First Brands Group: Alleged $2.3 Billion Fraud Triggers Freefall Chapter 11

First Brands Group's September 2025 chapter 11 filing centers on allegations of fraud at the global aftermarket automotive parts supplier and owner of brands including FRAM, Raybestos, Autolite, and Cardone. The company filed with approximately $9.3 billion in total obligations amid allegations of fabricated invoices, double-pledged receivables, and billions of dollars in missing funds.

Within weeks of filing, the U.S. Department of Justice opened a criminal investigation, founder and CEO Patrick James resigned and was subsequently sued by the company for "grievous misconduct," and an examiner was appointed with a $7 million budget to investigate alleged factoring fraud totaling $2.3 billion. The company secured a $4.4 billion DIP financing facility, approved in the Final DIP Order, including a $3.3 billion roll-up of prepetition debt that DIP lenders themselves characterized as having an "impossible to price" risk profile.

Company Background and the First Brands Enterprise

First Brands Group emerged as an aftermarket automotive parts supplier in North America through a debt-fueled acquisition strategy. The company assembled a portfolio of brands that supply both do-it-yourself consumers and professional automotive repair facilities worldwide, generating approximately $5 billion in annual revenue and employing roughly 26,000 workers globally.

The Brand Portfolio.

The First Brands portfolio includes FRAM filters, Autolite spark plugs since 1935, Raybestos brake components, and Trico windshield wipers.

The acquisition strategy extended beyond consumer-facing brands. Cardone became the largest remanufacturer of automotive parts in North America, while StopTech focused on the performance brake segment. The company's heavy-duty filtration brand Luber-finer served commercial fleet operators, and Centric supplied professional brake products to repair shops nationwide. This diverse portfolio made First Brands a supplier in the automotive aftermarket supply chain.

Growth Through Acquisition.

First Brands' business model centered on acquiring established aftermarket brands and consolidating them under one corporate umbrella. The strategy produced revenue growth but accumulated significant debt with each transaction. The company's corporate structure eventually encompassed 75 affiliated entities, multiple special purpose vehicles, and off-balance sheet financing arrangements that later became central to the fraud allegations.

Patrick James founded and led the company through its acquisition strategy, serving as CEO until his October 2025 resignation. The ownership structure included private equity sponsors and institutional investors who provided capital for the roll-up strategy. The complexity of the corporate structure—particularly the SPV arrangements and factoring facilities—is a focus of the fraud allegations and related analysis in the private debt market commentary.

The Fraud Allegations

At the center of First Brands' chapter 11 case are allegations of fraud involving fabricated invoices, double-pledged receivables, and billions of dollars that cannot be accounted for. The allegations have drawn comparisons to the Greensill Capital collapse in supply chain finance markets in 2021.

Fabricated Invoices and Double-Pledged Receivables.

The core fraud allegations center on approximately $2.3 billion in factoring liabilities that the company accrued through what court filings describe as fabricated invoices and double-pledging of receivables. In supply chain financing, companies sell their accounts receivable to factoring counterparties at a discount in exchange for immediate cash. First Brands allegedly created invoices for goods or services that did not exist and pledged the same receivables to multiple factoring parties—collecting cash multiple times on the same (or fictitious) underlying transaction.

The allegations extend to multiple SPV structures within the First Brands corporate family. As factoring counterparties attempted to collect on their purchased receivables, they discovered that the underlying invoices either did not correspond to actual transactions or had already been pledged to other parties. The reconciliation of these claims has become a central issue in the bankruptcy case, with factoring procedures motions seeking to establish a framework for sorting legitimate from fraudulent claims.

DOJ Criminal Investigation.

The U.S. Department of Justice opened a criminal inquiry in October 2025, with the Southern District of New York leading the investigation. The DOJ investigation runs parallel to the bankruptcy proceedings.

CEO Resignation and Lawsuit.

Patrick James resigned as CEO on October 13, 2025, approximately two weeks after the bankruptcy filing. The resignation followed reports of pressure from creditors and board members as the scope of the alleged fraud emerged.

The company moved quickly from accepting James's resignation to suing him. On November 3, 2025, the debtors filed an adversary proceeding against James and related entities asserting claims for fraud, misappropriation of funds, turnover, and fraudulent transfer. The court granted a temporary restraining order against James that same day, though a preliminary injunction was subsequently denied on November 12 after the court found insufficient evidence of irreparable harm.

The lawsuit against James alleges "grievous misconduct" that damaged the company and its stakeholders. Reports indicate allegations that more than $700 million was transferred to insiders prior to the bankruptcy filing. The adversary proceeding remains pending as the examiner investigation proceeds.

Examiner Investigation.

The court appointed Martin De Luca of Boies Schiller Flexner LLP as examiner on November 19, 2025, with a $7 million budget to investigate the factoring and off-balance sheet financing transactions. The court approved the examiner's Work Plan in January 2026. The examiner's appointment followed motions from Raistone and the U.S. Trustee seeking independent investigation of the alleged fraud.

The scope of the examiner's investigation has itself become a contested issue. The Official Committee of Unsecured Creditors seeks a broader inquiry than the debtors originally proposed, arguing that a comprehensive investigation is necessary to understand the full extent of potential claims against insiders and third parties. Discussions regarding information sharing between the examiner and governmental agencies, including the DOJ, remain part of the record.

Pre-Petition Capital Structure

First Brands' capital structure included on-balance sheet debt, off-balance sheet obligations, and factoring liabilities.

On-Balance Sheet Funded Debt.

The company's disclosed funded debt totaled approximately $6.1 billion at the petition date according to the First Day Declaration, distributed across multiple secured facilities:

The first lien term loans alone exceeded $4.6 billion, reflecting the company's reliance on leveraged lending to fund acquisitions. The side-car term loan had already been accelerated prior to the filing, adding to the company's liquidity crisis. With operating leverage of approximately 5x, the company faced annual debt service costs exceeding $900 million alongside operational issues described in court filings.

Off-Balance Sheet Obligations.

Beyond the disclosed funded debt, First Brands had accumulated approximately $3.2 billion in off-balance sheet obligations through various SPV structures and supply chain financing arrangements:

The Onset master leases represent the largest single off-balance sheet exposure at approximately $1.9 billion. These obligations were accelerated prior to the bankruptcy filing, converting what had been structured as manageable periodic payments into immediate claims against the estate. The unsecured supply chain financing programs added another $800 million in off-balance sheet exposure, while the Evolution, CarVal, and Aequum facilities together contributed roughly $470 million more.

The alleged factoring fraud added another layer of obligations. The company has accrued approximately $2.3 billion in third-party factoring liabilities—though the legitimacy of these claims is precisely what the examiner has been appointed to investigate. The double-pledging allegations mean that multiple parties may have claims to the same underlying receivables, and fabricated invoice allegations suggest some portion of the factoring liabilities may be disputed.

Major Creditor Exposure.

Several major financial institutions face exposure from the First Brands case:

• UBS: Exposure exceeding $500 million through its O'Connor hedge fund unit
• Jefferies: Approximately $715 million via Leucadia/Point Bonita investment vehicles
• Onset Financial: ~$1.9 billion in master lease obligations
• Bank of America: ABL facility agent with exposure
• SouthState Bank: Working capital lending facilities

The UBS exposure through O'Connor has drawn attention. The fund reportedly held 30% concentration in First Brands-related financing, prompting UBS to announce it would wind down the O'Connor funds.

Liquidity Crisis and Filing Triggers

The immediate trigger for the bankruptcy filing was a liquidity crisis precipitated by multiple pressures. New U.S. tariffs implemented in April 2025 increased First Brands' landed inventory costs, with court filings indicating approximately $99 million in additional costs between April and August 2025. The tariff announcement forced First Brands to pre-buy inventory before higher rates took effect, accelerating cash outflows and exacerbating working capital challenges.

These pressures escalated when Bank of America, acting as agent under the ABL facility, refused a draw request and established a $200 million reserve for what it alleged was an overadvance on the facility. The bank also threatened to implement cash dominion remedies, which would have given it control over the company's cash receipts. Simultaneously, SouthState Bank exercised setoff rights against approximately $27 million in First Brands' working capital deposits. The combined effect created an immediate cash crisis that left the company unable to meet payroll and vendor obligations without filing for bankruptcy protection.

Before resorting to bankruptcy, First Brands attempted to address its capital structure through out-of-court refinancing. The company marketed a global refinancing process seeking $6.2 billion in new financing to address debt maturities and liquidity needs. The process failed as potential lenders, confronted with the complex capital structure, limited unencumbered assets, and emerging concerns about the factoring arrangements, declined to participate. A subsequent bridge financing marketing process also proved unsuccessful. With refinancing options exhausted and lenders taking adverse action, First Brands secured a $24.5 million pre-petition bridge loan to fund payroll and vendor payments while preparing for a bankruptcy filing.

Compounding these challenges, the company's growth-through-acquisition strategy had created ongoing integration costs that burdened operations. Court filings indicate nearly $160 million in upfront integration costs over the twelve months preceding the filing. Combined with the leverage burden, these integration costs reduced liquidity flexibility when tariff pressures and lender actions created acute liquidity stress.

$4.4 Billion DIP Financing

The DIP financing secured by First Brands reflects the scale of the enterprise and the risk profile created by the fraud allegations.

Facility Structure.

The senior secured superpriority DIP credit facility totals $4.4 billion, structured as a combination of new money and roll-up debt:

The new money component provides $1.1 billion in fresh liquidity. At the interim stage, $500 million was available—$175 million immediately accessible and $325 million held in escrow under the Interim DIP Order. The remaining $600 million became available upon entry of the final DIP order. These funds support ongoing operations, professional fees, and the restructuring process.

The $3.3 billion roll-up converts prepetition first and second lien debt into superpriority DIP obligations, implemented through a "creeping" structure: $1.5 billion rolled up upon entry of the interim order, with the remaining $1.8 billion rolling up under the final order. This approach, rather than rolling up all prepetition debt simultaneously, provided some accommodation to objecting parties while improving the DIP lenders' position in the capital structure.

Pricing and Premiums.

The DIP facility pricing reflects the risk profile of lending to an enterprise under fraud investigation:

The combined pricing on new money—SOFR plus 10% (split between cash and PIK)—plus the anchor, upfront, and exit premiums, reflects the pricing terms approved in the case. The DIP lenders justified the pricing by characterizing the facility as "wholly unprecedented" with an "impossible to price" risk profile given the fraud allegations and complex collateral disputes.

DIP Financing Objections.

The DIP facility faced objections from the Unsecured Creditors Committee and SPV lenders including CarVal, Aequum, Evolution, and Onset. Key objections centered on:

• The $3.3 billion roll-up, which improved the DIP lenders' position at the expense of other stakeholders
• Fees and premiums that objectors characterized as excessive
• Priming liens that subordinated existing creditors' collateral positions
• Broad releases and waivers that limited the estate's ability to pursue claims against the DIP lenders

After negotiations and stipulations, the court approved the DIP facility with some modifications in the Final DIP Order. However, certain disputes—particularly regarding SPV collateral—remain unresolved. The $24.5 million pre-petition bridge loan that funded payroll and vendor payments in the days immediately before filing was repaid from DIP proceeds upon interim funding. At the First Day hearing, counsel described the filing as a "mad dash into Chapter 11" that left the company with virtually no cash on hand. The bridge loan allowed First Brands to make payroll and fund vendor payments before filing.

SPV Collateral Disputes

The special purpose vehicle structures that facilitated First Brands' off-balance sheet financing have become a source of litigation in the bankruptcy case. Multiple SPV lenders assert claims to collateral that the debtors and DIP lenders also claim, creating priority disputes in the case.

Complex SPV Structure.

First Brands utilized multiple SPVs to structure its off-balance sheet financing arrangements. Each SPV typically held specific assets—inventory, equipment, or receivables—that secured the SPV-level financing. The SPV lenders, including CarVal, Aequum, Evolution, Onset, and UMB Bank, assert that their collateral remains separate from the debtors' estates and should not be available to satisfy DIP or other creditor claims. The debtors and DIP lenders take a different view, arguing that the SPV structures were part of an integrated enterprise and that alleged fraud in the SPV transactions may invalidate the SPV lenders' claims to priority. These disputes involve questions of corporate separateness, fraudulent transfer, and lien priority.

The Onset master leases represent the largest SPV dispute at approximately $1.9 billion. Onset has filed motions for stay relief, asserting that its collateral should be released from the automatic stay so it can pursue its remedies. The debtors have opposed these motions, arguing that the lease collateral is essential to ongoing operations and that Onset's claims may be subject to challenge based on the fraud allegations. Multiple SPV-related motions remain pending, including stay relief motions seeking to lift the automatic stay and permit SPV lenders to pursue collateral, trustee appointment motions seeking independent trustees for certain SPV debtors, enforcement actions that were automatically stayed upon filing, and professional retention objections based on conflicts from simultaneous representation of FBG debtors and SPV debtors. The court has suggested appointment of independent conflicts counsel for the SPV debtors to address the conflicts in having the same professionals represent both the parent debtors and the SPV entities whose interests may diverge.

Case Timeline

UBS and Financial Institution Fallout

The First Brands case has created losses for financial institutions that provided capital through supply chain financing structures. The UBS situation has drawn comparisons to Greensill.

UBS O'Connor Fund Impact.

UBS's exposure to First Brands through its O'Connor hedge fund unit exceeds $500 million. The O'Connor funds had concentrated capital in First Brands financing arrangements, with reports indicating approximately 30% exposure to the company. Following the bankruptcy filing and fraud allegations, UBS announced it would wind down the affected O'Connor funds.

Swiss media covered the exposure and fund wind-down.

Private credit market implications. The supply chain financing model that First Brands utilized—selling receivables through SPVs and factoring arrangements—resembled the structures that led to Greensill's collapse.

Labor and Operational Continuity

Despite the fraud allegations and financial distress, First Brands has continued operating its business throughout the chapter 11 case, maintaining employment for its approximately 26,000 global workers. The company employs roughly 6,000 workers in the United States, with the remainder distributed across global manufacturing and distribution operations. The DIP financing has provided liquidity to maintain payroll and vendor payments.

First Brands supplies parts for routine maintenance and repairs. Two UAW locals—Local 1181 and Local 9699—represent portions of the workforce, and the company has negotiated collective bargaining agreement extensions through stipulations approved by the court.

Professional Roster

The First Brands case includes a professional roster reflecting its size and complexity.

Debtors' Professionals.

Charles Moore, the Alvarez & Marsal managing director serving as Interim CEO, brings restructuring experience to the role, including involvement in the City of Detroit chapter 9 case. Moore replaced Patrick James following the founder's October resignation and has overseen the company's stabilization efforts during the initial months of the case.

Official Committee of Unsecured Creditors.

The UCC has been active in the case, filing objections to the DIP financing, seeking an expanded examiner investigation, and advocating for unsecured creditor interests in the various collateral disputes.

Examiner.

Path Forward

As of late December 2025, the First Brands case remains in its early stages. No plan of reorganization has been filed, and the case continues to focus on stabilization, investigation, and dispute resolution.

Current Status.

The examiner investigation is a near-term milestone. Martin De Luca and Boies Schiller Flexner are conducting their examination of the factoring and off-balance sheet financing transactions with a $7 million budget.

Multiple adversary proceedings remain pending, including the debtors' lawsuit against Patrick James. The SPV collateral disputes remain pending.

Frequently Asked Questions

Why did First Brands file for bankruptcy?

First Brands filed chapter 11 due to a combination of factors: alleged $2.3 billion factoring fraud created unplanned liabilities; Bank of America refused funding and SouthState Bank exercised setoffs, triggering an immediate liquidity crisis; total obligations of approximately $9.3 billion could not be serviced; April 2025 tariffs added approximately $99 million in costs; and failed refinancing efforts left no out-of-court alternatives.

What is the alleged fraud?

The fraud allegations center on fabricated invoices submitted to factoring counterparties and double-pledging of the same receivables to multiple lenders. The allegations involve billions of dollars that cannot be accounted for. The DOJ opened a criminal investigation in October 2025, and an examiner with a $7 million budget is investigating the factoring and off-balance sheet financing transactions.

What happened to CEO Patrick James?

Patrick James resigned as CEO on October 13, 2025, approximately two weeks after the bankruptcy filing. The company subsequently sued James in an adversary proceeding alleging fraud, misappropriation of funds, and "grievous misconduct." A temporary restraining order was granted against James, though a preliminary injunction was later denied. Reports indicate allegations of more than $700 million transferred to insiders.

How large is the DIP financing?

The DIP facility totals $4.4 billion. It includes $1.1 billion in new money and a $3.3 billion roll-up of prepetition first and second lien debt. DIP lenders characterized the facility as "wholly unprecedented" with an "impossible to price" risk profile given the fraud allegations.

Will FRAM and other brands continue operating?

Yes, the DIP financing provides liquidity to maintain operations during the chapter 11 case. The approximately 26,000 employees worldwide continue working, and the automotive aftermarket supply chain is being maintained.

Who is exposed to losses?

Major financial institution exposures include: UBS with more than $500 million via O'Connor funds (prompting fund wind-down); Jefferies with approximately $715 million via Leucadia/Point Bonita vehicles; Onset Financial with approximately $1.9 billion in master lease obligations; and Bank of America and SouthState Bank through lending facilities. Additional factoring counterparties and trade creditors face exposures.

What is the examiner investigating?

Examiner Martin De Luca of Boies Schiller Flexner is investigating factoring and off-balance sheet financing transactions with a $7 million budget. The investigation will examine the alleged fabricated invoices, double-pledged receivables, and missing funds. The UCC has sought a broader investigation scope than originally proposed.

How does this compare to Greensill?

The First Brands case shares similarities with the 2021 Greensill Capital failure: both involved supply chain financing structures, alleged fabricated invoices, and concentrated fund exposures.

Is there a reorganization plan?

No plan of reorganization has been filed as of late December 2025. The case remains focused on stabilization, the examiner investigation, and resolution of SPV collateral disputes.

What are the implications for private credit markets?

The case has focused attention on off-balance sheet financing structures used in supply chain finance.

Who is the claims agent for First Brands Group?

Kroll Restructuring Administration LLC serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

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For ongoing coverage of the First Brands case and other chapter 11 proceedings, visit the ElevenFlo bankruptcy blog.