Strategic M&A Resilience in Troubled Consumer Brands: Risk Assessment and Value Preservation Lessons from Jefferies' First Brands Exposure

The collapse of First Brands Group, a major auto parts supplier, has become a pivotal case study in the challenges and opportunities of distressed M&A. As the firm filed for Chapter 11 bankruptcy in late September 2025, its fallout exposed vulnerabilities in trade finance and private credit portfolios, particularly for investment banks like Jefferies. This article examines how Jefferies navigated the crisis, the risk assessment frameworks it employed, and the broader implications for investor confidence in distressed sectors.

The First Brands Crisis: A Test of M&A Resilience

Jefferies' exposure to First Brands was twofold: its Leucadia Asset Management division held $715 million in receivables through the Point Bonita Capital fund, while its Apex Credit Partners subsidiary held $48 million in term loans, according to MarketChameleon. These receivables were tied to major retailers like Walmart and AutoZone, with payments ceasing abruptly on September 15, 2025, as reported by Banking Dive. The firm's direct equity stake in Point Bonita amounted to $113 million, representing 5.9% of the fund's portfolio, the Financial Times reported.

The crisis underscored the risks of opaque financing structures in distressed M&A. First Brands' bankruptcy revealed potential mismanagement of receivables, including concerns about double factoring and third-party involvement, Financial Content reported. For Jefferies, the situation tested its ability to balance risk mitigation with value preservation-a critical skill in volatile markets.

Risk Assessment: Navigating Distressed M&A

Jefferies' approach to risk assessment in distressed M&A aligns with broader industry trends. The firm leveraged representations and warranties insurance (RWI), a tool increasingly used in Section 363 bankruptcy sales to mitigate unknown liabilities, as explained by Willis Towers Watson. RWI allowed Jefferies to protect its investments in First Brands' assets while navigating the uncertainties of first-party claims.

Additionally, Jefferies emphasized private credit strategies, which prioritize contractual income and active risk management. In 2025, private credit became a key asset class for investors seeking stable returns amid macroeconomic volatility, a trend noted by KKR. Jefferies' exposure to First Brands, however, highlighted the need for rigorous due diligence in private credit portfolios, particularly in evaluating collateral quality and diversification, as observed by The Wealth Advisor.

Value Preservation: Mitigating Losses and Protecting Stakeholders

In response to First Brands' bankruptcy, Jefferies took several steps to preserve value:
1. Active Communication: The firm engaged with First Brands' advisors to assess the impact on its funds and enforce investor rights, as detailed in a Jefferies letter.
2. Liquidity Management: By limiting direct exposure to 1% of Apex Credit Partners' CLO assets, Jefferies minimized systemic risk to its balance sheet, according to Reuters.
3. Transparency: Jefferies disclosed its exposure to investors, emphasizing that potential losses were manageable and would not threaten its financial stability, as further reported by Reuters.

These actions reflect a strategic focus on liquidity conservation and stakeholder alignment, principles critical to value preservation in distressed M&A. For instance, cash optimization measures-such as deferring payouts and reinforcing collections-helped Jefferies maintain operational flexibility during the crisis, as noted by PwC.

Implications for Investor Confidence

The First Brands case has broader implications for investor confidence in distressed sectors. While Jefferies' limited exposure and proactive response reassured markets, the incident highlighted systemic risks in trade finance and CLO portfolios. Deloitte found in its 2025 M&A Trends Survey that 68% of dealmakers now prioritize strategic agility and risk diversification in distressed transactions.

For investors, the crisis underscores the importance of evaluating collateral transparency and counterparty reliability in private credit investments. Jefferies' experience also demonstrates that firms with robust risk frameworks can turn distressed M&A into opportunities for value creation, provided they act swiftly and transparently.

Conclusion

The First Brands bankruptcy serves as a cautionary tale and a blueprint for resilience in distressed M&A. Jefferies' ability to mitigate risks through RWI, private credit strategies, and transparent communication illustrates the importance of proactive governance in volatile markets. For investors, the case reinforces the need to balance opportunism with caution, ensuring that value preservation remains a cornerstone of distressed M&A strategies.