Distressed Debt Opportunities in First Brands: Navigating the Risks of Opaque Corporate Structures

The recent Chapter 11 filing by First Brands Group, LLC-on September 28, 2025-has become a textbook case study in the perils of opaque corporate structures and overleveraged private credit markets. With liabilities exceeding $10 billion and a corporate architecture built on aggressive acquisitions and complex financing, the company's collapse underscores the challenges distressed debt investors face when assessing risk in highly opaque environments.

The Opaque Architecture of First Brands

First Brands' downfall was not sudden but rather the culmination of years of financial engineering that obscured its true liabilities. According to a report by The BRAKE Report, the company relied heavily on off-balance-sheet mechanisms such as invoice factoring ($2.3 billion) and supply chain finance ($682 million) to mask its debt load. These structures allowed First Brands to present a healthier balance sheet while accumulating liabilities through Collateralized Loan Obligations (CLOs), which Accredited Insight notes partitioned its debt into tranches with varying risk profiles (Accredited Insight). By the time of the bankruptcy filing, the company had as little as $14 million in cash, a stark contrast to its earlier portrayal of financial stability, the BRAKE Report found.

The opacity was further compounded by its corporate structure, which included 98 affiliated entities and a sprawling portfolio of brands like Raybestos and Centric Parts. As noted by Kroll Restructuring Administration, this complexity made it difficult for creditors to trace the flow of capital or assess the true exposure of individual subsidiaries. The result was a refinancing treadmill: new receivables had to constantly be generated to sustain liquidity, a system that collapsed when business performance deteriorated, a pattern Accredited Insight also observed.

Risk Assessment in the Shadows

For distressed debt investors, the opacity of First Brands' structure created significant blind spots. A key issue was the company's use of CLOs, which held approximately $2 billion in debt. Accredited Insight has explained that CLOs are structured vehicles that slice loans into tranches, often limiting their ability to participate in restructurings due to regulatory caps on holding low-rated debt (e.g., CCC-rated debt restrictions). This structural rigidity became a liability when First Brands' credit rating deteriorated, as CLOs were forced to withdraw support, exacerbating liquidity crunches.

The opacity also delayed early warnings. Despite red flags-such as a Days Beyond Terms (DBT) ratio four times the industry average and a failed $6 billion refinancing attempt-creditors remained in the dark until the last moment, the BRAKE Report documented. This mirrors broader trends in the auto sector, where opaque financing has become a double-edged sword. As highlighted by Proskauer, CLOs now dominate 50% of the U.S. leveraged loan market, yet their passive nature and regulatory constraints often hinder their ability to provide rescue financing during distress.

Opportunities Amid the Ruins

Despite the risks, First Brands' bankruptcy has created asymmetric opportunities for savvy investors. The company's first-lien debt now trades at roughly 33 cents on the dollar, offering potential upside if the restructuring succeeds, the BRAKE Report notes. Distressed debt funds have already capitalized on this, with some shorting the debt or purchasing it at deep discounts. However, success hinges on navigating the corporate maze. For instance, the separation of U.S. and international operations-where the latter continues uninterrupted-introduces uncertainties about asset distribution and brand valuations, a point commentators at Proskauer have raised.

A critical factor will be the role of Viceroy Capital, which owns 63% of First Brands. The private equity firm's stake and potential involvement in the restructuring could influence outcomes for creditors. Meanwhile, the $1.1 billion debtor-in-possession (DIP) financing provides a temporary lifeline, but its terms and usage will be closely scrutinized, Kroll Restructuring Administration explains.

Lessons for the Market

First Brands' collapse serves as a cautionary tale for investors and regulators alike. The case highlights the systemic risks of opaque structures in private credit markets, where lack of transparency can amplify contagion. As noted by MYCPE ONE Insights, the fallout has already triggered scrutiny over similar practices in the auto parts industry, where complex supply chains and financial partnerships are common.

For distressed debt investors, the key takeaway is the need for granular due diligence. Traditional metrics like leverage ratios (First Brands' 10x debt-to-EBITDA) are insufficient when corporate structures are designed to obscure risk. Instead, investors must map out off-balance-sheet obligations, assess the flexibility of CLO tranches, and stress-test liquidity assumptions.

Conclusion

First Brands' bankruptcy is a microcosm of the broader challenges in modern corporate finance. While the company's opaque structure and overleveraged model led to its downfall, they also created a unique opportunity for investors willing to untangle the web. The path forward will require navigating legal complexities, evaluating brand valuations, and balancing the risks of further deterioration against the potential for recovery. In the end, the case reinforces a timeless truth: in distressed debt, clarity is a rare commodity-and those who can see through the fog often reap the greatest rewards.