First Brands, a bankrupt auto parts supplier, has received approval from a U.S. judge to proceed with the first phase of a $1.1 billion bankruptcy loan. This initial phase grants the company an immediate infusion of $500 million as it seeks to reorganise its longer-term debt. U.S. Bankruptcy Judge Christopher Lopez approved the funding at a hearing in Houston, Texas, noting the company’s clear need for financing to stabilise its operations. The remainder of the loan will be considered at a future hearing. First Brands filed for bankruptcy after lenders began investigating irregularities in its financial reporting. The company has accumulated $11.6 billion in total liabilities, according to court documents.
First Brands’ financial challenges, coupled with the recent bankruptcy of subprime auto lender Tricolor Holdings, have unsettled debt investors and raised concerns about broader distress within corporate debt markets. The bankruptcy loan is being provided by a coalition of existing lenders who, despite risks, aim to keep First Brands operational while investigating the full extent of its financial troubles. According to Scott Greenberg, an attorney for the lenders, they have accepted the risk to keep First Brands in business while they investigate the extent of its financial troubles.
First Brands believes there is an unpaid $2.3 billion hole on its balance sheet related to invoice factoring, a process used to generate short-term cash flow by selling invoices to third-party financial institutions. The company is investigating whether it double-sold invoices to multiple buyers or improperly retained customer payments that should have been transferred to the invoice purchaser. First Brands, owned by founder and CEO Patrick James, accrued significant debt through acquisitions over the past 15 years.
However, its debt became increasingly difficult to manage beginning in 2025, when tariffs imposed by President Donald Trump increased the cost of imported auto parts. This significantly cut into the company’s profits. According to court filings, these tariffs cost First Brands an estimated $219 million between April and August 2025. With annual earnings of approximately $1.1 billion, First Brands was paying $900 million in debt service costs annually.
