Texas-based auto parts supplier sought Chapter 11 bankruptcy protection on September 29, 2025, after lenders uncovered billions in undisclosed off-balance-sheet financing.[3] Court documents revealed total liabilities of $11.6 billion, far exceeding previously reported figures.[4]
Creditors filed an emergency motion claiming that $2.3 billion in assets had “simply vanished” from invoice factoring programs.[5] The company maintained less than $30 million in cash when it declared bankruptcy, with accounts securing off-balance-sheet loans completely depleted.[1]
Double-Pledging of Invoices
Investigators discovered that First Brands had pledged the same customer invoices to multiple lenders, effectively counting expected payments two or three times.[1] This practice, combined with opaque off-balance-sheet arrangements, concealed the true extent of the company’s financial obligations from creditors.
Because these financing agreements did not appear on the company’s balance sheet, lenders remained unaware that identical invoices had been pledged repeatedly to different financial institutions.[2]
Federal Investigation and Leadership Crisis
The U.S. Department of Justice launched a preliminary inquiry into First Brands’ collapse on October 9, 2025.[6] Federal prosecutors are examining the company’s dealings with creditors and have formally requested information from First Brands.[6]
The investigation remains in early stages, with no established evidence of criminal wrongdoing as of October 11, 2025.[6] Prosecutors routinely scrutinize companies whose failures generate substantial investor losses.[6]
CEO Considers Resignation
Founder and Chief Executive Patrick James is weighing resignation from his position at the bankrupt supplier, according to a spokesperson speaking on October 11, 2025.[7] James founded the company as Crowne Group in Ohio before rebranding it First Brands in 2020 after acquiring 24 automotive-related businesses.[8]
During bankruptcy proceedings, James’ attorney attributed the collapse to macroeconomic pressures and tariffs imposed under the Trump administration, which allegedly increased import costs.[1] The legal team denied allegations of wrongdoing, stating management faced challenges beyond its control.[9]
Wall Street Exposure and Creditor Losses
Major financial institutions face billions in potential losses from First Brands’ implosion. Jefferies Financial Group disclosed $715 million in exposure through its Point Bonita Capital hedge fund arm, representing one quarter of a portfolio.[9] The investment bank facilitated invoice financing arrangements for First Brands and faced investor redemption requests following the bankruptcy.[9]
UBS provided substantial capital to the auto parts maker through conventional lending channels.[1] BlackRock directed funds to intermediaries that subsequently loaned money to First Brands.[1]
Private Credit Lender Impact
Working capital provider Katsumi Global claims First Brands owes approximately $1.75 billion from unpurchased receivables under factoring programs.[10] Katsumi served as buyer representative and servicer for receivables purchases on behalf of multiple investors.[10]
Raistone, which facilitated short-term borrowing for First Brands and derived 80 percent of its revenue from the company, has already eliminated roughly half its workforce.[9] Bank ABC and ING Belgium purchased rights to certain receivables from Katsumi, according to separate court filings.[10]
Market Concerns and Systemic Risk
Financial experts warn that First Brands’ collapse exposes vulnerabilities in the rapidly expanding private credit market.[11] Unlike public markets, private debt arrangements lack transparency, making it difficult to assess true risk exposure across the financial system.[9]
Jefferies shares declined 18 percent during the week ending October 11, 2025, as investors absorbed details of the bank’s First Brands exposure.[12] The fallout extended to Japanese agricultural lender Norinchukin Bank, which also held positions tied to the bankrupt supplier.[12]
Analysts draw comparisons to past financial disruptions, including the 1998 collapse of Long-Term Capital Management and the subprime mortgage crisis of 2008.[8] The fear centers on hidden risks within unregulated private debt markets potentially destabilizing broader financial systems.[8]
Independent Investigation Underway
First Brands appointed a special committee of independent board members to investigate off-balance-sheet financing practices and determine whether invoices were factored multiple times.[6] The committee will examine accounting irregularities discovered by board directors.[13]
A lawyer representing creditors described First Brands’ financial structure as a “black box” during an October court hearing attended by 500 remote participants.[1] Lawyers for First Brands estimated that approximately $1.9 billion owed to factoring companies had not been remitted.[10]
The company’s rapid expansion was funded through both conventional high-interest junk bonds totaling $6 billion and complex off-balance-sheet arrangements that obscured total debt levels.[1] First Brands supplied affordable replacement parts through retailers including AutoZone and Walmart, serving budget-conscious consumers maintaining older vehicles.[8]
