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First Brands is teetering on the precipice of an all-out liquidation as its accounts dwindle, with its advisers racing to sell its auto parts manufacturing businesses before it runs out of cash.
The company is now relying on weekly injections of cash from automakers, who are among its biggest customers, given its accounts are nearly empty. Those customers have agreed to pump $48mn into First Brands and could agree to give additional sums on a weekly basis.
First Brands has until February 9 to strike deals to sell certain businesses in order to receive any additional funding from the carmakers, according to milestones disclosed in court documents.
Its situation had become so dire that the company, which filed for bankruptcy in September with roughly $12bn of debt, only had $32.8mn of so-called unrestricted cash as of last Friday, according to court papers.
The cash infusion from a group of roughly a dozen automakers including Ford and General Motors, first reported by the FT, is meant to give First Brands’ advisers time to sell its remaining units in the coming weeks at a breakneck speed before its cash is fully depleted.
First Brands had been preparing to shutter its North American operations last week and would have begun to liquidate its business had it not received the financial lifeline, an adviser for the company told a court in Houston on Thursday.
The warning on Thursday came as First Brands’ owner Patrick James and his brother Edward were arrested by US authorities and charged with fraud, with prosecutors likening the way they operated the business to a Ponzi scheme. The two men have denied the charges.
Lenders to the company have lost billions of dollars as part of its collapse and have so far been unwilling to pump in more money, according to people briefed on the matter. A group of lenders gave the company a $1.1bn rescue loan when the company filed for bankruptcy in September.
Sunny Singh, First Brands’ counsel, painted a dismal portrait of the company’s finances and the extent of alleged fraud during the hearing on Thursday. He said the company had “cut costs to the bare minimum” but even that was not enough to keep it running in the coming weeks without additional funds.
Charles Moore, the company’s interim chief executive, said in a filing that despite efforts to raise more cash, such as by asking existing customers to make accelerated payments, the company had reached a “breaking point”.
Meanwhile, the fallout has already been felt among its rank-and-file employees. First Brands laid off 4,000 workers earlier this week after it decided to shut down three of its brands, including Brake Parts and Autolite. Another 13,000 jobs were at risk last week before the carmakers provided the rescue financing.
One person briefed on First Brands’ restructuring said the company was focused on selling core assets and that the cash infusion should help it avoid an outright liquidation.
“We will continue to act in a disciplined manner to maximise value and transition our remaining portfolio of leading brands to new ownership in partnership with our key customers,” Moore said earlier this week.