(Dec 10): Major investors in First Brands Group have offloaded stakes in the bankrupt auto supplier’s debt in recent days, causing the value of its most senior loan to collapse and prompting it to pull forward a lender call to calm nerves.
Marathon Asset Management and Redwood Capital Management are among funds who have sold chunks of the super-senior loan they provided First Brands as it crashed into a Chapter 11 restructuring, according to people familiar with the matter.
Diameter Capital Partners, Monarch Alternative Capital and UBS Asset Management have sought to sell portions of their debt stakes but it’s unclear if they were successful, said the people, who asked not to be named because the information isn’t public.
It’s rare for investors to head for the exits so soon after a bankruptcy filing, and some recent trades suggest concern about the ability to turn around First Brands’ business as it contends with revelations of billions in missing cash and of alleged fraud by its founder. Their worries come at least in part from the view that the company will need a further injection that could disadvantage existing holders, as well as a lack of visibility into how the business is doing, the people said.
Price levels from trading desks this week reflect those fears. First Brands’ US$1.1 billion debtor-in-possession loan — the first in line to be repaid — was quoted at as little as 63 US cents on the dollar, down from 100 US cents just a week ago. Its other debt is deemed virtually worthless.
Marathon sold its entire stake in the new-money portion of the bankruptcy loan at or above 105 US cents on the dollar, according to a spokesperson for the firm. Those sales came just weeks after the its chief executive officer publicly promoted its belief in the quality of the company and its own role to “help this great company exit bankruptcy as soon as possible.”
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Redwood’s sales were also of the new-money portion of the loan and around 105 US cents on the dollar, according to one of the people familiar with the trades.
A First Brands spokesperson declined to comment on the funds’ selling. Spokespeople for the lenders either declined to comment or didn’t respond to requests for comment.
First Brands’ advisers are set to host a creditor call late Tuesday to map out the path ahead for the company. Earlier Tuesday, First Brands said it added three automotive executives with decades of experience as senior advisers.
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The move “marks an important milestone in our transformation and a clear marker of First Brands’ strength,” Charles Moore, the company’s interim chief executive officer, said in a statement.
Part of the pessimism from the creditors that shelled out more than US$1 billion to finance First Brands’ restructuring also stems from the fees that are piling up. On Monday the judge overseeing the bankruptcy approved new limits to fees being sought by some advisers. The company proposed those limits after talking with advisers, lawyers said during a court hearing in Houston.
The request came after senior lenders were growing more frustrated about the advisers’ effectiveness and the progress of the turnaround, according to some of the people.
Just two months into the Chapter 11 case, First Brands is struggling in its dealings with both suppliers and customers, the people said. In some cases, customers don’t always know who to pay for the goods they do sell.
Uploaded by Isabelle Francis
