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First Brands Group’s $1.1bn rescue loan faces a legal challenge from a Utah-based private asset-backed finance specialist, which has emerged as the largest known creditor to the bankrupt US car parts company.
Onset Financial — a company in Draper, Utah, that describes itself as a “dominant force and leader in the equipment lease and finance industry” — built up $1.9bn of exposure to First Brands in the years before it collapsed into bankruptcy, according to legal filings.
This makes the specialist company the biggest known creditor to First Brands, which has now disclosed that it built up almost $12bn in debt and off-balance sheet financing. Onset’s exposure eclipses some of the biggest names on Wall Street, which are facing the prospect of multibillion-dollar losses in a chaotic bankruptcy process.
Onset on Tuesday filed a “preliminary objection” to a $1.1bn “debtor-in-possession” (dip) loan that First Brands has agreed with other creditors. This first-ranking loan is intended to provide the Ohio-based car parts group with emergency funding.
In its filing in the Southern District of Texas bankruptcy court, the Utah-based company’s lawyers wrote that “First Brands owes Onset approximately $1.9bn” and that the relationship between the private finance firm and the car parts company “dates back to 2017”.
“When the dust settles, this court will see that Onset was the single most significant provider of liquidity to the debtors,” Onset’s lawyers wrote.
Dip loans are a crucial component of US bankruptcy processes that help stabilise a business as it aims to continue trading. Challenges to these loans are common, but Onset’s status as the largest-known creditor makes its objection significant.
At a court hearing on Wednesday held after Onset filed its challenge, the judge overseeing the bankruptcy approved the Dip loan, while making clear that the loan needed stipulations because of concerns from the group and other asset-backed lenders.
“It is clear that this debtor needs [ . . .] an incredible amount of financing,” Judge Christopher Lopez said. “I don’t think since my time on the bench I’ve seen anything like this.”
Benjamin Butterfield, a partner at Morrison Foerster representing Onset, told the court the lender knew it would have to “prove [its] rights”. However, Onset had first-ranking security on all of the assets it had leased to First Brands, he added.
Onset’s filing prior to the court hearing revealed it had advanced “over a billion dollars” of financing to First Brands over the past year, providing funding to support its “working capital needs, fund acquisitions, and help the company navigate both pending and imposed tariff regimes”.
The financing took the form of sale-leaseback transactions relating to First Brands’ inventory.
Onset describes itself as the “rightful owner of the inventory and equipment it leased to First Brands” and described a previous filing from the bankrupt company’s new chief restructuring officer as “both inaccurate and incomplete”.
Onset’s lawyers said the company anticipated it would have to “aggressively” defend its rights in the bankruptcy.
Charles Moore, a managing director at Alvarez & Marsal who is acting as First Brands’ chief restructuring officer, previously made statements in a legal filing covering a range of matters, including that an investigation into the car parts group’s off-balance sheet financing is examining whether collateral underpinning its financing was pledged “more than once” and “commingled” between lenders.
Moore’s statement did not say that investigators had identified or confirmed specific instances of wrongdoing.
The fact that First Brands’ lenders are willing to provide such a large rescue loan despite these questions over the company’s financial disclosure and borrowing is unusual.
Scott Greenberg, a partner at Gibson Dunn representing the lenders providing the Dip, told the court his “clients are lending $1.1bn into effectively a black box”.
Sunny Singh, a partner at Weil Gotshal & Manges representing First Brands, argued that without the loan there would have been “a liquidation of this massive enterprise”.
In the same filing, Moore disclosed Onset had faced significant payment issues on its lease financing as early as May and that the Utah-based group had provided “forbearance” to First Brands on this debt.
Moore added that First Brands’ shareholder Viceroy Private Capital — a holding company linked to the group’s founder and owner Patrick James — pledged a 15 per cent stake in the car parts maker to Onset in August.
While Onset is little-known outside its niche in equipment and inventory finance, its corporate website heralds its dominance of the industry. On its website and in its legal filing, the company claims to have “funded over $5bn in equipment finance transactions”.
Founded in 2008, Onset’s website describes its sole shareholder and chief executive Justin Nielsen as having “built a powerhouse organisation” in equipment leasing, which through its charitable arm has “raised hundreds of thousands of dollars for local and national charities”.
The Financial Times reported last week that funds linked to Keystone National Group, a private credit firm based in Salt Lake City, had also built up exposure to First Brands’ inventory debt.
Keystone has previously estimated returns in excess of 50 per cent on First Brands’ inventory debt, according to filings with the Securities and Exchange Commission.
Onset and Keystone declined to comment. A&M and First Brands did not immediately respond to a request for comment.
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