Here's what you need to know
- More than 3,500 First Brands employees have been laid off as the company winds down many of its 20-plus brands.
- Lawsuits are flying as First Brands sues its founder and former CEO, Patrick James, alleging he used company money to buy houses, cars — and that it's not the first time.
- First Brands asks a bankruptcy court for an expedited sale of its Walbro brand, saving 600 jobs, for $50 million.
Updated March 13:
Judge Christopher Lopez ruled Friday the sale of First Brands' Walbro business for $50 million may proceed with a targeted closing date of Monday.
Walbro is being sold to Overdrive Capital LLC, owned and operated by shareholders and officers of the Active Dynamics Group, an OEM supplier specializing in emissions control, sound attenuation, thermal management and fluid dynamics headquartered in Toronto. It operates in the commercial vehicle, off-highway, powersports and marine and industrial markets.
Walbro makes solutions for small engine fuel systems, carburetors, fuel pumps, ignition systems, electronic fuel injection, plastic injection molding and related components across power equipment, powersports, marine and specialty engines. It operates under brand names associated with Walbro or Carter Carburetor.
The sale, First Brands says, will save about 600 jobs.
Melissa Woods, an attorney appearing on behalf of the United Autoworkers Union, says the union supports the sale and encouraged First Brands to find buyers for other entities.
"The plant shutdowns have had a drastic impact on the members, their families and their communities who are having to make some tough decisions about their futures," she says.
In granting the motion for sale, Lopez encouraged it to go through as quickly as possible in the interest of maintaining jobs.
"Bankuptcy judges don't often see the folks that actually work at these places, but they're always in our minds," he says. "I'll approve the sale."
Updated March 12:
Evolution, one of First Brands' creditors, asked a judge to move the lines of business in the company's brakes business from Chapter 11 into Chapter 7 bankruptcy.
"They have no business operations generating revenues. They failed to generate interest for their brake parts division and no parties have committed financing to support the business," a motion reads. "With no prospect of reorganization, Evolution does not support any continued restructuring efforts."
The move does not affect every brand at First Brands, just the ones included in a special financing deal as part of its brake parts line of business.
Evolution says these borrowers owe around $230 million in principal obligations. The financing company asks for U.S. Bankruptcy Court Judge Christopher Lopez to rule no later than March 24.
Updated March 10:
First Brands has reached a deal to sell its Walbro line of business for $50 million, it says. It asks the bankruptcy court hearing its Chapter 11 case in Houston to expedite the approval of the sale so it can close by the end of the month.
Walbro manufactures solutions for small engine fuel systems, carburetors, fuel pumps, ignition systems, electronic fuel injection, plastic injection molding and related components across power equipment, powersports, marine and specialty engines. It operates under brand names associated with Walbro or Carter Carburetor.
The buyer is Overdrive Capital LLC, owned and operated by shareholders and officers of the Active Dynamics Group, an OEM supplier specializing in emissions control, sound attenuation, thermal management and fluid dynamics headquartered in Toronto. It operates in the commercial vehicle, off-highway, powersports and marine and industrial markets.
Critically, the Walbro sale is backed by both First Brands' principal creditors and the OEMs providing week-to-week liquidity for the company's brands that support their products. These include Harley-Davidson Motor Company, Arctic Cat Inc., Husqvarna AB, Mercury Marine, and Deere & Company Inc.
"Moreover, as each week passes, customers and vendors continue to lose confidence, operating costs and expenses mount, and employees become more uncertain of the future of the plants and factors at which they work," an emergency motion for the order approving the sale says.
The sale includes preserving around 600 jobs at Walbro facilities. The motion says First Brands is in active negotiations with stakeholders and potential buyers for other business lines.
Original story from March 9:
First Brands' sprawling Chapter 11 bankruptcy case continues roll on as lawsuits fly among lenders, creditors and former employees.
Bankruptcy case
First Brands filed for bankruptcy in September, but the hearings continue as creditors fight to recover their losses. In a hearing Monday, Evolution Credit Partners asked Judge Christopher Lopez for adequate protection for its assets.
Michael Duke of Elsberg Baker & Maruri PLLC, counsel for Evolution, alleged First Brands was continuing to burn through money to the tune of $25 million per week. Evolution has an adversary case — a legal proceeding in a bankruptcy case similar to a lawsuit — against First Brands.
The next hearing in the bankruptcy case is March 11.
First Brands Group LLC et al. v. Onset Financial Inc. et al.
Earlier this year, First Brands sued one of its creditors, Onset Financial, just before the indictments of brothers and former First Brands executives Patrick and Edward James.
In the suit, First Brands alleges Onset Financial and its investors — including Edward James, and a host of investment groups — perpetrated a scheme to defraud creditors out of billions of dollars.
"Simply put, Onset and Edward James made a deal — James would work against the debtors as Onset's secret partner and together they would rig scores of supposed 'contracts' between the debtors and Onset to enrich themselves at everyone else's expense," the suit says. "As a result, Onset (and its secret partner Edward James) obtained transfers of approximately $2.9 billion in cash, triple-digit returns, and alleged interests in inventory and equipment."
The suit seeks to recover the cash and property.
Last week, Onset and other defendants filed a motion to dismiss First Brands' suit. The financier says it funded nearly $3 billion to First Brands from 2018-2025, secured by inventory and equipment. As of First Brands' Chapter 11 filing, Onset says it was still owed at least $2.17 billion.
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"Like scores of sophisticated lenders, investors and other industry and market participants, Onset [and its funding partners] were deceived by 'falsified inventory schedules,' fake 'account documentation,' and collateral that, if it even existed, was often double- or triple-pledged to different lenders without knowledge or consent," Onset's motion says.
Onset also has a adversary case against First Brands.
First Brands Group LLC et al. vs. Patrick James et al.
This suit was filed after the bankruptcy petition and before Patrick James' indictment. In it, First Brands alleges James and several entities controlled or owned by him defrauded lenders for billions of dollars to fund his and his family's lavish lifestyle.
It says that when First Brands filed for bankruptcy, it had $5 billion in annual sales, $9.3 billion in debt obligations and just $12 million in the bank. It also details where it says the proceeds of James' alleged deals went, giving examples of a home in Malibu and one in the Hamptons, as well as an extensive car collection that includes 17 exotic cars.
James objects to First Brands' characterization of his actions, with court filings calling the claims "wild allegations."
"Further underscoring the incomplete investigation and one-sided narrative that (First Brands) presented in service of the extraordinary relief they sought, (First Brands) creates the specter of 'misappropriation' and fraudulent transfers by making blanket assertions that hundreds of millions of dollars were moved out of (First Brands) to (James) — but conveniently skip over the fact that hundreds of millions of dollars were reinvested into First Brands by Mr. James and related entities over the years," one motion reads.
First Brands' suit also claims this isn't the first time James has faced these kinds of allegations. It outlines a 2009 case where Tristate Capital Bank sued James and his companies for "repeatedly misleading a borrower group about the nature and value of collateral, the condition of the business, and the disposition of assets and proceeds," it says. That case was settled, as was a 2011 lawsuit wherein the Fortress Value Recovery Fund alleged James created and used "a web of affiliated entities to move money from his heavily indebted company to other management entities. This suit was settled for $6 million, it says. In 2018, a similar suit was filed in Michigan against James says "promoted a segment of his conglomerate Vari-Form as an independent asset and secured new debt financing from investors," and cited a person familiar with the matter. The suit goes on to say Vari-Form filed for insolvency.
First Brands' suit against Patrick James is on track to go to trial in June.
Investors take to court
Western Alliance said Friday it was suing investment bank Jeffries Financial for not completing payment of $126.4 million it owed for loans tied to First Brands Group and collateralized by accounts receivable purchased from First Brands.
"I can't tell you what's behind Jefferies' motive," says Western Alliance CEO Kenneth Vecchione. "We are deeply disappointed by Jefferies' conduct."
On Monday, Jefferies' President and CEO Rich Handler and President Brian Friedman released a letter responding to Western Alliance's claims.
"Both the lawsuit and Mr. Vecchione's statements ignore the simple reality that Western Alliance did not extend credit to Jefferies," the letter says. "Instead, for over four years, Western Alliance made non-recourse loans in increasing amounts to special purpose entities that held First Brands receivables, with no guarantee or other credit support from Jefferies or any of its other affiliates."
The investment firm says Western Alliance leant money to LAM Trade Finance Group, owned by the Point Bonita master fund, which purchased First Brands receivables. It also made loans to LAM TFG I SPV LLC, an LLC also owned by Point Bonita master fund that exists to hold First Brands receivables.
"Jefferson honors all its obligations," the letter continues. "Jefferies has no obligation to pay off a non-recourse loan Western Alliance chose to make to a special purpose vehicle against First Brands receivables. The statement that Jefferies 'couldn't' repay $126 million is false and absurd."
This isn't the only case involving Jefferies and Point Bonita. Investors in two funds in the British Virgin Islands say the Point Bonita fund claimed to have cash dominion over receivables from First Brands, but in fact, First Brands retained control of the receivables and may have used them to commit fraud. They are seeking $18.4 million in damages.
Recent guilty pleas
Two former First Brands executives have plead guilty in the bank fraud case and are cooperating with prosecutors. Stephen Graham is the company's former CFO and Peter Andrew Brumbergs is a former vice president.
