Billions "vanish" in First Brands bankruptcy as creditors demand independent probe

By willowt // 2025-10-10

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First Brands Group, an auto parts supplier, filed for bankruptcy with liabilities between 10−50 billion amid allegations of extensive debt rehypothecation.
Creditors claim up to $2.3 billion has "simply vanished," raising suspicions of collateral pledged multiple times.
Major financial players, including UBS, Millennium Management and Jefferies, face hundreds of millions in losses.
Jefferies, the company’s long-time banker, faces reputational damage as its role in opaque financing deals comes under scrutiny.
Creditors demand an independent examiner, questioning the integrity of First Brands’ internal investigation.

The sudden implosion of First Brands Group, an Ohio-based auto parts supplier, has sent shockwaves through Wall Street, exposing what creditors allege is one of the most chaotic corporate bankruptcies in recent memory. With liabilities estimated between 10−50 billion, the company’s collapse has left financiers scrambling to locate billions in missing funds—raising urgent questions about fraud, regulatory oversight and the hidden risks lurking in private credit markets. First Brands filed for Chapter 11 protection in late September in Texas, but the real story lies in the tangled web of off-balance-sheet financing, rehypothecated debt and potential double-pledged collateral that creditors say has left them empty-handed. Trade finance firm Raistone, owed millions, claims $2.3 billion has "simply vanished," while emails between lawyers reveal alarming gaps in accountability — including admissions that segregated accounts meant to protect creditors hold "$0." The fallout has ensnared some of finance’s biggest names, from UBS O’Connor ($500M exposure) to Millennium Management ($100M loss) and Jefferies, whose decade-long relationship with First Brands now faces intense scrutiny.

Wall Street’s winners and losers

While most creditors brace for steep losses, a few savvy investors emerged unscathed—or even profited. Apollo Global Management and Diameter Capital Partners had shorted First Brands’ debt before its collapse, a rare but lucrative bet in private credit markets. Jefferies, however, finds itself in the hot seat. The bank not only arranged risky loans for First Brands but also had deeper ties through its Leucadia Asset Management unit, which held $715 million in receivables linked to the company. When lenders paused a $6 billion refinancing deal in August—spooked by irregularities in First Brands’ accounting—the company spiraled into bankruptcy within weeks. Now, Jefferies faces reputational damage as clients question its due diligence. BlackRock has already requested partial redemptions from a Jefferies-linked fund exposed to First Brands’ receivables.

The shadowy world of off-balance-sheet financing

First Brands’ downfall highlights the dangers of opaque financing structures like factoring and supply-chain finance—methods that allow companies to borrow against future cash flows without clear disclosures. The company reportedly factored 70% of its revenues, meaning it sold unpaid invoices to investors for upfront cash. But creditors allege these invoices may have been pledged multiple times as collateral—a practice akin to selling the same house to multiple buyers. Charles Moore, First Brands’ restructuring officer, admitted investigators are probing whether assets were "commingled" or pledged "more than once." If true, it would mark a stunning breakdown in financial controls—and potentially fraud.

Systemic risks beyond first brands

The First Brands debacle underscores broader vulnerabilities in today’s credit markets, where private lending has surged with minimal oversight.

CLOs & private credit funds: Collateralized loan obligations (CLOs) and private lenders, including Blackstone and PGIM, hold chunks of First Brands’ debt—now trading at 15 cents on the dollar.
Regulatory blind spots: Unlike publicly traded bonds, private credit deals often lack transparency, leaving investors in the dark about a company’s true leverage.
AI bubble distraction: With markets fixated on AI-driven stock rallies, few noticed the rot beneath the surface—until it was too late.

Judge Christopher Lopez, overseeing the bankruptcy, remarked: "I don’t think since my time on the bench I’ve seen anything like this."

A warning sign for markets

First Brands’ collapse is more than a corporate failure—it’s a cautionary tale about the hidden risks in today’s financial system. As creditors demand an independent probe, the case could expose deeper misconduct, from accounting fraud to lender complicity. For Wall Street, the lesson is clear: When debt is piled atop debt, and collateral disappears into a "black box," even the most sophisticated investors can be left holding the bag. And with private credit markets ballooning to $1.7 trillion, First Brands may be just the first domino to fall. Sources for this article include: ZeroHedge.com Reuters.com GTreview.com