First Brands bankruptcy tensions are rising as a group of creditors demands new, independent advisers for special purpose vehicle (SPV) units that issued nearly $2.5 billion in off‑balance‑sheet debt. The lenders argue that conflicts of interest could disrupt the auto‑parts maker’s sprawling Chapter 11 case and harm SPV creditors.
Key Points
Aequum Capital Financial and other lenders owed more than $200 million, say the same lawyers and advisers, cannot represent First Brands while overseeing the SPV debtors. UMB Bank, acting as agent for lenders to one of the SPVs, echoed the call in court filings, insisting independent counsel and day‑to‑day managers are necessary to protect SPV creditor interests.
The push is the latest attempt to keep First Brands from using collateral claimed by SPV lenders to pay debts owed by non‑SPV units, a key fault line in the First Brands bankruptcy.
Why Creditors Want New Advisers in the First Brands bankruptcy
Creditors say the structure of the case creates conflicts. They argue a single advisory slate cannot simultaneously act for the parent company and for SPVs whose collateral may be ring‑fenced for a distinct creditor group.
Court papers outline a straightforward rationale: separate advisers would ensure SPV assets and claims are evaluated independently of the broader First Brands bankruptcy strategy. UMB Bank warned that without this separation, SPV creditors could be disadvantaged.
Aequum Capital also asked the court to remove the SPV that owes it money from the bankruptcy altogether so the lender can pursue repayment separately.
SPV Collateral at the Center of the Dispute
The core dispute is collateral. SPV lenders assert that certain assets securing their loans should not be diverted to satisfy obligations of non‑SPV parts of the company.
Creditors said that, if unchanged, the First Brands bankruptcy will pit SPVs and the main estate against each other because of the way cash and auto parts moved between entities. They warned of overlapping claims that could intensify as investigations progress.
US Bankruptcy Judge Christopher Lopez, who is overseeing the case in Houston, will rule on the request for independent SPV advisers. No timeline has been set for that ruling.
Allegations of Fraud Complicate the Asset Map
Court filings allege that First Brands’ founder and former CEO used fake invoices and double‑pledged assets to induce investors to lend billions of dollars. Incomplete and confusing records, creditors argue, raise the risk that different creditor groups will fight over the same assets.
First Brands has sued founder Patrick James to claw back hundreds of millions of dollars, the company alleges he took. Judge Lopez has called transfers between the company, James, a personal trust, and businesses “highly questionable.” James has denied wrongdoing, saying he always acted ethically.
These unresolved allegations hang over the First Brands bankruptcy, shaping how creditors position for recoveries.
Who’s Running First Brands—and Why That’s Being Challenged
Three of the most prominent restructuring firms in the US were tapped after Patrick James resigned amid misconduct accusations:
- Weil, Gotshal & Manges LLP as bankruptcy counsel
- Alvarez & Marsal for day‑to‑day management
- Lazard Frères & Co. is an investment banker
In filings, lenders asked the court to remove all three from oversight of the SPVs, citing the need for independence. Representatives of these firms did not immediately respond to requests for comment, according to the filings.
The lenders’ request does not challenge those firms’ roles for the parent company; it targets SPV oversight in the First Brands bankruptcy.
Hearings Ahead: What’s on the Court’s Calendar
Two key tracks are developing:
- Independent SPV advisers: Judge Lopez will decide whether to appoint new, independent counsel and managers for the SPVs. No timeline has been set.
- SPV removal from the case: Aequum and the Carnaby Secured Lenders asked to remove certain SPVs from the bankruptcy. A hearing is scheduled for Nov. 17. Removal would strip those SPVs of bankruptcy protection and allow creditors to try to seize assets currently under First Brands’ control.
Outcomes on either track could reshape leverage among creditor groups in the First Brands bankruptcy.
The Numbers Behind the Crisis
The auto‑parts maker filed for bankruptcy in September with just $14 million in cash, despite reporting about $5 billion in revenue in 2024. Since entering court protection, advisers have been working to untangle the finances and find a path to repay as many creditors as possible.
The SPV layer—nearly $2.5 billion in off‑balance‑sheet debt—adds complexity. It also increases the stakes for how collateral pools are delineated in the First Brands bankruptcy.
Lenders’ Core Arguments, in Brief
- Conflict risk: One advisory slate cannot serve both the parent and SPVs without jeopardizing SPV creditor interests.
- Collateral protection: SPV collateral should not be tapped to cover non‑SPV debts.
- Case efficiency: Independent SPV teams could reduce disputes and clarify asset tracing in the First Brands bankruptcy.
- Structural remedy: In some instances, lenders seek to remove SPVs from Chapter 11 to pursue remedies directly.
These arguments reflect a broader trend in complex cases involving securitized or segregated financing structures.
How Asset Tracing Could Drive Outcomes
Given allegations of fake invoices and double‑pledged assets, tracing flows between the parent and SPVs is central. The risk is that multiple creditor groups assert rights to the same assets.
Independent SPV advisers, creditors say, would help ensure forensic work and settlement talks weigh SPV claims on equal footing with the parent’s restructuring goals. That could influence distributions in the First Brands bankruptcy.
What Each Side Wants Right Now
- SPV lenders: Independent advisers for SPVs, possible removal of specific SPVs from the case, and protection of collateral.
- First Brands (as debtor): Continuity with its current advisory team for the enterprise while it pursues claims against the founder and works toward a plan to repay creditors.
- The court: A process that protects creditor rights, resolves conflict risks, and preserves value.
Judge Lopez’s rulings will shape the negotiation landscape and the pace of proceedings in the First Brands bankruptcy.
Legal Actions Against the Founder Continue
The company’s lawsuit against Patrick James will proceed over the coming months. The court has already flagged certain transfers as “highly questionable.” Any recovery from that litigation could materially affect distributions, though timing and amounts remain uncertain.
First Brands Group versus Patrick James, 25‑03803, is pending in the US Bankruptcy Court for the Southern District of Texas (Houston).
Reactions and Next Updates
- Representatives of Weil Gotshal, Alvarez & Marsal, and Lazard did not immediately respond to requests for comment in the filings.
- Aequum and the Carnaby Secured Lenders are pressing for SPV removals at the Nov. 17 hearing.
- Aequum has asked to pull its borrower SPV out of the case to seek repayment separately.
Expect additional filings to land ahead of the hearing and any subsequent decisions on SPV governance in the First Brands bankruptcy.
What It Means for Creditors Across the Capital Structure
For non‑SPV creditors, independent SPV governance could tighten access to collateral that the estate hoped to use. For SPV lenders, it could preserve value and accelerate recoveries if separate remedies become available.
Either way, creditor recoveries will depend on asset tracing, outcomes of litigation against the founder, and how the court allocates disputed collateral in the First Brands bankruptcy.
Conclusion
With nearly $2.5 billion in off‑balance‑sheet financing at stake, the battle over who controls SPV assets has become a defining chapter in the First Brands bankruptcy. Creditors are pushing for independent advisers and, in some cases, for SPVs to exit Chapter 11 protection altogether. Judge Christopher Lopez will determine whether governance changes are needed and how far SPV creditors can go in protecting collateral.
As lawsuits proceed and hearings approach, the case will turn on conflict management, asset tracing, and the court’s view of who is entitled to what—and when.
FAQ’s
What are creditors asking for in the First Brands bankruptcy?
Lenders, including Aequum Capital and UMB Bank, want independent counsel and day‑to‑day managers for SPV debtors that issued nearly $2.5B off‑balance‑sheet. Some also seek to remove certain SPVs from Chapter 11.
Why are SPVs central to this dispute?
Creditors argue SPV collateral is ring‑fenced and shouldn’t repay non‑SPV debts. Intercompany flows and incomplete records raise overlap risks, making asset protection a priority.
What happens next in court?
US Bankruptcy Judge Christopher Lopez oversees the case and will rule on the request for independent SPV advisers. A hearing on removing certain SPVs from the case is set for Nov. 17.
What allegations involve founder Patrick James?
Court filings allege fake invoices and double‑pledged assets; First Brands is suing to claw back funds. James denies wrongdoing, and the litigation proceeds alongside the restructuring.
