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Lenders and investors battled over terms of rescue financing for collapsed auto parts maker First Brands in a packed Houston courtroom on Thursday, underscoring the duelling priorities of keeping it running while fighting over its remains.
First Brands’ first in-person court hearing since it filed for bankruptcy in September attracted nearly 100 lawyers and advisers as it sought court approval on the final slice of a $1.1bn bankruptcy loan provided by a group of existing senior lenders.
The financing has prompted a fight between creditors to the company over terms that could generate ample returns for secured lenders while leaving others with little.
While the company reached a deal with one crucial creditor group, other holdouts, including those involved in lending against First Brands’ inventory, have yet to agree terms. The impasse was serious enough to push the session into Friday — and possibly the weekend. If a consensus is not reached, Judge Christopher Lopez of the US bankruptcy court in Houston could impose terms he deems fair.
In exchange for $1.1bn in new debt, First Brands gave those lenders senior repayment priority on both that money and $3.3bn in existing loans. The tentative compromise struck between the company and the creditors’ committee involves secured lenders agreeing to more generously share future potential litigation proceeds with unsecured creditors.
Just after lunch, the court was told by lawyers that Tyler Cowan, First Brands’ banker from Lazard, could no longer make a video appearance from Paris as he had to attend his wedding anniversary dinner, pushing his testimony to Friday.
After hours of impromptu side meetings in the court’s hallways and conference rooms, the judge announced the hearing could spill into the weekend.
With professional fees expected to reach hundreds of millions of dollars, the judge acknowledged it was “an expensive room” and encouraged parties to reach a deal quickly.
The company’s lawyers from Weil Gotshal & Manges asked for several breaks in an attempt to reach a settlement with the official committee of unsecured creditors, one of the groups opposing the financing arrangement. The committee had said in court filings that the loan terms offered as much as a 74 per cent annualised return to the senior lender group.
Scott Greenberg, a lawyer for the senior lenders, told the court his clients — including Marathon Asset Management and Diameter Capital Partners — expected to be fairly compensated for contributing “into a black box without a bottom”.
“If the [final bankruptcy loan] isn’t approved, the company will liquidate,” said Sunny Singh, a lawyer for First Brands. “We’re talking high stakes, as high as they get.”
Since First Brands filed for bankruptcy in late September, its advisers have taken over. The company’s new management sued founder Patrick James earlier this week, accusing him of orchestrating a multibillion-dollar fraud. A spokesperson for James has denied the allegations.
The consultancy Alvarez & Marsal has appointed one of its own managing directors, Charles Moore, as First Brands’ interim chief executive officer. Moore and other executives have spent the past several weeks trying to triage the company’s fleet of auto parts brands, including collecting more than 7mn documents and looking through bank account records as a part of its investigation into James. They have also set up a “whistleblowing hotline” for employees.
Moore told the Financial Times outside the courtroom that he met dozens of First Brands retailers at a Las Vegas convention this week. “We’ve made a lot of progress,” he said.
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