Financial Mystery and Billion-Dollar Debt: The Illegal Operations and Industry Risks Behind the Bankruptcy of First Brand Group.

In the past few weeks, the United States automotive parts supplier First Brands group has filed for bankruptcy with over $10 billion in debt due to excessive borrowing for mergers and acquisitions, financial misconduct, and external tariff impacts. This not only affects financial institutions like JF Rui, but also raises widespread concerns in the market about trade financing risks and due diligence standards in the private credit industry, while exacerbating market fears of corporate debt issues spreading. Just weeks before First Brands group went bankrupt, used car dealer Tricolor declared bankruptcy. This raises concerns in the market that other companies or industries may also have problem loans. Federal investigators are currently looking into the circumstances surrounding the bankruptcies of these two companies. Here are some key pieces of information about the First Brands group and the financial operations that led to the scrutiny: What is the First Brands group? Why did it go bankrupt? The downfall of the First Brands group began with what seemed like a glorious expansion. Founded by Malaysian entrepreneur Patrick James in 2013, this Cleveland-based company, then known as Crown Group, completed the acquisition of Terryko Products in 2014, starting a frenzy of mergers that brought in over 20 companies in the following years, eventually renaming itself First Brands group. At its peak, the company had 26,000 employees and operations in over a dozen countries, supplying various automotive parts such as wipers and brake pads to retailers like Walmart, AutoZone, and O'Reilly Auto. The company used heavy borrowing to fund its acquisitions. Frequent mergers created a facade of growth but hid potential issues. According to suppliers, former employees, and other informants, as early as two years before filing for bankruptcy protection in September 2025, the First Brands group had already begun to experience delayed payments to suppliers. On September 28, 2025, the company officially filed for bankruptcy. Prior to this, in a refinancing transaction, creditors questioned the scale of the First Brands group's borrowing, as well as the credibility of the profit reports (the company had previously made significant adjustments to financial data). President Donald Trump's tariffs on the automotive industry also seem to have exacerbated the company's cash flow crisis - its production relied heavily on imports. Information disclosed in the bankruptcy filing further fueled concerns among financial partners. Court records revealed that the company had accumulated billions of dollars in off-balance sheet debt, raising red flags about its true financial condition. The First Brands group filed a lawsuit against former CEO James, who resigned in October but was sued by the company for allegedly embezzling hundreds of millions of dollars, a claim he denied. The company has not commented on the reasons for its collapse or the subsequent impact. What financial operations led to the collapse of the First Brands group? Manufacturers like the First Brands group often face the dilemma of having to pay their own expenses first but wait for customers to pay. The existence of trade financing is meant to bridge this funding gap. Creditors state that while trade financing is widely used in manufacturing and retail industries, the way the First Brands group operated exposed its trading partners to risks far beyond normal levels. According to the company's bankruptcy lawyer, James also used trade financing transactions to transfer company funds for personal use. One common trade financing method used by the First Brands group was factoring. In the factoring model, suppliers (such as the First Brands group) sell their accounts receivable invoices to financial institutions, which deduct a certain fee and immediately pay the supplier. If all goes well, the financial institution (or "factor") will eventually recover the full amount from the supplier's customers. Typically, these payments are made directly by customers to the factor, which means the factor essentially only bears the credit risk of the customer (often a more stable institution like Walmart) rather than the supplier's risk. However, in the case of the First Brands group, at least some factors allowed customers to first pay the receivables to the First Brands group, which then passed the payments on to the financial institution. This direct management of trade debt by the First Brands group created an additional layer of risk. Creditors now claim that the company owes billions of dollars from these trade financing transactions that have disappeared. Another operation was supply chain financing initiated by the goods purchasing party. The purchasing party (either the First Brands group paying suppliers for raw materials or customers like Walmart paying the First Brands group) entrusts a third-party financial institution to advance payment to the supplier (and charge a fee), allowing the purchasing party more time to recoup funds from the sale of goods before repaying the advance payment. Bankruptcy documents show that the First Brands group had accumulated $23 billion in factoring debt and $8 billion in supply chain financing debt. The scale of these two figures shocked Wall Street and indicated that the company's financial situation was more fragile than previously believed by investors. After filing for bankruptcy, the First Brands group's attorneys stated that their legal team found that certain accounts designated for repaying these debts had "a balance of zero." An independent board committee is investigating whether the First Brands group used the same collateral to obtain multiple loans, which would have made its borrowing scale exceed its asset-carrying capacity. In addition, some creditors have requested the appointment of an independent reviewer to investigate the company's collapse. How are JF Rui and other financial institutions affected? The questions surrounding the financial operations of the First Brands group have also raised concerns in the market about due diligence standards on Wall Street. Among the many financial institutions affected by the bankruptcy of the First Brands group, the most notable is JF Rui. Since 2014, JF Rui has been a major cooperating investment bank for the debt arrangements of the company. In the summer of 2025, JF Rui was involved in assisting the company in marketing around $6 billion in loans for refinancing existing debt. However, this transaction was forced to halt after creditors demanded clarification from the First Brands group about its profit and borrowing situation. Additionally, JF Rui holds equity in Point Bonita Capital through its investment arm Leucadia Asset Management, with nearly a quarter of the hedge fund's $30 billion trade finance portfolio invested in the accounts receivable of the First Brands group. JF Rui stated that its financial exposure to the First Brands group is less than $50 million, which is within a manageable range. Nevertheless, the bank is working to mitigate reputational damage and distance itself from the First Brands group. Investors like BlackRock and the Singapore sovereign wealth fund Government Investment Corporation (GIC) have requested partial redemption of their fund shares in Point Bonita Capital. Since the First Brands group filed for bankruptcy, JF Rui's stock price has dropped by about 19%. Other well-known financial institutions with significant loan exposures to the First Brands group include UBS Group in Switzerland, Norinchukin Bank in Japan, and trading company Mitsui & Co. Some relatively unknown but potentially impacted institutions include Utah-based equipment financing company Onset Financial (owed $1.9 billion), trade financing platform Raistone (80% of income dependent on trade debt transactions with the First Brands group), and Boston trade financing provider Evolution Credit Partners. This turmoil has also affected the US regional bank Western Alliance Bancorp, which had lent to Point Bonita Capital and accepted the assets of the First Brands group as collateral. Is the collapse of the First Brands group a problem in the private credit sector? The situation is more complex. There is ongoing controversy over the definition of private credit, but it is generally seen in the financial industry as a $1.7 trillion market where non-bank institutions provide direct loans to companies. With default concerns escalating, this rapidly growing sector has come under close scrutiny. The vast majority of the First Brands group's on-balance sheet debt did not come from private credit companies, but some of the providers of its trade financing loans fall within the scope of private credit. JPMorgan Chase CEO Jamie Dimon admitted that the bank failed to uncover issues with Tricolor, an auto loan company, before its collapse, raising concerns about due diligence in the private credit industry and increasing scrutiny on private credit in the market. Dimon stated that the Tricolor incident was not the bank's "finest hour" and added that "when you see one cockroach, there are probably more" - clearly indicating hard-to-detect financial problems. While Tricolor did not have private debt in its borrowings, given its role as a non-bank institution providing loans to consumers, it can be considered a provider of private credit. Dimon's comments have irked executives in the private credit industry, including Blue Owl Capital co-CEO Marc Lipschultz. Lipschultz responded that the collapse of Tricolor exposed issues with banks, not the private credit industry. As traditional banks and rising private credit companies vie for market share, such disputes are common. Both sectors are eager to prove their advantages in serving this trillion-dollar market, often accusing each other of risk in private credit or limitations in banks, even though they also have cooperative relationships. The counsel for Tricolor's trustee did not respond to requests for comment. Charles Gibbs, the lawyer for the trustee overseeing the liquidation of Tricolor, stated in court that the trustee's preliminary report "suggests potential systemic fraud." What will happen next in this saga? James resigned as CEO of the First Brands group on October 13, a few days before federal prosecutors began investigating the circumstances surrounding the company's collapse. Charles Moore, who has been acting as Chief Restructuring Officer since September, has been appointed as interim CEO. Creditors are seeking more information on the company's profit situation, cash needs, and off-balance sheet debt scale. It remains unclear how much money creditors will be able to recover.