Jefferies reveals $715 million fund exposure to First Brands’ bills

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Jefferies said one of its trusts has about $715 million of exposure tied to First Brands Group, making it one of the largest known creditors of the bankrupt auto parts company.

The US investment bank is one of several prominent Wall Street firms that have been hurt by investments in it First brands Private asset specialists like Blackstone had already recorded losses on loans they made in the run-up to the Ohio-based group’s messy bankruptcy last month.

Jefferies is under intense scrutiny because of its long-standing relationship with First Brands. presented vaguely Invoice financing to the sprawling group, while advising the company and making billions of dollars in loans to other investors.

The disclosure exposes the extent of exposure to First Brands that Jefferies and its clients have amassed. Jefferies’ involvement in this lending bill was not widely known on Wall Street until a Financial Times report last month.

The bank’s shares have fallen 16 percent since mid-September, when First Brands’ financial and legal advisers began exploring the possibility of bankruptcy.

Jefferies said on Wednesday that the specialty invoice finance fund it manages, Point Bonita Capital, has about $715 million invested in “receivables” — customer invoices — from retailers that bought First Brands products like spark plugs and windshield wipers and sold them to U.S. consumers.

Those receivables “were owed almost entirely from Walmart, AutoZone, NAPA, O’Reilly Auto Parts and Advanced Auto Parts,” Jeffries said.

Point Bonita primarily carried out invoice “factoring” for the group, meaning reimbursement was based on these blue-chip, often investment-grade companies, rather than First Brands itself.

While Point Bonita has exposure primarily to First Brands’ customers, not the auto parts maker itself, an investigation set up as part of the bankruptcy is looking into whether invoices were made. I pledged more than once.

Jeffries said on Wednesday that she had “not yet received any information regarding the results of this investigation.”

Point Bonita had a total of about $3 billion in “trade finance assets,” Jeffries said.

While the fund’s investments are not held on Jefferies’ balance sheet, the bank does have some exposure to First Brands’ debt. It said on Wednesday that $113 million of the “total $1.9 billion in equity invested in Point Bonita” came from Jefferies Leucadia’s asset management division.

The Financial Times revealed this week that Jefferies received this amount Undisclosed fees over financing for First Brands, in an arrangement that could spark recriminations from other lenders who were unaware of the sweeteners.

“We are in contact with First Brands’ advisors and are working diligently to determine the potential impact on Point Bonita,” Jeffries said. “We intend to make every effort to protect the interests and enforce the rights of Point Bonita and its investors.”

Point Bonita, along with three other creditors of First Brands’ billing “factoring” facilities, is listed in the bankruptcy filings as an unsecured creditor with a “contingent,” “unliquidated” or “disputed” claim, suggesting those investors could face difficulties if they instead try to recover money from the bankruptcy estate.

Jefferies also warned that one of its other investment vehicles had been dragged into the First Brands debacle. Apex Credit Partners, a structured finance joint venture with insurance and investment group MassMutual, has $48 million in loans to First Brands, the company said.

Those loans were owned by 12 collateralized loan obligations — structured investment vehicles that buy pools of corporate loans — and one financing “warehouse” managed by Apex. While these collateralized loan obligations are primarily held by other investors, Apex itself has invested in the riskier segment of structured investment vehicles.

These riskier debt tranches will bear the brunt of any losses if the loans held by the CLOs default.

Point Bonita — named after a lighthouse overlooking San Francisco Bay — presented itself as safe and secure to investors, according to marketing materials reviewed by the Financial Times.

“Like its namesake, Point Bonita Capital seeks to serve as a steady beacon in a dynamic environment,” one investor said.