The First Brands Bankruptcy: How Some Lenders Won Big Before the Collapse
When a major company files for bankruptcy, the narrative is typically one of universal loss—investors are wiped out, creditors take a haircut, and employees face uncertainty. But the recent collapse of First Brands Group, a sprawling car-parts empire owned by private equity firm TDR Capital, reveals a more complex and unsettling reality. While many were left nursing significant losses, a starkly different story has emerged for a select group of early financiers. According to one of the company’s creditors, some lenders managed to profit handsomely just before the entire structure imploded.
This case serves as a powerful cautionary tale about the intricate and often opaque world of modern corporate finance, where the timing of your investment and your position in the debt hierarchy can mean the difference between a windfall and a write-off. It pulls back the curtain on the high-stakes game of leveraged buyouts, complex financial instruments, and the ever-present question: who really benefits when a company is pushed to its limits?
The Anatomy of a Leveraged Giant
To understand how this divergence of outcomes was possible, we must first look at how First Brands was built. Under the ownership of TDR Capital, the company pursued an aggressive growth-by-acquisition strategy. It became a conglomerate, rolling up well-known automotive aftermarket brands like Fram filters, Raybestos brakes, and Autolite spark plugs. This rapid expansion wasn’t funded by profits, but by debt—a mountain of it.
The primary engine for this debt-fueled growth was a sophisticated form of financial technology known as supply chain finance. At the heart of this mechanism was the now-infamous Greensill Capital. In simple terms, Greensill would pay First Brands’ suppliers early, taking a small discount. This payment would then be converted into a loan to First Brands, which was packaged with other similar loans and sold to investors. This allowed First Brands to extend its payment terms, freeing up cash for more acquisitions. It was a complex web of financing that made the company look cash-rich while it was, in reality, accumulating massive liabilities.
This model worked as long as the music was playing and new money was flowing in. However, the entire edifice was critically dependent on Greensill. When Greensill itself spectacularly collapsed in 2021, it triggered a fatal liquidity crisis at First Brands, exposing the fragility of its financial foundation.
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The Winners’ Circle and The Losers’ Pit
The central controversy stems from comments made by Andre Hakkak, chief executive of White Oak Global Advisors, a trade finance provider that was left as a creditor in the bankruptcy. Speaking at the SuperReturn conference in Berlin, Hakkak painted a clear picture of two distinct outcomes. “A lot of people made a lot of money,” he stated, referring to the lenders who provided financing to First Brands before its downfall. He bluntly added, “The people who lost money were the trade finance providers (source).”
How is this possible? It comes down to the structure of the deals and the timing. Early-stage lenders and those in more senior, secured positions often charge significant upfront fees and high interest rates for their capital. They structure their loans to be first in line for repayment. In a highly leveraged company like First Brands, these financiers can extract substantial profits over several years. Once they sense rising risk, they can sell off their debt positions or simply ensure they are fully repaid before the cracks begin to show, effectively cashing out before the collapse.
Meanwhile, trade finance providers like White Oak, who provide the essential capital for day-to-day operations, are often in a more vulnerable, unsecured position. They are the last to get paid in a bankruptcy proceeding and bear the brunt of the losses when the company can no longer meet its obligations.
To clarify the different players and their potential fates in the First Brands bankruptcy, the following table provides a simplified breakdown:
| Player Category | Role in the Ecosystem | Potential Outcome | Reasoning |
|---|---|---|---|
| Private Equity Owner (TDR Capital) | Owned and directed the company’s strategy. | Mixed/Potentially Profitable | May have extracted value through management fees and dividend recapitalizations prior to the collapse, offsetting the final loss of equity. |
| Early/Senior Lenders | Provided initial, secured loans and credit facilities. | Profitable | Collected high interest and fees over several years; likely exited their positions or were repaid before the bankruptcy filing. |
| Supply Chain Financiers (Greensill) | Facilitated the complex financing that fueled growth. | Catastrophic Loss | The lynchpin of the system; its own collapse was a primary cause of the bankruptcy, leading to massive write-offs for its investors. |
| Trade Finance Providers (White Oak) | Provided operational capital based on receivables. Came in later. | Significant Loss | Held unsecured or junior debt positions, placing them far down the repayment hierarchy in a bankruptcy scenario. |
Lessons for the Modern Investor
The story of First Brands is more than just a single corporate failure; it’s a microcosm of the risks embedded in today’s interconnected financial system. For investors, business leaders, and even those interested in the broader stock market, there are several critical takeaways.
First is the danger of opacity. The use of complex, off-balance-sheet vehicles and sophisticated supply chain finance obscured the true level of leverage and risk within First Brands. The promise of fintech to revolutionize banking and corporate finance is real, but it also creates new avenues for hiding risk. The lack of a transparent, immutable ledger—something blockchain technology theoretically promises but is far from implementing at this scale—makes it difficult for outsiders to assess a company’s true financial health.
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Second is the importance of understanding the capital stack. Not all debt is created equal. An investor participating in a senior, secured loan has a vastly different risk profile than one buying into an unsecured trade finance instrument. Before engaging in any form of corporate credit investing or trading, rigorous due diligence on where you stand in the repayment line is paramount. As the First Brands case shows, being last in line can be a financially fatal position.
Finally, this serves as a reminder of the cyclical nature of credit and economics. During periods of low interest rates and high liquidity, investors chase yield, sometimes by backing increasingly risky and highly leveraged ventures. The First Brands growth story was a product of this “easy money” era. As the global economy shifts and the cost of capital rises, we are likely to see more such structures unravel, revealing which were built on solid ground and which, like First Brands, were houses of cards.
The fallout from the First Brands bankruptcy will continue for months, if not years, as creditors jostle in court. But the lesson is already clear: in the high-stakes world of corporate finance, the line between winner and loser is often drawn long before the public ever sees the cracks. While the company itself failed, the financial system built around it ensured that, for a select few, the venture was profitable right up to the end.
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