The collapse of First Brands Group, an Ohio-based auto parts manufacturer, has highlighted major shortcomings in US accounting standards and the persistent risks of off-balance-sheet financing, revealing billions in hidden liabilities that have caught lenders and investors off guard.
According to documents seen by the Financial Times, First Brands’ September 2025 bankruptcy filing disclosed liabilities exceeding $10 billion. Yet behind this figure lay a complex web of off-balance-sheet financing tied to supplier and customer invoices, including $2.3 billion in factoring facilities and $682 million in supply chain finance (SCF) at the end of 2024, alongside more than $8 billion in debt and inventory-backed financing through related entities.
The company had relied heavily on private loans to fund an aggressive acquisition strategy, amassing a portfolio of well-known brands including Raybestos brakes and FRAM filters. However, investors drastically underestimated the scope of its invoice-based financing, which masked the company’s true indebtedness.
One of the largest creditors, Raistone, a technology group that helped arrange a significant portion of First Brands’ off-balance-sheet financing, has alleged that as much as $2.3 billion “simply vanished” ahead of the bankruptcy, urging the appointment of an independent examiner to probe the company’s finances. “Under these circumstances — with up to $2.3 billion in assets unaccounted for — the appointment of an examiner is critical to maximising recovery for creditors,” Raistone said in a Texas bankruptcy court motion.
Court filings show that among the 30 largest non-insider creditors, 11 unsecured claims relate to SCF, 12 to trade payables, one to revenue payout liability, and four to factoring agreements. The six largest claims were all SCF-related, with the biggest reaching over $233 million.
Accounting Reforms Fall Short
In December 2022, the Financial Accounting Standards Board (FASB) introduced reforms intended to improve transparency in supply chain finance programs. Companies reporting under Generally Accepted Accounting Principles (GAAP) are now required to disclose payment terms, outstanding balances, and roll-forwards of obligations in financial statement footnotes.
However, these reforms do not require companies to reclassify trade payables as financial liabilities, creating a loophole that allows firms like First Brands to obscure the true extent of their borrowing. The case demonstrates that disclosure mandates alone cannot substitute for rigorous financial controls and proper bookkeeping.
Impact on Lenders and the Market
The repercussions have been particularly severe for UBS O’Connor, a private credit specialist whose opportunistic working capital finance fund held 30% exposure to First Brands — 9.1% directly through payables and 21.4% indirectly through receivables. The fund invested via Raistone, which derived 70–80% of its revenue from First Brands, a concentration reminiscent of the 2021 Greensill Capital collapse that devastated Credit Suisse.
O’Connor’s fund technically avoided breaching its 20% single-position limit by spreading indirect exposure across multiple First Brands customers, a maneuver that met the letter but arguably not the spirit of investment guidelines. Meanwhile, Jefferies faces scrutiny over a “side letter” that allegedly allowed First Brands to pay fees exceeding loan covenant interest caps.
A Broader Lesson in Financial Transparency
The First Brands collapse, accelerated by tariffs on imported auto parts imposed by US President Donald Trump, underscores that disclosure requirements alone cannot guarantee financial stability when corporate structures, lenders, and intermediaries all benefit from opacity. Analysts warn that without enforcement and meaningful penalties for obfuscation, other companies may be quietly accumulating hidden liabilities undetected by current accounting standards.
As the Financial Times notes, the fallout from First Brands raises pressing questions about the adequacy of US accounting rules and the risks posed by complex, lightly regulated financing schemes.
