While few people knew of First Brands Group before it filed for bankruptcy, nearly everyone will be familiar with some of the brands they own. Folks that turn wrenches on cars, be it professionally or at home on the weekends, likely understand the consequences if some of these companies go out of business. It’s an ongoing story, and the latest installment per Reuters is that Patrick James, First Brands Group founder and CEO, has stepped down. This follows last week’s news that the US Justice Department had launched a probe into First Brands’ dealings with creditors amid this current Chapter 11 bankruptcy process.
First brand Group brands.First Brand Group
Hitting The Eject Button
The timing of Patrick James quitting as CEO is not a good look, particularly as his brother, Edward, has also stepped down from a senior position in the company. Patrick is being replaced by Chief Restructuring Officer Charles Moore on an interim basis. It’s reasonable to think his resignation may simply be the best move for the company at this time.
The US Justice Department probe is based on the company’s dealings with creditors. According to The Financial Times, a review of the company’s records shows there may have been some commingled of debt collateral. It’s also suggested that inventory may have been used as collateral for multiple debt companies. That doesn’t really look great when paired with the latest news of Patrick and his brother stepping down. Moreover, Patrick allegedly faced lawsuits in the past from lenders, all apparently related to fraudulent conduct. However, he presently isn’t under any investigation regarding the current bankruptcy.
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Still, this all has the vibe of leaving a sinking ship behind. Chapter 11 bankruptcy isn’t necessarily the end of a company, but it’s tough to pull back from. Generally, Chapter 11 allows for a reorganization of a corporation based on a plan that keeps the company rolling while paying creditors over time.
A close-up exchange of money for a car keyKelley Blue Book
There’s A Lot Of Money On The Line
Chapter 11 isn’t a get out of jail card, though. According to court filings, First Brands Group disclosed liabilities of about $11.6 billion. Most of it comes from long-term debt from a run of buying up parts suppliers and auto repair services. The US investment bank Jefferies, says its Leucadia Asset Management fund, through its credit fund Point Bonita, held $715 million in receivables. Jefferies CEO Rich Handler and President Brian Friedman told investors in a letter that the bank’s size means that potential losses would be “readily absorbable.”
The Way Out Of Trouble
It appears that the Chief Restructuring Officer Charles Moore is the best way out. It’s possible Patrick has stepped down to show that the company is looking to find a way out of the mire with fresh eyes. According to First Brands Group, Moore has 30 years of leadership experience in restructuring and performance improvement across the automotive supply chain. That means he’s navigated this landscape through good times and bad.
Moore has certainly got his work cut out for him. Not only is First Brands Group in a lot of trouble, but this is all happening as the supply chain is coming under pressure again, this time from tariffs and general uncertainty in the auto parts industry.
Source: Reuters
