Lender Clash Over First Brands Collateral Spotlights Off-Balance Sheet Risks

Lenders begin trying to untangle competing claims on inventory, equipment and other assets

Investment firms that lent billions of dollars to auto-parts supplier First Brands Group in off-balance-sheet financing are racing against its traditional corporate lenders to lay claim to inventory, equipment and other assets used in its supply-chain and receivables finance programs.

The tangle of competing claims points to questions and risks surrounding supply-chain finance that have lingered as it gained in popularity in recent years as a cash-management tool. A bankruptcy court is now expected to sift through the complex arrangements at First Brands, which filed for chapter 11 on Sunday following a swift unraveling as its lenders lost confidence in its financial disclosures and accounting.

Restructuring advisers for First Brands discovered the company has more than $3 billion in liabilities stemming from factoring programs, and receivable and supply-chain financings on top of over $6 billion in known loans. Outside directors recently installed at the company are now investigating whether receivables might have been factored more than once and whether inventory pledged to financing parties was commingled with other collateral.

The clash between off-balance sheet lenders to First Brands and lenders on $5.5 billion of the company’s loans is unusual because such hidden financing arrangements are rare for large borrowers.

A court hearing Wednesday provided a glimpse into the complex web of credit lines that financed the company’s operations and a series of acquisitions but ultimately drove its sudden collapse. In addition to $6.1 billion in debt on its balance sheet, the company also took on $2.3 billion in off-balance sheet financings and $800 million in unsecured supply-chain-financing facilities, according to the company’s court papers.

Supply-chain finance, which has been around for decades, amounts to short-term borrowing to pay for goods and services from suppliers. Many companies find it useful because it boosts the cash position of buyers without having to issue debt.

In factoring, a bank or other financing provider pays a company for goods sold to a purchaser, and then collects on the invoices later. Factoring has long been used by suppliers to retailers, who pay vendors with a lag. Some factoring agreements allow the financing provider to seek payment from the vendor if they can’t collect from the purchaser.

The 2021 collapse of Greensill Capital Management, a major provider of supply-chain finance, raised concerns about associated liquidity risks. Accounting rules adopted since then have required U.S. companies to disclose more details about these financing programs.

Lenders in the company’s off-balance sheet financing arrangements including Evolution Credit Partners, Aequum Capital and Onset Financial are trying to preserve their rights to First Brands’ assets, including inventory and equipment, which their loans were pledged against. Onset, a firm that focuses on equipment financing, said in court filings it is owed $1.9 billion under an inventory financing arrangement.

First Brands is in default, according to Onset, which said it provided $1 billion to First Brands over the past 12 months to support its working capital needs and help finance acquisitions, making it the most significant provider of liquidity leading up to the company’s bankruptcy filing. Evolution Credit is trying to determine whether First Brands took the collateral backing its $230 million in asset-backed loans to the company and used it to back other loans.

“How that could possibly happen is a mystery to us and our client,” said Evolution Credit attorney Vincent Indelicato during the Wednesday hearing.

A representative of Aequum Capital, a lender on a $45 million inventory-backed line of credit, raised concerns that the collateral behind its financing could be swept up by a new $1.1 billion debtor-in-possession loan, which will fund the bankruptcy process. The Aequum Capital representative urged the bankruptcy court to deny approval of First Brands’ DIP loan without guarantees that the lender’s collateral would be protected.

Judge Christopher Lopez of the U.S. Bankruptcy Court in Houston approved the DIP on an interim basis Wednesday.

Write to Soma Biswas at soma.biswas@wsj.com and Alicia McElhaney at alicia.mcelhaney@wsj.com

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Appeared in the October 6, 2025, print edition as 'Lender Clash Over First Brands Collateral Spotlights Off-Balance Sheet Risks'.