Four Lessons from First Brands for Private Credit Investors
New York Times Article: https://www.nytimes.com/2025/10/10/business/first-brands-bankruptcy-wall-street.html
๐๐ค๐ช๐ง ๐ ๐๐ฎ ๐ฅ๐ค๐๐ฃ๐ฉ๐จ ๐๐๐ค๐ช๐ฉ ๐ฅ๐ง๐๐ซ๐๐ฉ๐ ๐๐ง๐๐๐๐ฉ ๐๐ฃ๐ซ๐๐จ๐ฉ๐๐ฃ๐ ๐๐ง๐ค๐ข ๐ฉ๐๐ ๐๐๐ง๐จ๐ฉ ๐ฝ๐ง๐๐ฃ๐๐จ ๐๐๐ก๐ก๐ค๐ช๐ฉ, ๐ฌ๐๐๐๐ ๐ฌ๐ ๐๐๐ซ๐ ๐๐ก๐ฌ๐๐ฎ๐จ ๐ช๐ฃ๐๐๐ง๐จ๐ฉ๐ค๐ค๐ ๐๐จ ๐๐จ๐จ๐๐ฃ๐ฉ๐๐๐ก๐จ:
1. ๐ง๐ฟ๐ฎ๐ป๐๐ฝ๐ฎ๐ฟ๐ฒ๐ป๐ฐ๐ ๐ฎ๐ป๐ฑ ๐๐๐ฟ๐๐ฐ๐๐๐ฟ๐ฎ๐น ๐ฐ๐น๐ฎ๐ฟ๐ถ๐๐ ๐ฎ๐ฟ๐ฒ ๐ผ๐ณ ๐๐๐บ๐ผ๐๐ ๐ถ๐บ๐ฝ๐ผ๐ฟ๐๐ฎ๐ป๐ฐ๐ฒย
Working capital or invoice finance consist of numerous line items which can mask cross pledging, double use of receivables, and commingled collateral. Further masking using off-balance sheet vehicles add to the complexity and increases opacity. This makes it difficult to determine what counts as real collateral.ย
2. ๐๐ผ๐ป๐ฐ๐ฒ๐ป๐๐ฟ๐ฎ๐๐ถ๐ผ๐ป ๐น๐ถ๐บ๐ถ๐๐ ๐บ๐๐๐ ๐ฏ๐ฒ ๐๐๐ฟ๐ถ๐ฐ๐๐น๐ ๐ฒ๐ป๐ณ๐ผ๐ฟ๐ฐ๐ฒ๐ฑ
Even well-intentioned position limits can be circumvented through indirect exposures or creative capital structures.
3. ๐๐ฐ๐๐ถ๐๐ฒ ๐บ๐ผ๐ป๐ถ๐๐ผ๐ฟ๐ถ๐ป๐ด ๐ฎ๐ป๐ฑ ๐๐ฐ๐ฒ๐ป๐ฎ๐ฟ๐ถ๐ผ ๐๐๐ฟ๐ฒ๐๐ ๐๐ฒ๐๐๐ถ๐ป๐ด ๐ฎ๐ฟ๐ฒ ๐ฒ๐๐๐ฒ๐ป๐๐ถ๐ฎ๐น
Attention to details and proactive questioning must be baked into the ongoing monitoring process, not just during the underwriting.ย
4. ๐๐ ๐ถ๐ ๐ป๐ผ๐ ๐ท๐๐๐ ๐ฎ๐ฏ๐ผ๐๐ ๐ฑ๐ฒ๐ฝ๐น๐ผ๐๐บ๐ฒ๐ป๐, ๐ฏ๐๐ ๐บ๐ผ๐ฟ๐ฒ ๐ฎ๐ฏ๐ผ๐๐ ๐ฒ๐ป๐๐๐ฟ๐ถ๐ป๐ด ๐๐ต๐ฒ ๐ฒ๐ ๐ถ๐๐
Lending is a tough exercise, getting it back is harder. Exits must be determined from the start โ the ability to take control, downside protection and exit alternatives are critical essence of the underwriting process.
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