A "mini subprime crisis"? Creditors of the U.S. "exploding" company First Brands claim "$2.3 billion vanished into thin air"

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The bankruptcy case of auto parts supplier First Brands is triggering concerns on Wall Street about potential systemic risks, as one of its largest creditors, Raistone, claims that as much as $2.3 billion in assets have "vanished into thin air" and is requesting the court to appoint an independent investigator to thoroughly examine the truth behind the collapse.

According to media reports on Thursday, First Brands' advisors admitted in court that they are unable to trace $1.9 billion in assets that were supposed to be collateral for creditors, and the company's bank accounts have only $12 million remaining.

When First Brands filed for bankruptcy protection on September 28, it left behind $5.8 billion in leveraged loan debt, with total debt possibly approaching $12 billion. The price of its loans plummeted from recent highs to about 30 cents on the dollar in just a few days before the bankruptcy. This bankruptcy case, involving up to $12 billion in debt, has caused waves across global credit markets, and investors are closely watching the progress of the proceedings.

The market is divided in its interpretation of the event: Morgan Stanley characterizes it as an "isolated error," but legendary short-seller Jim Chanos warns that this could be "the first rumble of thunder" indicating a crisis in the private credit market, with some analysts calling it a real "Lehman moment." So far, the broader credit market remains calm, but Bank of America strategists are advising investors to take defensive measures.

Creditors Accuse Huge Asset Disappearance

Technology group Raistone, as one of First Brands' largest creditors, accused in court documents that up to $2.3 billion in assets are "untraceable." The company arranged most of First Brands' off-balance-sheet financing and claims it is owed at least $172 million.

Raistone's legal advisor Richard Jacobsen wrote in the application that the debtor should not be allowed to appoint parties that would investigate their own potential wrongdoing. He emphasized that appointing an outside investigator is crucial to "maximize creditor recoveries."

According to bankruptcy documents, Raistone is associated with $631 million of investors exposed to First Brands invoices, and part of the company’s equity is held by UBS O'Connor Fund.

Company Advisors Admit Unknown Asset Whereabouts

At a hearing this month, First Brands lawyer Sunny Singh, when asked about the whereabouts of about $2 billion in "factoring" funds, replied: “Zero, the money is not here, we don’t have it. There is only $12 million in the bank account today, that’s all.”

Factoring is an off-balance-sheet invoice financing method. First Brands' advisors told the court overseeing the bankruptcy process that they are unable to trace the $1.9 billion in assets that were supposed to serve as creditor collateral.

First Brands has appointed two independent directors to investigate its off-balance-sheet financing arrangements and has hired the law firm Weil, Gotshal & Manges and Lazard investment bank to handle the bankruptcy proceedings. The existing management team, including CEO and founder Patrick James, remains in place.

Wall Street Split: Isolated Incident or Systemic Risk?

According to a Morgan Stanley report, when First Brands, a non-listed company, filed for Chapter 11 bankruptcy protection, it left behind $5.8 billion in outstanding leveraged loan debt. Media reports indicate that its total debt and off-balance-sheet financing could reach nearly $12 billion.

This event shocked many lenders, as just weeks before its bankruptcy, its loan prices were still high, only to collapse to about 30 cents on the dollar within days.

Morgan Stanley analysts characterized this as an "isolated error," maintaining a constructive view of the overall credit market. But Jim Chanos, who became famous for shorting Enron, issued a stern warning, calling this potentially "the first rumble of thunder" for a crisis in the private credit market and comparing it to the Enron scandal.

So far, the broader credit market has remained calm, with most investors inclined to view this as an isolated incident. However, Bank of America strategist Michael Hartnett noted that, given the risk of widening spreads between high-yield and investment-grade bonds, a "tactical dollar exposure" is recommended to hedge against potential credit events.

Risk Warning and DisclaimerThe market has risks, and investment requires caution. This article does not constitute personal investment advice nor does it take into account the individual investment objectives, financial situation, or needs of any user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Any investment made accordingly is at your own risk. ```