In the annals of leveraged loan lunacy, few spectacles rival the ongoing implosion of First Brands Group – that debt-drenched auto parts Frankenstein stitched together by Malaysian-born serial acquirer Patrick James, who turned a sleepy Ohio outfit into a $50 billion liability leviathan before bailing amid whispers of billions siphoned into the ether.

We have followed the farce from the beginning:

Now, as this house of wiper blades and fuel pumps flails through Chapter 11 in a Houston courtroom – filed September 28 after a failed July refinancing exposed the "black box" of off-balance-sheet shadow finance that ballooned its debt from a mere $6.1 billion on-paper to a grotesque $10-50 billion total abyss – Bloomberg reports the real gut-punch is hitting the so-called "rescue" financiers: Their vaunted debtor-in-possession (DIP) loan, the supposed nuclear bunker of bankruptcy priority, is cratering below par like a bad meme stock in a margin call.

Forget the $150 million in customer payments frozen in limbo because blue-chip buyers (like a Walmart) can't tell if they're funding fraudulent invoices or legit Fram filters – that's just the appetizer in this trade finance trainwreck.

The main course?

First Brands' $1.1 billion DIP facility – pumped in by an ad hoc group of masochistic lenders who thought they were first in the repayment buffet line – is now hawked at a pathetic 70 cents on the dollar, down from par at inception and plunging further as the bankruptcy drags into December.

As one veteran credit trader stoically noted after glancing the following chart: "This is bad!!"

That's not a dip; that's a distress signal blaring from the bowels of a system where even the "safest" wartime financing is radioactive.

But according to Bloomberg's reporting, it is clear that traders aren't just pricing in default risk on this super-senior slush fund – they're screaming that First Brands' rot has metastasized so deep, nobody knows if there's even a carcass left to carve up.

Investors clueless?

Hell, the entire Street looks like it wandered into a Ponzi parlor blindfolded, betting on opaque factoring deals that masked James' alleged heists of "hundreds of millions (if not billions)" while the company burned $128 million in cash last October alone.

How we got here:

James launched Crowne Group in 2013, rebranded to First Brands in 2020, and went on a PE-fueled feeding frenzy gobbling Trico wipers, Anco blades, Fram filters, Cardone reman parts, Raybestos brakes – 24 brands strong, 26,000 employees, and a facade of stability propped by $900 million annual interest payments on $5.5 billion term loans plus $2.3 billion in hidden inventory/lease scams.

By summer '25, a routine $6.2 billion refi imploded when lenders demanded a "Quality of Earnings" peek behind the curtain – cue the debt dump: First-lien term loans from near-par to 36 cents, second-liens to a laughable 10 cents, and the whole edifice teetering on an $800 million "liquidity buffer" that evaporated like fiat in a hyperinflation fever dream.

Enter bankruptcy: $1.1 billion DIP "rescue" (half new money, half roll-up of the old first-lien holders), founder James resigns in October amid fraud probes and prior lawsuits for hiding undercapitalized shells dating back to 2011, a November ceasefire unlocks another $600 million after creditor knife-fights, and now?

$106 million more trapped in segregated accounts as courts dissect the factoring fraud – $102 million of it non-factored, cash the zombie desperately needs but can't touch.

This isn't just sloppy bookkeeping; it's a systemic indictment of Wall Street's addiction to "supply chain finance" and invoice factoring – that greasy underbelly where suppliers hawk receivables to factors for quick bucks, offloading credit risk to chumps chasing big buyers' AAA glow while pocketing fees on phantom liquidity.

But when the invoices turn out tainted – as First Brands' did, sparking investor panic and redirecting payments into a confusion vortex managed by Alvarez & Marsal's cleanup crew – the house of cards folds.

Customers ghost the debtor account, Bloomberg reports $150 million evaporates into "significant confusion," and the DIP lenders who thought they were bulletproof wake up with a 30% haircut.

These are the same 'smartest men in the room' who boasted "perfect records" pre-crash, from Jefferies funds to Raistone rescuers, now staring down a "black box" where even the DIP's "game over" warnings from court filings ring hollow.

Going forward...

It's a bloodbath. Bloomberg's reports that the company faces 31.5 million inflows from ops vs. $128 million outflows in October; has $20.9 million left by January's end against a $50 million monthly burn rate; and its junior debt of $3.3 billion is trading at 16-21 cents, first-lien term loans scraping 5-7.5 cents – a distressed-debt buffet where vultures circle but even they smell liquidation.

Without unlocking that trapped customer cash, First Brands co-CRO Daniel Jerneycic warns in filings:

"I believe the (company) would be forced to seek additional funding or face a liquidity shortfall."

Translation: More dilution, more priming fights, more proof that the shadow banking beast – Greensill 2.0, anyone? – has Wall Street by the throat.

The fallout?

Billions vaporized for everyone from bulge-bracket banks to blue-chips, a stark reminder that in the age of "risky" DIPs funded into fraud-riddled black holes, the only sure bet is the next meltdown.

First Brands isn't surviving this; it's a tombstone for unchecked leverage and investor amnesia.