The UBS fund holds 30% of exposure tied to First Brands

The UBS fund has 30 percent of its portfolio tied to the failed First Brands Group, leaving Switzerland’s largest bank grappling with a bankruptcy that has rocked global finance.

Clients are bracing for big losses after UBS O’Connor, a private credit and commodities bank owned by the Swiss bank, revealed that 30 per cent of exposure in one of its funds was linked to the auto parts group.

O’Connor recently told investors in her “opportunistic” working capital financing strategy that the fund had 9.1 per cent of “direct” exposure – financing facilities based on invoices that First Brands was due to pay – and 21.4 per cent of “indirect” exposure – based on invoices that were due to be paid by its clients.

Overall, UBS has more than $500 million of exposure to First Brands’ debt and bill-related financing, across various parts of its investment arm, according to bankruptcy filings.

UBS is just one of Many investors To be affected by the collapse of industrial businesses in Ohio, which raised broader questions about Latent dangers In the booming private credit market.

He had some of the biggest names on Wall Street like Blackstone Exposure For First Brands’ debt, while less well-known financing companies, such as Specialized Leasing Company of Utah Financial startare also deeply involved in the fiasco.

For UBS, the fallout over First Brands threatens to plunge the highest levels of the Swiss banking sector into a new invoice-financing crisis, nearly five years after the implosion of Greensill Capital rocked Credit Suisse.

UBS later rescued Credit Suisse from the brink of failure in 2023 and still deals with a wide range of banks. Inheritance claim Related to the Greensill scandal.

O’Connor’s money was invested in invoice-backed debt tied to the auto parts company through a technology platform called Raystone, whose business was heavily dependent on First Brands’ financing arrangement.

Founded in 2019 by former Greensill Capital employee David Skirzynski, the New York-based Raistone company’s website says it provides billions of dollars in “working capital” financing annually to companies “of all sizes.” However, the fintech business was closely linked to First Brands and is now facing difficulties of its own.

One of O’Connor’s funds also owns a stake in Raystone itself, according to four people familiar with the matter.

O’Connor is in the process of being sold by UBS to Cantor Fitzgerald, the Wall Street brokerage whose longtime leader, Howard Lutnick, resigned as chairman and CEO in February to become Donald Trump’s commerce secretary.

The level of exposure in O’Connor’s fund could raise concern among investors who previously maintained he would not hold more than 20 per cent of assets in a single “position”.

O’Connor split 21.4 percent of the “indirect” exposure across First Brands’ various clients, which were often investment grade. This means that the exposure did not exceed the “maximum position” of 20 per cent in O’Connor’s fund, which was previously disclosed to investors in documents seen by the Financial Times.

“The working capital fund does not violate any applicable investment restrictions or guidelines,” UBS said.

UBS said the investment in Rayston “is owned by a fund managed by O’Connor,” adding that the bank itself “has no ownership stake.”

That stake represents less than 1 percent of O’Connor’s fund assets and was also disclosed to investors in his working capital funds, a person familiar with the matter said. They added that the O’Connor Fund’s stake represented a “small” minority of Raystone’s shares.

First Brands accounts for 70 to 80 percent of Raistone’s revenue, according to people familiar with the matter. The company recently laid off 60 people as a result of the situation, and retained 40 people in total, the people said. Bloomberg previously reported that Raistone cut jobs and relied on First Brands for most of its revenue. Raiston declined to comment.

In addition to acting as a platform, Raistone has also invested in First Brands’ invoices through several different structures, including special purpose vehicles. However, these vehicles were also managed on behalf of outside investors, one of the people familiar with the matter said.

Investors with $631 million exposure to First Brands’ supply chain financing program — which relies on First Brands’ settlement invoices — in connection with Raistone are listed in the company’s bankruptcy filing.

However, Raistone is also listed as having an “indefinite” amount of exposure to First Brands’ “receivables” – which relate to invoices settled by customers – due to the “contingent”, “unliquidated” or “disputed” nature of its unsecured claim.

This uncertainty could pose problems for O’Connor and other investors who have invested through Raystone.

Raging disputes over that guarantee, coupled with an investigation as part of the bankruptcy into whether invoices were underwritten “more than once,” could mean investors have to fight to prove that this financing is backed by a claim against First Brands customers, not the company itself.

Rayston last week filed an objection to a rescue loan for the company, arguing that the receivables it purchased were its own property, not the company’s. Raiston added that there was a “significant risk” that these assets “could easily be seized as cash collateral or pledged to secure” the salvage facility.

In January 2023, O’Connor provided investors in her funds with a case study of a “North American auto parts manufacturer” that appeared to refer to First Brands, with the revenue and margin numbers disclosed matching those in the company’s 2022 accounts. The case study revealed that O’Connor was earning a 17 percent return on 60-day investments tied to the series. Company supply.

The case study revealed that “risks include negligence and fraud.”

Additional reporting by Ortinka Aliaj