Jefferies among private credit investors exposed to US auto company invoices
Ohio-based First Brands Group has appointed Deloitte to review its invoice factoring
Jefferies is among the private credit investors that have amassed exposure linked to a US automotive parts supplier that has come under scrutiny for its use of off-balance sheet financing techniques.
Chicago-based UBS O’Connor and a hedge fund owned by Jefferies have provided invoice financing to First Brands Group, which last month shelved a $6bn loan deal after investors expressed concerns about its financial disclosures, according to people familiar with the matter.
Ohio-based FBG, a privately held company owned by little-known businessman Patrick James, has appointed Deloitte to carry out a “quality of earnings” review in a bid to assuage these concerns, according to people familiar with the matter.
The review is partly focused on the use by FBG, which sells parts such as windscreen wipers and fuel pumps, of factoring — a financing technique that allows companies to sell outstanding customer invoices to banks or investors in return for upfront cash.
Private credit firms have amassed trillions of dollars in assets and become the lender of choice for mid-size, highly leveraged companies, filling in a crucial gap in financing left by banks after the financial crisis. However, the funding terms and health of the businesses they lend to are largely kept out of the public domain.
The firms have in recent years pushed deeper into asset-backed lending, such as invoice finance, to meet demand from yield-hungry investors.
As well as factoring, FBG has also made use of supply-chain finance, according to rating agency reports. This financing technique, sometimes called “reverse factoring”, allows a company’s lenders to pay its suppliers upfront and then collect the money from the company later.
These financing techniques are generally not included in a company’s debt figures and are sometimes treated as “off balance sheet”. Fitch said in a ratings report last month that the agency “includes off-balance sheet factoring and a portion of FBG’s outstanding supply-chain financing” when making its own “debt calculations”.
FBG has also attracted scrutiny from investors for its frenetic pace of debt-funded acquisitions and the dearth of public information around James.
FBG, which is not required to publish its accounts, carries junk-level credit ratings from the three major agencies: S&P, Moody’s and Fitch.
While rating agencies have not publicly disclosed the amount of factoring the auto parts supplier has outstanding, several invoice finance specialists said there could be billions of dollars in financing facilities outstanding linked to FBG’s suppliers and customers, leaving investors exposed to the risk of losses if the invoices are not paid.
S&P said in May: “FBG’s factoring has increased significantly over the past couple of years.” The rating agency added it had “received additional disclosure” on its use of these facilities “exceeding” previous adjustments S&P had made to account for factoring.
UBS O’Connor, which the Swiss group has agreed to sell to Cantor Fitzgerald, and Jefferies’ trade finance focused fund Point Bonita Capital have exposure to debt linked to FBG’s invoices, according to two people familiar with the matter. They said London-based private credit firm Pemberton and Katsumi Global, a Michigan-based invoice finance group, also had exposure.
Katsumi is owned by a joint venture between Japanese financial institutions Mitsui & Co and Norinchukin Bank.
The size of the investors’ exposure could not be established.
Jefferies’ investment banking division was also in charge of marketing the delayed $6bn loan deal last month.
The auto parts sector has come under pressure due to US President Donald Trump’s tariff policies.
FBG has grown rapidly through a run of deals spearheaded by James, with Moody’s writing earlier this year that FBG “has an aggressive financial policy of pursuing fully debt financed acquisitions”.
James, who owns FBG through his holding company Crowne Group, was born in Kuala Lumpur, Malaysia and moved to the US to attend college in Ohio, according to a notice announcing a board appointment.
Several credit investors who considered participating in the now-delayed $6bn loan deal said the lack of public information on James and his business record had also prompted concerns.
James and other companies linked to him were sued over a decade ago by two lenders that alleged he had committed fraud.
Fortress Investment Group alleged in a 2011 lawsuit that several seemingly independent companies owned by James did not “have separate books and records”, while accusing the businessman of creating a “web of companies” to transfer out funds “in an attempt to defraud” creditors.
Pennsylvania’s Tristate Capital Bank sued James and his companies in 2009, accusing them of making “misrepresentations and omissions relating to the accounts receivable and inventory”, which gave the lender “a false understanding of those companies’ financial strength”.
James denied these allegations of fraud in the two cases, which were both ultimately dismissed after settlements were reached.
FBG has previously offered yields of more than 10 per cent on financing linked to its invoices, according to three invoice finance specialists. They added that these interest rates were high given that the group’s customers — which include automotive retailers — are often investment-grade rated.
While this form of financing is typically short-term in nature, some of FBG’s factoring programmes have “very extended terms”, according to S&P.
FBG has told investors it intends to relaunch its loan deal after Deloitte has completed its review. BDO has also audited its prior financial statements, according to people familiar with the matter.
Moody’s announced last month that the delay to the refinancing deal was “credit negative” for FBG, noting it had “almost $5bn” in first-ranking debt set to mature in March 2027. FBG held $972mn of “unrestricted cash” as of March, according to Fitch.
UBS O’Connor, Jefferies and Pemberton declined to comment. FBG, Katsumi, Deloitte and BDO did not respond to requests for comment.