By Dietrich Knauth
NEW YORK (Reuters) -Bankrupt auto parts supplier First Brands on Wednesday received a U.S. judge’s permission to proceed with the first phase of a $1.1 billion bankruptcy loan, giving the company an immediate infusion of $500 million as it tries to reorganize longer-term debt.
U.S. Bankruptcy Judge Christopher Lopez approved the first phase of the loan at a court hearing in Houston, Texas, after First Brands said it needed the money to stabilize a business that been knocked off course by President Donald Trump’s tariffs and escalating debt disputes, some of which stem from suspicions over the company’s accounting practices.
“It is clear that this debtor needs financing,” Lopez said.
Lopez will consider approving the remainder of the loan at a future court hearing.
First Brands filed for bankruptcy on Monday after its lenders began investigating irregularities in the company’s financial reporting. The company has $11.6 billion in total liabilities, according to court documents.
BANKRUPTCY RATTLES DEBT INVESTORS
Financial troubles at the auto parts supplier, coupled with the recent bankruptcy of subprime auto lender Tricolor Holdings, have rattled debt investors and stoked fears of broader stress in corporate debt markets.
First Brands’ bankruptcy loan is being provided by a broad coalition of the company’s existing lenders, despite fears that they may be “lending good money after bad,” Scott Greenberg, an attorney for the lenders, said at Wednesday’s hearing. The lenders have accepted that risk because they want to keep First Brands in business while they investigate the extent of its financial troubles, Greenberg said.
First Brands believes it has an unpaid $2.3 billion hole on its balance sheet related to its use of invoice factoring, a process that it has used to generate short-term cash flow. First Brands sold invoices to third-party financial institutions, allowing First Brands to collect funds before a customer actually paid.
The company is investigating whether it double-sold some invoices to more than one buyer, and whether First Brands held on to some customer payments that should have been turned over to the purchaser of an invoice.
First Brands, which is owned by founder and CEO Patrick James, racked up most of its long-term debt by acquiring other parts suppliers and auto repair services over the past 15 years.
But the company’s high debt became harder to manage in 2025, when President Donald Trump’s tariffs raised the price for auto parts from overseas, cutting into the company’s profits and forced it to spend more money restructuring its supply chain, according to court filings.
First Brands estimated that Trump’s new tariffs cost the company $219 million from April 2025 to August 2025.
The company’s high debt gave it little room to absorb additional costs, according to court filings. The company had about $1.1 billion in annual earnings, but paid $900 million in debt service costs, according to its court filings.
(Reporting by Dietrich Knauth; Editing by Alexia Garamfalvi and Nick Zieminski)
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