First Brands

How Exactly Did $2.3 Billion Vanish?

First Brands Group Holdings has filed for Chapter 11 bankruptcy, capping weeks of turmoil sparked by creditor concern over the auto-supplier’s use of opaque off-balance sheet financing. The U.S. Department of Justice has launched an investigation into the circumstances leading to this company’s collapse.

In late September 2025, U.S. auto parts maker, First Brands, filed for bankruptcy relief. A key issue that is under investigation is a $2 billion factoring arrangement. The U.S. Department of Justice has launched an investigation into the circumstances leading to this company’s collapse. This article raises several initial questions regarding the use of off-balance sheet financing arrangements and “disappearance” of over $2.3 billion.

Introduction

The First Brands website[1] discloses:

First Brands Group™ is a global automotive parts company that develops, markets, and sells premium products through a portfolio of market-leading brands including: Raybestos® complete brake solutions, Centric Parts® replacement brake components, StopTech® performance brakes, FRAM® filtration products, Luber-finer® filtration products, TRICO® wiper blades, ANCO® wiper blades, Michelin® licensed wiper blades, Carter® fuel and water pumps, Autolite® spark plugs, StrongArm® lift supports, Carlson® brake hardware, CARDONE® new and remanufactured replacement parts, and our towing and trailering portfolio composed of REESE®, DRAWTITE®, BULLDOG®, TEKONSHA®, FULTON®, Westfalia® along with Hopkins® universal owned and licensed brands and Philips® licensed aftermarket lighting. The First Brands Group portfolio of world-class brands offers best-in-class technology, industry-leading engineering capabilities, and superior customer service.

First Brands Files for Bankruptcy

On September 29, 2025, Bloomberg reported:[2]

First Brands Group Holdings has filed for Chapter 11 bankruptcy, capping weeks of turmoil sparked by creditor concern over the auto-supplier’s use of opaque off-balance sheet financing.

A group of creditors are set to provide the company with $1.1 billion in debtor-in-possession financing to keep operations running, according to a statement Monday. Without court protection, creditors had been unwilling to provide fresh financing, leaving cash running short at the firm whose brands range from Anco and Trico wiper blades to Fram filters.

The bankruptcy petition shows a complex web of entities tied to First Brands that are based in several U.S. states such as Delaware and Texas, and more than a dozen countries including Brazil and Luxembourg.

$2.3 Billion Has Vanished

On October 8, 2025, Reuters reported:[3]

Trade finance company Raistone, a creditor of First Brands, asked a court on Wednesday to appoint an independent examiner, claiming that as much as $2.3 billion “simply vanished” from the bankrupt U.S. auto parts supplier.

Reuters further reported:[4]

First Brands had earlier appointed a special committee of independent directors to probe its off-balance-sheet financing and whether invoices were factored more than once. It believed it had an unpaid $2.3 billion hole on its balance sheet related to third-party factoring arrangements when it filed for Chapter 11 proceedings. Factoring is a financing method used by companies to sell outstanding customer invoices to investors in return for cash.

What Exactly is Factoring and How Does it Work

Factoring is a form of short-term financing in which a business sells its accounts receivable represented by sales invoices to a third party, a factor, at a discount, in exchange for immediate cash. Factoring turns sales on credit into near-instant liquidity. The factor gives the seller company a percentage of the invoice amount quicker than the 30/60/90 days that it usually would take the seller company to collect the invoices. When the customer pays the invoice, the payments go directly to the factor’s bank account or lockbox and not to the seller company in order to prevent the seller company from diverting the customer payments. The factor sends to the seller company and holdback percentage it did not yet pay to the seller company less any interest and/or other fees.

Factoring can be ‘with recourse’ or. ‘without recourse.’ ‘With recourse’ means that the seller company is responsible for any customer that does not end up paying, i.e., a bad debt. Credit risk stays with the seller. Essentially, this is a secured loan. ‘Without recourse’ means that the factor assumes the credit risk of nonpayment. The factor takes the hit of the bad debt and the fees charged are higher because the factor takes on more risk. Essentially, this is a loan with some credit risk insurance. Factoring provides liquidity by accelerating cash inflows so that the seller company can cover payroll, suppliers, or growth without waiting for customers to pay.

Impact of Factoring on Cash Flows

If cash flows quicker, why does not every company use it? Factoring is usually an expensive form of financing because of the various fees that the factors charge; which can be a large percentage when viewed on an effective annual rate. There may also be additional service fees. Mostly factoring is useful when traditional financing is not available.

Each invoice should be factored only once. The seller company should have a solid accounting system with good internal controls in order to ensure that the same invoice (or batches of invoices) are not sold or pledged a second time (or a third time) to more than one factor. That would constitute ‘double factoring,’ breaching most factoring agreements. “Double factoring” is more likely than not fraudulent, because the same sales invoice is being pledged twice. Finding out that an invoice was pledged to more than one lender (or more than once to the same lender by, say, altering the invoice number) is a major red flag.

How Will Forensic Accountants Find $2.3 Billion

Now, back to First Brands. Yahoo! Finance reports:[5]

Auto parts maker First Brands has appointed a special committee of independent board directors to investigate its off-balance sheet financing arrangements and whether its invoices were factored in multiple times, according to court documents filed on Tuesday.

The company, which filed for bankruptcy protection this week, believes it had an unpaid $2.3 billion hole on its balance sheet related to third-party factoring arrangements when it filed for Chapter 11 proceedings, according to the statement filed by Charles Moore, its new chief restructuring officer.

Reuters reported on Monday that First Brands was probing an issue with its factoring arrangements amounting to about $2 billion.

In its latest filings, First Brands disclosed total liabilities of $11.6 billion. Excluding its factoring liabilities, First Brands had about $9.3 billion of debt obligations. Factoring is a financing method used by companies to sell outstanding customer invoices to investors in return for cash.

The special committee of First Brands independent directors is investigating whether the company’s receivables may have been factored more than once.

What Have We Learned So Far

It appears that the results of the investigation may not be known for a while. Bankruptcy proceedings have just begun. If the situation is as the media has reported, First Brands sold the very same invoice to more than one of its factors. First Brands would have been paid more than once for the same sale. This may mean its sales were overstated and its liabilities were understated … by $2.3 billion.

There may be another possibility—the forensic accountants that have or will be appointed may find that the company “shifted” its receivables (and possibly also its inventory) from one First Brands related entity to another in order to deceive the factors. There are going to be many repercussions and fallout. Future NACVA QuickRead articles may explore this over time.

Conclusion

The First Brands bankruptcy may soon become a textbook case study showing how off-balance-sheet financing and aggressive factoring could conceal a company’s true financial condition. Forensic accountants will additionally learn how to perform tracing procedures on invoices flowing from sale to collection to find invoices sold more than once. Overstating assets/revenues and understating liabilities/expenses are classic signs of fraudulent financial reporting and ‘financial shenanigans.’

[1] https://firstbrandsgroup.com/

[2] https://www.bloomberg.com/news/articles/2025-09-29/auto-parts-supplier-first-brands-files-for-bankruptcy

[3] https://www.reuters.com/world/us/first-brands-creditor-says-23-billion-simply-vanished-seeks-probe-2025-10-09/

[4] https://www.reuters.com/world/us/first-brands-creditor-says-23-billion-simply-vanished-seeks-probe-2025-10-09/

[5] https://ca.finance.yahoo.com/news/first-brand-bankruptcy-probe-investigating-125141851.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALEG0TAYHJP1rQVcTreIJ8LfpbIwp-PQ8MIbRCInB5vTk5jRMszXrCVTmJS9XjD6-QM_iiVVf1icXwMwDThkevGvqVqtX7HYR2Pxwuo209oCipxoH0GEfa5dxJX0NnLp_vHStsyw-fM_ZR_3FK7_f5gKcGhdCFltCwJ1wEHL13lC

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Michael D. Pakter, CPA, CFF, CGMA, CFE, CVA, MAFF, CA, CIRA, CDBV, has more than 45 years of experience in forensic accounting, investigations, and litigation services, including more than 25 years of experience in economic damages and business valuations. State, federal, and bankruptcy courts have recognized him as an expert in forensic accounting, economic damages, business valuation, alter ego, marital dissolution, and bankruptcy core proceedings.

Mr. Pakter can be contacted at (312) 229-1720 or by e-mail to  mpakter@litcpa.com.