What if one of the biggest corporate meltdowns of recent times was quietly unfolding inside a company that sold one of the most ordinary products imaginable—car parts? A business so routine that it fooled Wall Street analysts, credit agencies, and even top-tier auditors for years.
This isn’t a story about poor-quality products, vanishing customers, or broken supply chains. First Brands made reliable items—wiper blades, fuel pumps, and other everyday components used by millions of vehicles. Their factories worked. Their distribution ran smoothly. Their demand was steady.
So how did a solid, operationally stable company suddenly crash into bankruptcy with billions in hidden liabilities?
The answer: an aggressive, complex financial engineering strategy that masked enormous debt for years.
The Business Behind the Collapse
To understand the downfall, you first need to understand the industry.
The automotive aftermarket exists for one simple reason—cars age and need replacement parts. With the average American car now more than 12 years old, the replacement-parts business is booming.
First Brands was a big name in this ecosystem, selling directly to giants like AutoZone, O’Reilly Auto Parts, and repair centers nationwide. Their business model was simple and dependable.
But their growth strategy wasn’t.
Debt-Fueled Expansion That Looked Safer Than It Was
Instead of expanding slowly, First Brands went on an acquisition spree—buying smaller rivals at a blistering pace. And to fund this buying frenzy, they borrowed heavily.
Borrowing alone isn’t unusual. Many companies use leverage to grow. What was unusual was how First Brands borrowed.
They built a complicated maze of financing arrangements—far beyond typical bank loans—making it nearly impossible for outsiders to see the full picture. Much of this borrowing sat off the balance sheet, hidden through mechanisms like:
- Invoice factoring
- Supply chain financing
- Non-bank working capital lines
- Inventory and lease financing through associated entities
On paper, the company looked reasonably healthy. In July 2025, S&P even reaffirmed a B+ credit rating.
But behind the scenes, the company was carrying staggering obligations:
- $2.3 billion in factoring
- $680–800 million in supply chain finance
- $6.1 billion in on-balance sheet loans
- $2.3 billion more in inventory/lease financing
This massive debt load was largely invisible to the market.
How Factoring and Supply Chain Finance Fueled the Illusion
What is invoice factoring?
If First Brands sold parts worth $1 million to a retailer, they’d receive payment in 60–90 days. Instead of waiting, they sold this invoice to a lender for ~10% less—getting cash instantly.
This kept money flowing, but created dependency. The more they factored, the more cash they needed to maintain the cycle.
What is supply chain finance?
Here, a bank paid First Brands’ suppliers early. First Brands paid the bank later—often on extended terms. This also didn’t look like debt but functioned like borrowing.
Both systems created the illusion of healthy cash flow while piling up obligations.
The First Signs of Trouble
In July 2025, First Brands tried to refinance a major portion of its debt—pushing some payments from 2025 to 2027.
This raised alarms.
S&P realised the company was taking on even more borrowing without strong covenants to restrict their leverage. By August, analysts scored their financial protections poorly.
Then, in September 2025, major lenders suddenly pulled out of planned financing deals—citing opaque off-balance sheet risks.
Once sophisticated lenders walk away, markets panic.
The Rapid Freefall
By mid-September:
- First Brands’ debt began trading at distressed prices.
- Loans that previously traded at near face value collapsed.
- Investors braced for massive losses.
S&P reacted fast:
- Sept 22: Downgrade from B+ to CCC+
- Sept 24: Downgrade to CC—one step from default
Then the final blow hit:
SPV entities linked to First Brands filed for Chapter 11 with up to $10 billion in liabilities.
Just days later, on September 28, First Brands itself filed for Chapter 11 bankruptcy.
The filing revealed:
- $9.3 billion in recorded debt
- $2.3 billion in additional factoring liabilities that were largely undisclosed
This “missing receivables” revelation sent shockwaves through the financial world.
The Alleged Multiple-Pledging Scandal
The real bombshell came during the bankruptcy investigation.
Court-appointed administrators discovered $2.3 billion in customer payments that lenders expected but never received.
One theory now being probed by the U.S. Justice Department is multiple pledging:
- First Brands generated an invoice for $1 million.
- The company sold it to Lender A for $900,000.
- Then allegedly pledged the same invoice to Lender B—getting another $900,000.
Both lenders believed they owned the same receivable.
If repeated across thousands of invoices, this would explain billions in missing funds.
This is not accounting confusion.
This is potential systemic fraud.
Where Were the Auditors?
BDO, the auditor, had issued clean opinions shortly before the collapse.
How a $2.3 billion discrepancy escaped detection remains a central question. BDO has denied wrongdoing, stating no accusation has been made against them.
Interestingly, one institution did avoid the disaster: JP Morgan.
This was likely due to caution after losing $170 million in the earlier Tricolor Holdings collapse—another case involving alleged multiple pledging.
The Aftermath: Running the Company in Bankruptcy
Despite filing for bankruptcy, First Brands did not shut down.
They secured $1.1 billion in debtor-in-possession (DIP) financing to keep operations alive. Courts approved immediate access to $500 million for payroll, inventory, and essential functions.
But DIP lenders get super-priority—meaning original lenders will recover even less.
International units remained outside the bankruptcy, hinting the damage was most severe in U.S. operations.
Why This Collapse Matters for the Entire Financial System
The First Brands case has exposed several alarming weaknesses:
1. Off-balance sheet debt can hide enormous risks
Factoring and supply chain finance—legitimate tools—can also mask leverage and distort financial health.
2. The invoice financing ecosystem may have major loopholes
If multiple pledging occurred, existing safeguards clearly failed.
3. Private credit markets lack transparency
Non-bank lenders operate with lighter regulation than banks, making it harder to detect abuses.
4. It may not be an isolated incident
Other collapses, like Tricolor, show a pattern. The Justice Department is still investigating whether this is part of a larger systemic issue.
A Cautionary Tale for Investors and Regulators
First Brands didn’t collapse because it made poor products or lost customers.
It fell because complex, short-term financial manoeuvres replaced sustainable business practices.
The company’s books painted a picture that wasn’t real—and by the time the truth surfaced, billions were already gone.
This story is a powerful reminder:
Financial statements don’t always reveal the full reality. Transparency isn’t optional—it’s essential.
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Disclaimer
This article is created for informational and educational purposes only. It is not intended to provide financial, legal, or investment advice. All information is based on publicly available data, reports, and industry analysis. Readers should conduct their own research or consult a qualified professional before making any financial decisions. StoryAntra is not responsible for any actions taken based on the content of this article.
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