Here’s what you need to know:
- Ohio firm NOCO declines to make a bid for First Brands' intellectual property related to Trico wipers, clearing the way for a wider sale of intellectual property to PGI.
- Bankruptcy Judge Christopher Lopez has agreed to sign an order converting some of the bankruptcy cases to Chapter 7.
- Former executives ask to be dismissed from adversary suits.
NOCO, a family owned Cleveland company that started in the battery industry, has dropped its objection to the sale of First Brands intellectual property.
The company alleged it wasn't given an opportunity to bid on property related to Trico wipers, part of the First Brands group of companies, ahead of a proposed sale to PGI Northstar, part of Premium Guard Inc. In a hearing on Tuesday, U.S. Bankruptcy Judge Christopher Lopez ordered NOCO be given until 10 a.m. Central on Friday to come up with a bid on the Trico IP.
“I don’t have any evidence they’re gonna walk,” Lopez said. “So I’m going to give you 48 hours. … These assets have to be sold.”
Thursday, NOCO withdrew its objection to the PGI sale.
"Upon review of the disclosure schedules to the (asset purchase agreement with PGI) which NOCO received only following the April 7 hearing, NOCO learned that the intellectual property included as part of the transferred assets substantially differed from what was anticipated," the filing said. "This discrepancy substantially modified the previously perceived transaction perimeter and significantly lowered, if not eliminated, the value of the intellectual property to NOCO."
The company went on to say that, due to confidentiality obligations, it couldn't specify the exact differences.
"NOCO has concluded that the factual predicate underlying the objection has materially changed," it said. "NOCO is unable to pursue a transaction for the assets in which it expressed interest and respectfully withdraws its objection."
In court on Tuesday, PGI's lawyer, Jordan Leu, said a major customer in the IP deal, which includes filters, plugs, wipers and Strongarm business lines, has threatened to take its business elsewhere if a deal was sorted out in a timely manner. None of the businesses in the deal are operating.
First Brands filed for bankruptcy in September and, in January, the former CEO and other executives were indicted for fraud related to the company's indebtedness. Facing a liquidity crisis, the company rapidly wound down businesses not kept afloat by OEMs seeking to maintain a steady supply of parts. Business lines not covered by OEMs shuttered plants and laid off more than 3,500 employees. First Brands says the longer the business lines are shut down, the less valuable they become.
The PGI deal is worth $25 million. The company will also assume certain liabilities and pay a portion of net sales over time that First Brands values at about $20 million.
Some cases convert to Chapter 7
In court on Thursday, Lopez agreed to sign an order converting some of the First Brands Chapter 11 bankruptcy cases to Chapter 7. Chapter 11 cases allow the businesses in control of a corporation to continue operating, if possible, as the business reorganizes. Chapter 7 is a liquidation process used when the business is worth less than the sum value of its assets.
[RELATED: Judge approves Walbro sale, saving 600 jobs at former First Brands company]
Evolution said its relationship with First Brands began in 2023 as the company faced liquidity constraints. It entered into an inventory finance agreement worth a maximum of $150 million secured by a pledge of inventory held by Patterson Inventory LLC, a subsidiary of First Brands. In 2024, it did so a second time, this with a subsidiary called Starlight Inventory I LLC.
Under these deals, the subsidiaries bought inventory from First Brands, creating a borrowing base to obtain up to $300 million in loans from Evolution. When First Brands declared bankruptcy, Evolution claimed it was owed $230 million in principal obligations.
"The Evolution SPV debtors have no operations, no employees and no creditors other than Evolution," Evolution said in filing for the conversion. "They were intended to be 'bankruptcy-remote' special purpose vehicles created for the purpose of effectuating the financing ultimately obtained from Evolution."
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In addition to its involvement in the main bankruptcy case, Evolution also is involved in a pair of adversary cases, which are similar to lawsuits in bankruptcy court, to litigate disputes between First Brands and the company's other creditors.
Thursday's order allowed the companies created just to obtain credit from Evolution to liquidate. It also indemnifies officers of First Brands after its bankruptcy petition and mandates the Chapter 11 orders remain in effect, as well as sets times for a new Chapter 7 trustee to take over.
"We've worked hard with Evolution and the other parties ... to reach this consensual form of conversion order," Clifford Carlson, lawyer for First Brands said. Evolution's counsel agreed.
"We think this is the right outcome," Charles Dale, representing Evolution, said. "We're comfortable with it."
Former executives seek to remove themselves from adversary cases
Three former First Brands executives also this week joined indicted ex-CEO Patrick James in asking to be removed from an adversary suit filed by First Brands as part of its bankruptcy case. The suit seeks to recoup the company's losses it says were caused by the executives.
[RELATED: Court filings detail alleged wrongdoing in First Brands’ collapse]
Stephen Graham is the former chief financial officer at First Brands. Earlier this year, he plead guilty to four counts of wire and bank fraud in the case and is cooperating with the federal prosecutor. In a filing this week, he asks to be removed from the adversary case because, among other things, First Brands' complaint isn't specific enough.
"The amended complaint is, at bottom, a case about Patrick James," the filing said. "It alleges that Mr. James fraudulently secured billions of dollars in financing for First Brands, which he then misappropriated to enrich himself and his family at the expense of First Brands. Mr. Graham is merely an afterthought."
Peter Andrew Brumbergs, a former senior vice president, has also plead guilty and asked to be removed from the adversary suit, on similar grounds, saying First Brands hasn't stated a plausible claim for relief.
"Mr. Brumbergs has pleaded guilty to federal criminal offenses related to his employment at First Brands," the filing said. "He accepts full responsibility for his conduct and, for the avoidance of doubt, does not through this motion to raise any factual arguments about his conduct or legal arguments about his criminal liability. Rather, Mr. Brumbergs files this motion solely to address the legal sufficiency of the three civil causes of action brought against him in the amended complaint."
Lastly, Michael Baker, First Brands' former chief strategy officer, also seeks dismissal of First Brands' suit against him.
"Mr. Baker does not belong as a defendant in this proceeding," the filing said. "Mr. Baker is the only individual defendant who has not been criminally charged. ... Mr. Baker has not been charged with anything, by anyone, anywhere."
The filing contends Baker was kept in the dark about the alleged fraud on purpose because of his "name and reputation on Wall Street as a Chambers-ranked leveraged finance partner at two leading international law firms." He said he was kept out of the loop by the other executives and, once he was made aware of the alleged fraud, promptly resigned.
"The truth is that the real reason Mr. Baker was added to this complaint is not the evidence — it is the insurance," the filing read. "Mr. Baker is the only individual defendant whose inclusion in this lawsuit could trigger potential recovery under the company's directors' and officers' insurance policy."
First Brands has yet to file rebuttals to any of the motions filed by the former executives. The next hearing in the bankruptcy case is set for Friday to discuss the sale of the intellectual property.
