Lenders to First Brands Group are balking at a new round of post-bankruptcy financing and are instead advocating for at least partial liquidation of the auto-parts supplier, according to people with knowledge of the negotiations.
The creditor group leading talks - which includes distressed-debt investors King Street Capital Management and Mudrick Capital Management - has opposed requests from First Brands for a second debtor-in-possession loan of up to $700 million. Those lenders say they are now inclined to push for the sale or liquidation of portions of First Brands' operations rather than provide additional large-scale financing.
Earlier in its Chapter 11 process, First Brands secured a $1.1 billion loan from senior lenders intended to keep the business operating long enough to pursue either a sale or a reorganization of its auto-part brands. Over time, however, that initial debtor-in-possession loan has fallen sharply in value.
Sources report that the company's cash reserves are now nearly exhausted and its business outlook has worsened. The combination of a markedly reduced value for the original post-filing loan and dwindling liquidity has made the lender group skeptical about the company's viability under continued Chapter 11 protection.
Those concerns prompted lenders to weigh whether extending further credit might only deepen their losses. In the course of weeks of fluid negotiations, the creditor group briefly considered a much smaller bridge facility of roughly $50 million but ultimately decided not to provide additional funds.
The lenders' stance reflects reluctance to increase exposure after already recording losses on the initial financing. As a result, discussions have shifted toward restructuring outcomes that could involve selling discrete assets or liquidating parts of the business rather than underwriting a new, large debtor-in-possession loan.
Given the information available, the negotiating creditors have moved from offering backstop financing to advocating asset-level dispositions as the preferred path forward. The matter remains in flux as parties continue to evaluate the financial stakes and recovery prospects.