Goldman Has ‘Serious Doubts’ First Brands Will Avoid Bankruptcy

(Bloomberg) — Analysts on a Goldman Sachs Group Inc. trading desk have told clients they have “serious doubts” that the auto-parts supplier First Brands Group will be able to avoid bankruptcy.

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In a note on Wednesday morning, the analysts expressed concern about First Brands’ financing arrangements, some of which carry interest rates north of 30%, according to a copy of the message seen by Bloomberg. The analysts wrote that their research was based on public filings.

The company and its creditors are in talks about different ways to restructure its $6 billion of debt, including a potential Chapter 11 filing. First Brands’ loans have tumbled in recent weeks amid growing concerns about its use of an off-balance sheet tactic known as factoring that companies use to sell their future revenues for immediate cash.

“As we all try to sift through how this will play out the crux of it is figuring out the nature of all the different factorings and any unusual financing arrangements they have,” the bank wrote in the note. “Our analysts have found a few interesting tidbits that appear off balance sheet but hard to reconcile.”

The analysts, who work side-by-side with traders, outside the bank’s research division, argue that most of the challenges ahead are already priced into First Brands’ broadly syndicated debt. The desk quoted First Brands’ first-lien loans between 44.5 and 46.5 cents on the dollar on Wednesday.

A representative for Goldman Sachs declined to comment. First Brands did not respond to requests for comment.

Creditors to First Brands, which makes windshield wipers, water pumps and filters, are currently tallying losses in the billions of dollars. The biggest outstanding questions for investors, Goldman said, are around the size of a potential debtor-in-possession financing, which would get priority over existing creditors, the company’s overall profitability after the off-balance sheet debt is unwound, and the amount of equity in the reorganized company that creditors will be left with if the bankruptcy moves ahead.

–With assistance from Laura Benitez.

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