First Brands files for bankruptcy, revealing billions of dollars in liabilities
First Brands files for bankruptcy, revealing billions of dollars in liabilities
Some pretty heavy names in their portfolio....
"First Brands Group is a global automotive parts company that develops, markets and sells premium products through a portfolio of market-leading brands including: Raybestos complete brake solutions, Centric Parts replacement brake components, StopTech performance brakes, Fram filtration products, Luber-finer filtration products, Trico wiper blades, Anco wiper blades, Michelin licensed wiper blades, AirTex and Carter fuel and water pumps, Autolite spark plugs, StrongArm lift supports, Carlson brake hardware, Cardone new and remanufactured replacement parts, and our towing & trailering portfolio composed of Reese, Drawtite, Bulldog, Tekonsha, Fulton, Westfalia along with Hopkins universal owned and licensed brands and Philips licensed aftermarket lighting."
"Its well-known brands include Raybestos brake solutions, TRICO wiper blades, and FRAM filtration products."
Google says they also own Autolite and ANCO
In reply to Hand Hewn :
Sorry for crossing posts - yours is way better, haha
This is not ideal news to hear being in the parts sales industry...
Let me guess, private equity got involved, knew nothing about the markets, did sketchy things to put money into shareholder's pockets, then put a bunch of hard-working people out of work.
pinchvalve (Forum Supporter) said:Let me guess, private equity got involved, knew nothing about the markets, did sketchy things to put money into shareholder's pockets, then put a bunch of hard-working people out of work.
That would never happen. I'm sure the problem was simply that they weren't making enough profit, not all of the debt the individual companies in the portfolio were forced to shoulder to pay for the next PE acquisition...
wow, that is a LOT of brands. I'm really not that familiar with what happens in a bankruptcy scenario like this, is it likely that all of those brands cease to exist, or are they going to get split out and bought by other companies?
In reply to budget_bandit :
Chapter 11 is for debt reorganization so operations should continue, however some brands may get spun off or sold. Not to threadjack but frankly i'm more worried about EA sports, they are being bought up by PE and taking out a 20B loan to finance the deal. PE is the devil IMO.
I was surprised on how many duplicate lines he company has. Trico and Anco wipers. Raybestos and Centic brakes. Airtex and Carter fuel and water pumps. What the heck? It almost looks like they are in competition with themselves.
Noddaz said:I was surprised on how many duplicate lines he company has. Trico and Anco wipers. Raybestos and Centic brakes. Airtex and Carter fuel and water pumps. What the heck? It almost looks like they are in competition with themselves.
That's the play.. Buy up as many competitors as you can so they're all under one corpo umbrella and then you can control the entire market's price. Eventually you load one or two up with debt and spin it off.
Noddaz said:I was surprised on how many duplicate lines he company has. Trico and Anco wipers. Raybestos and Centic brakes. Airtex and Carter fuel and water pumps. What the heck? It almost looks like they are in competition with themselves.
Its the way of the modern world. Buy as many companies as possible, get all the revenue streams.
Besides, when is the last time you saw an ad for Trico that disparaged Anco as a competitor? Or Carter vs Airtex. There is no competition anymore.
Noddaz said:I was surprised on how many duplicate lines he company has. Trico and Anco wipers. Raybestos and Centic brakes. Airtex and Carter fuel and water pumps. What the heck? It almost looks like they are in competition with themselves.
It exactly looks like they wanted to give consumers the impression that there was more competition in the market than really exists, a very common situation.
I don't think I have ever heard of Airtex.
i am a little bit out of the loop.
DrMikeCSI said:I don't think I have ever heard of Airtex.
i am a little bit out of the loop.
Common supplier of OE_equivalent parts store filters and such.
The same sort of thing happened in the early 1970s when Filter Dynamics bought a whole bunch of automotive parts companies ,
not much comes up on Google , but EMPI , Lee Eliminator , ENCO , a header company and a few others are the ones that I remember now.....
The only one I use is Raybestos, and I bet it's big enough it will be one of the Chapter 11 survivors.
There are things about the modern world that seem inevitable, and I hate them. This is one of those things, but who the hell buys Raybestos from Ray's kids when the company gets to be worth several million dollars or more? It's gonna be a competitor, or a huge multinational.
What is AMF doing these days? They were a big deal in the 80's when they owned (and almost killed) Harley, and most everything else on the planet?
So.....
Some unnamed investment conglomerate bought up profitable businesses and the took out massive amounts of debt using the profitable businesses as collateral....then turns the businesses over to bankruptcy after milking for every penny....
Why does this sound familiar.....
This is why Bill Cardell worked so hard to make sure Flyin' Miata ended up in the hands of his employees.
I'm dating myself, but I can't help but think of Tommy Boy as I read this thread.
New article from WSJ.
Behind the Collapse of an Auto-Parts Giant: $2 Billion Hole and Mysterious CEO
Patrick James started out buying small Ohio factories and ended atop a messy conglomerate with piles of hidden debt
Patrick James borrowed billions from some big banks to scoop up auto-parts plants and create First Brands.
First Brands, led by CEO Patrick James, filed for bankruptcy with more than $2 billion unaccounted for.
Patrick James was watching the film “Minari” about a family of South Korean immigrants who moved in the 1980s to rural Arkansas when he leaned over to his son and whispered: “This is what it felt like when I first came to Ohio!”
The Indian businessman immigrated from Malaysia in the 1980s to attend a small college in Ohio. James went on to live the American dream. He built an auto-parts colossus with 26,000 employees and billions in annual sales by scooping up smaller companies. His children went to elite U.S. colleges, and the family relaxed at their $23 million Malibu, Calif., mansion with sweeping views of the Pacific.
A business scandal has shattered that dream.
James’s company, First Brands Group, has filed for bankruptcy, acknowledging that more than $2 billion is unaccounted for. Newly appointed directors are probing irregularities in the company’s financing arrangements, and the Justice Department has opened an inquiry, according to people familiar with the matter.
First Brands, of which James is chief executive officer and sole equity owner, borrowed more than $10 billion from some big names despite a history of lawsuits from business partners who had alleged that James made misrepresentations in his convoluted financing arrangements. Major banks including UBS Group and Jefferies Financial Group are exposed.
Unbeknown to most, the company raised billions through off-balance-sheet financing, especially through a form of borrowing against money it is owed by customers such as AutoZone. As the shaky finances came into focus this year, James’s backers pulled the plug. The company’s new directors are working with forensic accountants to investigate whether accounts receivable were pledged more than once, court records show.
A representative for James said, “Patrick James has always put the interests of First Brands Group ahead of his own and is evaluating his best path forward to help maximize value for its customers, suppliers, employees and lenders, including potentially relinquishing his role as CEO.”
A lawyer for James told the court at a bankruptcy hearing that the First Brands collapse was caused largely by macroeconomic factors and denied wrongdoing by management. James has agreed to let the company be led through bankruptcy by a chief restructuring officer.
Interviews with former employees, business associates and others who knew James reveal that he was intensely private, going to lengths to avoid his photo being taken and scrubbing himself from the internet. They described James as a germaphobe and “nerdy,” a man who could pass for an engineer or computer programmer more easily than an industrial magnate. At an investor event this year, First Brands required Covid tests for attendees.
Patrick James, shown in 2018, is known to value his privacy. Mark Blinch/NBAE/Getty Images
The CEO kept an office on the 53rd floor in the Key Tower skyscraper in Cleveland, but some First Brands executives said they rarely saw the boss. Still, James insisted that headquarters employees dress a cut above business casual, requiring jackets and slacks for men.
James cascaded his directives down the chain of command through emails and intermediaries. He relied on several close confidants, including his brother, Ed James, who held a senior executive role, to operate his increasingly indebted empire. While Patrick James set the corporate strategy, his brother and another executive handled much of the wrangling with financiers and signed most of the paperwork.
A First Brands manager described Patrick James as generous, and said he received holiday gift baskets that contained wine, expensive electronics and vouchers for vacations worth thousands of dollars. Other managers said bonuses were sometimes delayed; one said that his company-issued cellphones and credit cards occasionally stopped working because the bills went unpaid.
Ohio roots
Patrick James got his start in business in Malaysia, where he was born. He went to a Catholic high school and supplied equipment for disco parties. In the 1980s, he came to the U.S. to attend the College of Wooster, a small liberal-arts school in northern Ohio.
At Wooster, James ran the campus pub and joined a club for budding investors. A yearbook photo of the group shows James as he stood in the back row smiling broadly, his hair neatly parted to the side.
A college friend said James had a warm personality and was more mature and focused than his peers. On the day of their 1988 graduation, the friend recalled, James bought a starter home in Cleveland. Not long after that, he was married, and the couple had two children.
In an interview with an online magazine, James’s son described watching the 2020 “Minari” film with his father and how his parents supported his pursuit of acting. “I was so fortunate to have a supportive, artistic and privileged childhood,” the son said.
In 1995, James co-founded a holding company called Janna Industries to buy up a stable of Ohio manufacturing businesses. It started with two small deals involving Durrell, a wholesale distributor of paint, and Preform Sealants, a plastics supplier to auto companies.
At 31, the young entrepreneur and his partner were staking their own capital to finance Janna. “We’re risking everything to do these deals,” his co-founder, Anthony Manna, then 34, told Crain’s Cleveland Business. “There’s no question we’re putting it all on the line.”
Janna Industries was dissolved in 2002, Ohio state records show. Manna didn’t respond to requests for comment.
Legal fights
James went on to a number of industrial and automotive-related businesses before forming the company that later became known as First Brands, under the name Crowne Group. His strategy was to expand the company by making serial acquisitions of automotive-parts brands.
First Brands accumulated a total of some 25 different brands, including Trico windshield-wiper blades, Fram motor oil and air filters and Raybestos braking components. The empire now has operations on five continents, including factories and warehouses. Revenue reached $5 billion last year, up from $1 billion in 2020, according to S&P Global Ratings.
Fram is among the product lines accumulated by First Brands. George Frey/Bloomberg News
The company funded its growth by borrowing heavily from Wall Street, raising nearly $6 billion of corporate loans. In addition, the company obtained supply-chain financing from institutions that lent against the company’s inventory and receivables.
First Brands would often provide products to customers on delayed-payment terms, and then pledge the accounts receivables to outside investors that provided the company with financing. The extent of these arrangements, which wasn’t disclosed until the bankruptcy, grew over time into several billion dollars of off-balance-sheet debt.
Over the years, several business partners sued James over his financing arrangements, alleging misleading and fraudulent practices.
A 2009 lawsuit filed by a creditor alleged that James made representations and omissions that gave a “false understanding of those companies’ financial strength and the value of the collateral securing the loans.” In a court filing, James’s lawyer said “any supposedly fraudulent activities conducted by James, which James denies, were undertaken with the full knowledge and consent of Plaintiff.” James later settled the case, and the terms weren’t disclosed.
In a 2011 lawsuit, an unpaid creditor alleged that James used a web of affiliated companies to divert funds to himself and other business entities. James denied wrongdoing. The judge dismissed the lawsuit against James himself and ordered one of his companies to pay a $6 million judgment.
In 2018, James split off a piece of his conglomerate called Vari-Form, a Canadian unit that made original equipment for automakers. The remaining portfolio, which included Trico and oversaw the aftermarket business, would later be combined with other businesses and rebranded as First Brands.
James touted Vari-Form as a stand-alone asset and attracted fresh debt capital from new investors including Apollo Global Management, according to a securities filing and a person familiar with the matter. The next year, Vari-Form filed for insolvency in Canada.
Around that time, the James family, who lived in the upscale suburbs of Cleveland, started to expand its personal real-estate holdings. Property records show the family paid $6 million for a home in Malibu in 2017 and, two years later, spent $23 million for the Malibu mansion.
Financing scramble
Entering this year, First Brands was being stretched thin after taking on more off-balance-sheet debts, according to lenders. The Trump administration’s implementation of new tariffs on U.S. imports applied pressure, making it more expensive to source goods and materials.
First Brands had become heavily reliant on Onset Financial, a Utah-based equipment-financing company that advanced funds at a steep rate of return. In May, a First Brands affiliate stopped making monthly payments to Onset, which then demanded several hundred million dollars of late fees and payment increases.
Meanwhile, James was working on an effort to refinance the nearly $6 billion of corporate loans with the help of Jefferies, the investment bank. The pitch to prospective lenders didn’t mention the billions of dollars of off-balance-sheet debt, people familiar with the matter said. Jefferies didn’t respond to requests for comment.
The refinancing effort soon faltered. Investors became concerned this summer after they learned that Apollo, the private-equity giant, had earlier taken a short position on First Brands through a credit-default swap trade, which was reported by the Financial Times.
Current and potential investors demanded more information on First Brands’ earnings and off-balance-sheet arrangements. With the refinancing process on ice, First Brands pivoted to trying to sell its entire business.
James remained optimistic and told people close to him that he hoped the company would fetch at least $12 billion, roughly enough to make everyone whole. No such buyer materialized. On First Brands’ quarterly earnings call with lenders in late August, James said the refinancing was still on track, according to a participant.
Many of First Brands’ business deals had been signed by Ed James or Michael Baker, the company’s strategy chief. The two executives stepped down shortly before the late-September bankruptcy filing. Neither responded to requests for comment.
As First Brands slipped toward its chapter 11 filing, top lenders demanded that the company bring in new independent directors to examine its books. Those directors are now looking into whether First Brands had been double-pledging receivables, as well as shifting collateral from one entity to another, court records show. As they sift through the records, the directors have informed lenders that they have so far found around $2 billion more in borrowings than the underlying accounts receivables.
Restructuring advisers recently held a call to brief lenders that First Brands’ financial information can’t be relied upon and that it is still unclear how much the company owes and to whom.
A lawyer for one financer of receivables linked to First Brands recently asked the company’s bankruptcy counsel two questions. First, did the company actually receive $1.9 billion of payments against receivables that had been discussed. Second, how much money is in specific bank accounts from those payments.
A lawyer for First Brands, from the firm Weil Gotshal & Manges, replied in a succinct email:
#1 – We don’t know
#2 – $0
This is my comment to read more on this later as someone who has had to deal with Patrick James in the past.
It's refreshing that it looks like good old fashioned fraud as opposed to private equity games.
woof
WonkoTheSane said:It's refreshing that it looks like good old fashioned fraud as opposed to private equity games.
haha, I was thinking the same thing.
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