How undisclosed fees on a little‑known receivables deal intensified a $11+ billion bankruptcy—and rattled lenders far beyond the auto‑parts aisle

Lenders to First Brands Group thought they knew the price of money. They didn’t. In the months before the Ohio-based auto‑parts supplier filed for Chapter 11, the company leaned on a niche form of working‑capital financing arranged by US investment bank Jefferies. The structure came with an unusual catch: a separate, unpublicized ‘side letter’ that converted part of the economic cost into fees rather than interest, according to people familiar with the arrangement and court‑filing disclosures referenced by creditors. Those fees, lenders now say, allowed First Brands to breach the spirit—if not always the letter—of covenants that capped how much it could pay to borrow.

The device didn’t keep First Brands afloat. On September 28, 2025, the closely held company sought bankruptcy protection, disclosing more than $11 billion in liabilities. Days later, a Houston bankruptcy judge granted interim access to $500 million of a $1.1 billion debtor‑in‑possession loan to stabilize operations while advisers probe irregularities in the group’s labyrinthine financing stack. The collapse has morphed into a referendum on how far aggressive lenders—and desperate borrowers—can bend documentation to extract liquidity when conventional credit windows slam shut.

At the center is Jefferies, through its asset‑management arm Leucadia Asset Management and a fund known as Point Bonita Capital. Rather than extend a plain‑vanilla loan, the fund purchased customer invoices from First Brands—factoring them at a steep discount—and advanced cash backed by the receivables. That kind of asset‑based funding is common in stressed situations. What was not common, lenders say, is a supplemental agreement that recharacterized parts of the all‑in price as ‘fees,’ helping the borrower sidestep covenant caps that measured interest expense. Several creditors say they were unaware of the side letter until after the fact and argue that it contravened the intent of their own loan documents.

The particulars matter because the distinction between ‘interest’ and ‘fees’ can decide whether a transaction is permitted or prohibited. If a borrower’s agreement limits the interest rate but is silent on non‑interest charges, packaging the cost as an ‘arrangement’ or ‘administration’ fee can lift the effective yield above the headline cap. Lawyers for First Brands are said to have obtained a so‑called ‘non‑contravention’ opinion when the side letter was inked—a legal comfort that the receivables deal would not, on its face, violate other agreements. That opinion has done little to mollify creditors now tallying losses.

Jefferies and First Brands have declined to comment publicly on the fee arrangement. In court, the company and its restructuring advisers have focused on immediate survival: cash for suppliers, customers, and employees; and a forensic review of potential double‑pledging of receivables and inventory. Advisers and officials have also pointed to US tariff shocks in 2025 and a heavy acquisition bill as proximate causes of the liquidity crunch. None of that answers how the true cost of cash grew so opaque.

The fee letter is more than a footnote. Creditors and restructuring professionals say it illustrates a broader shift in private credit and trade‑finance markets, where complex documentation has proliferated as borrowers seek ‘non‑loan’ funding that is quicker to close and less visible to other lenders. Supply‑chain finance, receivables factoring, and inventory monetization can all sit partly off balance sheet, making leverage and liquidity look better—until they don’t. In First Brands’ case, counterparties have alleged not only sky‑high effective borrowing costs but also instances of double‑financing receivables. An internal probe and court‑supervised investigation are examining those claims.

Point Bonita Capital, the Jefferies‑affiliated fund that fronted cash to First Brands, now faces a thicket of bankruptcy claims. Marketing materials had pitched the strategy as offering secured, ‘safe’ exposure to short‑dated trade assets, according to people who reviewed them. The First Brands implosion has upended that narrative, with some investors bracing for losses and others questioning the valuation marks placed on similar portfolios across the market. Private credit executives insist that most funds follow the rules and fully disclose economics to stakeholders. But the episode has triggered calls from limited partners for tighter oversight of side letters, fee rebates, and other non‑standard terms that can be invisible to outsiders.

For auto‑parts makers, the saga lands at an awkward moment. Margins are under pressure from rising input costs and uneven vehicle production schedules. First Brands—parent of well‑known aftermarket names—leaned hard on financing to bridge long cash‑conversion cycles. When traditional lenders balked at adding exposure, specialty financiers stepped in with higher‑priced solutions. The question for the industry now is whether those solutions merely bought time or accelerated the downfall by draining cash through layered fees.

The bankruptcy court has permitted First Brands to tap a portion of its rescue financing while investigations proceed. The company’s international subsidiaries remain outside the Chapter 11 cases and are operating in the ordinary course, according to statements from the company. Meanwhile, creditor groups—represented by a who’s who of law firms and advisers—are combing through agreements to determine whether any payments tied to the side letter can be clawed back as fraudulent transfers or recharacterized as impermissible interest. If successful, such actions could shrink recoveries for fee recipients and send a warning shot to the market.

Seasoned restructuring lawyers note that side letters are not inherently improper. They can document bespoke operational details, settlement mechanics, or information‑sharing protocols. The problem arises when a side letter is used to change the economics of a deal without informing stakeholders who rely on the headline terms to measure risk. ‘Documentation drift’—the gap between what credit agreements seem to say and what transactions actually do—has widened over the past decade as lenders compete for deals and embrace looser covenants.

In Washington and on Wall Street, regulators are paying attention. Supervisors have flagged opacity in private credit and supply‑chain finance as a potential systemic risk, given the web of funds, special‑purpose vehicles, and bilateral agreements that rarely see daylight. If bankruptcy courts begin to treat disguised interest as interest for covenant tests—or unwind fees booked under side letters—fund sponsors could face a wave of downgrades, redemptions, and litigation. Even if they don’t, the reputational toll of undisclosed economics may chill deal‑making for months.

For now, the facts are still crystallizing. What is clear is that the price of liquidity has been higher than advertised for some borrowers. In the First Brands case, that price was obscured behind an addendum many lenders never saw. Whether that was a clever workaround or a breach will be hashed out in courtrooms and conference rooms in the weeks ahead. The answer will shape not just recoveries for creditors and investors in Jefferies‑affiliated funds, but also the future of how corporate America finances working capital when the tide goes out.

Editor’s note on sourcing: This article reflects reporting and documents reviewed up to October 7, 2025. Details regarding the existence and nature of the ‘side letter,’ the use of fees in lieu of interest, and creditor reactions are based on contemporaneous coverage by the Financial Times and court‑related disclosures, as well as public bankruptcy filings and statements reported by wire services.

References

— Financial Times, reporting on Jefferies’ undisclosed fees via a ‘side letter’ tied to First Brands receivables financing, October 7, 2025.

— Reuters, coverage of First Brands Group bankruptcy filings and court approval of $500 million interim DIP financing, September 29–October 1, 2025.

— Business Wire company statement: First Brands Group receives court approval to access $500 million of $1.1 billion DIP financing, October 1, 2025.

— GTR and other trade‑finance industry outlets on investigations into double‑financing of receivables and inventory, late September–early October 2025.