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To: dcfleck who wrote (21159)

10/9/2025 3:20:42 PM

From: QTI on SI

8 Recommendations of 23014

Quick AI summary of the ZeroHedge article (thanks for the link dcfleck):

Summary of the First Brands Bankruptcy Scandal Core issue:
Auto parts supplier First Brands Group (formerly Crowne Group) filed for bankruptcy (Southern District of Texas, late September) with $10–50 billion in liabilities and $1–10 billion in assets.
The key revelation: receivables and inventory may have been pledged as collateral multiple times — meaning multiple lenders thought they had a first claim on the same assets.

This is not just a bankruptcy — it’s a trade-finance fraud on a massive scale, and it has exposed the fragility of private credit structures that rely on factoring, supply-chain finance, and inventory loans.

Main Players and Exposure

Banking / Credit Funds	Jefferies / Leucadia Asset Management / Point Bonita Capital	Trade finance / receivables factoring	$715M in invoices due from customers (Walmart, AutoZone); Jefferies has $113M equity stake in Point Bonita; potential losses ~$45M
	UBS O’Connor	Working capital / receivables finance	~30% of portfolio; ~$500M exposure across UBS investment arms
	Millennium Management	Short-term inventory loans	~$100M loss
	Onset Financial	Equipment & receivables leasing	~$1.9B exposure — largest known creditor
	CLOs (PGIM, CIFC, Blackstone)	Leveraged loan tranches	Senior debt now trading ~15¢ on the dollar
	Private Credit Funds (Evolution Credit Partners, AB CarVal, Aequum Capital)	Factoring and inventory finance	Exposure across SPVs linked to inventory debt
	Raistone Capital	Short-term receivables finance	Demanding investigation; ~$1.9B “missing” funds
	Apollo / Diameter Capital Partners	Shorted First Brands debt	Profited from collapse

CategoryEntityType of ExposureAmount / Description

Mechanism of the Collapse

Receivables Factoring Abuse:
First Brands sold invoices (accounts receivable) to multiple lenders, effectively pledging the same payment streams more than once.
Supply Chain Finance (Reverse Factoring):
$682M outstanding — lenders paid suppliers directly, expecting reimbursement later from First Brands.
Inventory Finance via SPVs:
Loans secured by warehouse stock, but some of this collateral overlapped with other credit facilities.
Off-Balance Sheet Opacity:
Because much of this financing was classified as “off-balance sheet,” investors and lenders lacked a full picture of leverage.
Fraud Risk:
Current investigation suggests $1.9B in proceeds are “unaccounted for” — prompting calls for an independent examiner.

Systemic Relevance for BDCs While the article doesn’t name specific BDCs, several are exposed indirectly via:

Private credit partnerships with Jefferies, UBS O’Connor, or Evolution Credit Partners.
Middle-market auto and industrial portfolios where similar factoring or inventory structures are common.

BDCs most likely to have exposure (direct or indirect):

FS KKR Capital (FSK)	Deep involvement in large middle-market leveraged loans; often syndicates deals with Jefferies and PGIM.
Owl Rock Capital (ORCC)	Major player in receivables and inventory-backed private credit; partners with asset-based lenders.
Ares Capital (ARCC)	One of the largest lenders to auto parts and manufacturing middle-market firms.
Golub Capital (GBDC)	Active in trade-finance-backed middle-market credit deals.
Blackstone Secured Lending (BXSL)	Exposure via Blackstone CLO holdings; likely affected by mark-to-market losses on First Brands debt.
Sixth Street Specialty Lending (TSLX)	Frequently participates in structured working-capital and asset-based lending transactions.
Hercules Capital (HTGC)	Less likely direct exposure, but risk via supply chain finance co-investments.

BDCReason for Possible Exposure

These BDCs may not have direct loans to First Brands, but given the cross-lending ecosystem (e.g., CLOs, trade-finance SPVs, and co-lending partnerships), they could face mark-to-market write-downs or NAV volatility.

Key Takeaways

Hidden leverage: First Brands used layered receivables and inventory finance, masking true leverage levels — a warning for BDC investors.
Off-balance-sheet financing risk: Many BDCs participate in factoring SPVs or trade-finance conduits similar to Point Bonita.
Potential contagion: If courts confirm “double-pledging” of collateral, expect tighter regulation of private credit and receivables funds.
Winners: Apollo and Diameter Capital (shorted debt early).
Losers: Jefferies, UBS O’Connor, Millennium, Onset, CLO holders, and likely some BDC-linked funds with shared exposure through private credit structures.

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