Jefferies reveals $715mn fund exposure to First Brands invoices

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Jefferies has said that one of its credit funds has about $715mn of exposure linked to First Brands Group, making it one of the largest-known creditors to the bankrupt auto parts company.

The US investment bank is one of several high-profile Wall Street firms hurt by investment in First Brands debt, with private asset specialists such as Blackstone having already booked losses on loans they extended in the run-up to the Ohio-based group’s chaotic bankruptcy last month.

Jefferies is under intense scrutiny for its long-standing relationship with First Brands. It provided opaque invoice financing to the sprawling group, while advising the company and placing billions of dollars of loans with other investors.

The disclosure reveals the extent of the exposure to First Brands amassed by Jefferies and its clients. Jefferies’ involvement in this invoice lending was not widely known on Wall Street until a Financial Times report last month.

Shares in the bank have fallen 16 per cent since mid-September, when First Brands’ financial and legal advisers began to explore a bankruptcy.

Jefferies on Wednesday said that a specialist invoice-finance fund it manages, Point Bonita Capital, has approximately $715mn invested in “receivables” — customer invoices — from retailers that bought First Brands products such as spark plugs and windscreen wipers and sold them to American consumers.

Jefferies said these receivables were “almost entirely due from Walmart, AutoZone, NAPA, O’Reilly Auto Parts, and Advanced Auto Parts”.

Point Bonita primarily carried out invoice “factoring” for the group, meaning repayment relies on these blue-chip, often investment-grade rated companies, rather than First Brands itself.

While Point Bonita primarily has exposure to First Brands’ customers, rather than the auto parts maker itself, an investigation set up as part of the bankruptcy is probing whether invoices were pledged more than once.

Jefferies said on Wednesday that it had “not yet received any information regarding the results of that investigation”.

Point Bonita held a total of about $3bn in “trade-finance assets”, Jefferies said.

While the fund’s investments are not held on Jefferies’ balance sheet, the bank does have some exposure to First Brands’ debt. It said on Wednesday that $113mn of Point Bonita’s “total invested equity of $1.9bn” was from Jefferies’ Leucadia Asset Management division.

The FT revealed this week that Jefferies earned undisclosed fees on financing it provided to First Brands, in an arrangement that could spark recriminations from other lenders that were unaware of the sweeteners.

“We are in communication with First Brands’ advisers and are working diligently to determine what the impact on Point Bonita might be,” Jefferies said. “We intend to exert every effort to protect the interests and enforce the rights of Point Bonita and its investors.”

Point Bonita, along with three other creditors to First Brands’ invoice “factoring” facilities, is listed in bankruptcy filings as an unsecured creditor with a “contingent”, “unliquidated” or “disputed” claim, indicating these investors could face difficulties if they instead tried to reclaim the money from the bankruptcy estate.

Jefferies also warned that another of its investment vehicles had been drawn into the First Brands debacle. The company said that Apex Credit Partners, a structured finance joint venture with insurance and investment group MassMutual, held $48mn worth of loans to First Brands.

Those loans were owned by 12 collateralised loan obligations — structured investment vehicles that buy up pools of corporate loans — and one financing “warehouse” managed by Apex. While those CLOs are ultimately held primarily by other investors, Apex itself invested in the riskiest portion of the structured investment vehicles.

These riskier slices of debt would bear the brunt of any losses if loans held by the CLOs defaulted.

Point Bonita — named after a lighthouse overlooking San Francisco Bay — pitched itself as safe and secure to investors, according to marketing materials reviewed by the FT.

“Like its namesake, Point Bonita Capital seeks to serve as a steady beacon in a dynamic environment,” said one investor pitchbook.