The collapse of First Brands Group, an Ohio-based auto parts manufacturer, has exposed the inadequacy of US accounting standards designed to prevent opacity in corporate financing. The company’s bankruptcy filing in September 2025 revealed liabilities exceeding $10 billion, but billions more were discovered in poorly disclosed off-balance sheet financing tied to supplier and customer invoices.

First Brands had stuck to the private loan market, using debt to fuel an aggressive acquisition strategy that built a portfolio of well-known brands including Raybestos brakes and FRAM filters. Yet behind its $6 billion in traditional debt lay a labyrinthine network of invoice-based financing that investors dramatically underestimated. 

According to documents seen by the Financial Times, the company held $2.3 billion in factoring facilities and $682 million in supply chain finance (SCF) at the end of 2024, alongside more than $8 billion in debt and inventory-backed financing through related entities.

As found in court filings, of the 30 largest creditors who are not insiders, 11 unsecured claims are related to ‘SCF’ by nature, 12 are related to ‘trade payables’, one to ‘revenue payout liability’, and four to ‘factoring agreements’. The six-highest claim amounts were all SCF related (reaching $233,707,424.12).

In December 2022, reforms were introduced by the Financial Accounting Standards Board (FASB), an international organisation focusing on the US, to prevent such disasters. The FASB published rules requiring companies reporting under Generally Accepted Accounting Principles (GAAP) standards to reveal key parameters of their supply chain finance programmes in financial statement footnotes. 

Companies must now disclose payment terms, outstanding amounts, and provide roll-forwards of obligations. These rules don’t require reclassification of trade payables as financial liabilities, which could function as a loophole for companies to continue obscuring the true extent of their borrowing.

The First Brands case demonstrates how easily these requirements can be circumvented or rendered meaningless. The accounting standards may mandate disclosure, but they cannot compel proper bookkeeping. 

Patrick James, First Brands’ owner and CEO, had previously been sued by lenders who made allegations of fraudulent conduct, though these were dismissed. Investigators are now examining whether invoices were pledged multiple times – a potential double-counting that would represent a fundamental breakdown in financial controls.

The reverberations have been particularly severe for UBS O’Connor, a private credit specialist whose “opportunistic” working capital finance fund held 30% exposure to First Brands – 9.1% directly through the company’s payables and 21.4% indirectly through its receivables. 

The fund invested through Raistone, a fintech platform founded by former Greensill Capital employees, which derived 70-80% of its revenue from First Brands alone. This concentration echoes the 2021 Greensill Capital collapse, which devastated Credit Suisse (later absorbed by UBS).

O’Connor’s fund technically avoided breaching its 20% single-position limit by splitting the 21.4% of indirect exposure across First Brands’ various customers: an accounting sleight-of-hand which satisfies the letter of investment guidelines. Adding complexity, Jefferies faces scrutiny over a “side letter” that allegedly allowed First Brands to pay fees exceeding interest rate caps specified in its loan covenants.

The First Brands collapse, accelerated by US President Donald Trump’s tariffs on imported auto parts, reveals that disclosure requirements alone cannot ensure financial stability when companies, lenders, and intermediaries all benefit from opacity.

Effective regulation requires not just disclosure mandates but meaningful enforcement and penalties for obfuscation. Until then, the next First Brands may already be accumulating hidden liabilities going undetected by current accounting standards.