(9 October 2025 – United States) The sudden collapse of US car parts maker First Brands has shone a light on opaque off-balance sheet financing methods and questionable accounting by under pressure corporates hit hard by US tariffs.
Jefferies, UBS, Raistone and BlackRock have been swept into the crisis for arranging First Brands’ financing in the form of private debt or “shadow banking” to borrow against invoices, in effect shrouding debt from its balance sheet disclosures and converting a company with 26,000 employees into a finance company more than an auto parts supplier.
The collapse of the group with more than US$10 billion in liabilities was accelerated by US President Donald Trump’s trade war, with tariffs mounting greater pressure on the company’s finances as its underlying business was deteriorating, resulting in the company raising billions of dollars in poorly disclosed off-balance sheet debt.
Raistone claims as much as US$2.3 billion had “simply vanished” as part of the bankrupt auto supplier’s failure. An independent investigation into First Brands Group’s bankruptcy is determining whether receivables may have been financed multiple times after the company accrued such high factoring liabilities. Factoring is not unusual however when the size of that debt, and who is holding it, becomes obscure, problems can accumulate as the financial industry witnessed with the collapse of supply chain finance provider Greensill Capital in 2021 and Carillion in 2018.
“When these assets become impaired, it’s a surprise to markets, because there hadn’t been a gradual updating of information, and because we don’t have great transparency on the location and concentration of where these assets are being held. And that can often have knock-on effects that are unanticipated. Concerns are primarily about unregulated private debt markets and the assets they hold that are often not marked-to-market, an accounting system that values a company’s assets and liabilities at their current fair market value” commented Columbia Business School Economics Professor, Brett House.
“My guess is the companies went into bankruptcy because the market is not great and they started doing things they should not be doing. So they went into financial innovation with invoice financing. The fear is that the private debt market has been too hot, and has been giving out money, at high interest rates, to companies that just can’t pay it back, and especially to companies in the auto market” University of California, Irvine Professor of Accounting, Ben Lourie commented.
“The private debt market is much bigger than it used to be, and we can see that by companies pulling their IPOs because they are raising money in those markets. But there isn’t as much disclosure as there is in the public markets. So there is a disclosure issue because we don’t really know what’s going on. When there isn’t as much disclosure, there’s more risk, and there’s a fear of contagion, because somebody is going to have to take on these losses, and eventually it will reach up into the banks” Lourie added.