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3 min read GECC

First Brands Corp: Subsidiaries Filing For Bankruptcy

A major automotive company is on the skids with $6bn of leveraged debt involved, including multiple BDCs and hundreds of millions of dollars of loans at risk.

Downgraded From CCR 2 To CCR 5 And Initiated As A Major Important Underperformer

September 26, 2025

First Brands Group LLC is a privately held automotive aftermarket manufacturer headquartered in Rochester, Michigan. Founded and led by Malaysian entrepreneur Patrick James, the company grew aggressively from a $1 billion enterprise when James joined in 2020 to approximately $4 billion in revenue by 2024 through debt-funded acquisitions of automotive parts brands including Raybestos brakes, FRAM filters, TRICO wiper blades, Autolite spark plugs, and Carter fuel pumps.

Ouch! All of a sudden this very large, BDC-financed automotive company is in deep financial trouble. Several of its subsidiaries have already filed for Chapter 11 and the parent is headed there as well and with "No Plan in Place" as Bloomberg's headline yesterday screamed out.

Auto-part supplier First Brands Group LLC is preparing to enter bankruptcy with no restructuring plan in place, a sign of how quickly the company’s fortunes are unraveling, according to people familiar with the situation.
It’s unusual for companies as big as First Brands to file for Chapter 11 without a restructuring support agreement with lenders in hand. But the firm is running out of cash, and creditors have been unwilling to give it more money to keep its operations going without court protection, according to the people, who declined to be identified because the negotiations are private.

Here is a link to a summary of the company's operational and financial challenges but with this collapse happening in real-time expect to learn a great deal more in the days ahead.

Unfortunately, BDC exposure is extensive but not necessarily from the players one might have expected. Going by Advantage Data's records - as of the IIQ 2025 - total exposure at cost - both in first and second lien debt - amounted to $224mn. There were 14 BDCs involved including many non-traded players and 4 public BDCs: Prospect Capital (PSEC); Palmer Square (PSBD); Great Elm (GECC) and PhenixFin (PFX).

Confoundingly, as of mid-year 2025, the BDCs involved had applied very modest discounts to their loans: no more than (9%), with some even valuing the debt at a premium. With the benefit of hindsight these generous values are at variance with what had been happening for a year and a half:

The first significant red flag emerged in March 2024 when Fitch Ratings downgraded First Brands from 'BB-' to 'B+', marking the company's initial descent into deeper junk territory. This downgrade occurred approximately five months before the more widely publicized refinancing crisis. Around the same time, S&P Global called for further improvements to disclosure rules regarding supplier finance arrangements, highlighting growing regulatory scrutiny of off-balance sheet financing practices that First Brands relied heavily upon.
Throughout 2024, credit rating agencies expressed increasing concern about First Brands' aggressive acquisition strategy and mounting leverage. The company's debt-to-EBITDA ratio had climbed to concerning levels, with some analysts suggesting it exceeded 10x, far above the 6x threshold typically considered acceptable for investment-grade firms. The company's revenue had grown from $1 billion in 2020 to $4 billion by 2024 through debt-funded acquisitions, creating a precarious financial structure.

BDC CREDIT CONFIDENTIAL

Obviously, this is not very confidential as the failure of the business - the second in the automotive sector this month - is all over the news. Nonetheless, we are procedure bound to warn our readers that the status and value of all the loans outstanding will have changed when the IIIQ 2025 results appear. One can say with some confidence that the $70mn in second lien debt held by several BDCs could well get fully written off. The first lien loans - recently trading at one third of their par cost - are unlikely to do very much better. Furthermore, with rumors of malfeasance swirling around, the outcome for First Brands could be truly disastrous and on a massive scale. After all, there is said to be $6bn of debt outstanding. The BDC share is modest in a relative sense.

For the moment, we are downgrading First Brands to a corporate credit rating of 5 from a 2 - from "performing as expected" to "non-performing and permanent loss expected". We are estimating the ultimate loss could be in the 75%-100% range and more than ($25mn) of annual interest income could be forgone - possibly forever.

Far and away the public BDC most in the line of fire is PSEC with nearly $60mn in exposure - both in first and second lien. GECC has committed $25mn - a large amount for BDC of its size whose strategic focus is elsewhere. PFX - a micro BDC - has exposure of $4mn. The only public BDC really targeting this segment of the market is PSBD which lent out $12mn in first and second lien debt - thankfully in a size that should not cause too much damage.

Status

With the sudden addition of First Brands, the total number of Important Underperformers in our database has increased to 138 companies. Currently, the aggregate cost amounts to $11.2bn and the FMV $6.7bn - a (40%) discount already. 45 were rated CCR 4 and 93 were rated CCR 5. However, we have only updated 57 of the Company Files through the IIQ 2025 so this aggregate data will change.

An interesting statistic is the number of new Important Underperformers coming on board in the IIQ 2025 amounted to 13 new names. That's just below a tenth of the total, a relatively small number when one considers the total BDC-financed company universe - according to Advantage Data - amounts to nearly 10,000.

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