Investment bank Jefferies disclosed Wednesday that one of its credit funds has roughly $715 million in exposure linked to bankrupt auto parts supplier First Brands.
The exposure represents nearly a quarter of a $3 billion trade finance portfolio managed by Point Bonita Capital, a subsidiary of Jefferies’ Leucadia Asset Management.
Not all of the exposure is carried on Jefferies’ balance sheet, though. About $113 million of Point Bonita’s “total invested equity of $1.9 billion” comes from Leucadia.
The $715 million figure comprises invoices from retailers such as Walmart, AutoZone, NAPA, O’Reilly Auto Parts and Advanced Auto Parts that bought windshield wipers, oil filters, spark plugs and other auto parts from First Brands.
Point Bonita primarily carried out invoice “factoring,” which means repayment relies on the retailers rather than First Brands.
In its filing Wednesday, Jefferies disclosed that First Brands “stopped directing timely transfers of funds from the [retailers] on Point Bonita’s behalf” on Sept. 15.
Two weeks later, First Brands filed for Chapter 11 bankruptcy protection after investor scrutiny tanked a debt refinancing.
First Brands, in its bankruptcy filings, indicated that its special advisers were investigating whether invoices had been turned over to third-party factors upon receipt or whether the invoices were factored more than once.
“We have not yet received any information regarding the results of that investigation,” Jefferies wrote Wednesday. “We are in communication with First Brands’ advisers and are working diligently to determine what the impact on Point Bonita might be.”
Another Jefferies subsidiary, Apex Credit Partners, held $48 million in loans to First Brands, the investment bank disclosed Wednesday. Apex, a structured finance joint venture with MassMutual, managed the loans, which are owned by 12 collateralized loan obligations and one financing “warehouse.”
Jefferies is not the only bank to see exposure to First Brands’ debt. Swiss banking giant UBS counted more than $500 million in exposure to the auto parts supplier, according to First Brands’ bankruptcy filings.
Wednesday’s disclosure, however, comes days after the Financial Times reported Jefferies earned undisclosed fees on the financing it provided to First Brands.
To observers, the banks’ entanglement in First Brands’ bankruptcy may spark fears that the exposure could cause a retread of two episodes that contributed to the downfall of Credit Suisse: the collapses of supply chain financing firm Greensill Capital and investment fund Archegos.
In First Brands’ bankruptcy filings, Point Bonita is listed as an unsecured creditor with a “contingent,” “unliquidated” or “disputed” claim.
Jefferies said Wednesday it “intend[s] to exert every effort to protect the interests and enforce the rights of Point Bonita and its investors.”
