Creditors complained that loan terms unfairly favored lenders with repayment priority on $4.4 billion in total debt.
A federal bankruptcy court in Texas on Friday gave the green light for a $1.1 billion loan to rescue First Brands, the busted car parts company stuck deep in Chapter 11 hell, according to filings reviewed by Cryptopolitan.
This decision came after a dragged-out overnight brawl between First Brands’ lawyers and a room full of pissed-off creditors.
The loan keeps the company running for now, but it came with a ton of strings attached and even more people watching their backs.
The whole fight started because more than 80 hedge funds and money managers offered to throw cash at First Brands, but only if they got paid first, on not just the new debt, but on $3.3 billion they were already owed. A bunch of creditors weren’t having it. They called the terms greedy and one-sided.
Still, without that cash, the company was toast. So, like it or not, Judge Christopher Lopez said the deal was going through.
Creditors protest, judge shrugs, deal moves forward
The hearing on Thursday was packed, with close to 100 lawyers and advisers squeezed into that Houston courtroom, fighting over who gets what. People were hopping between side rooms and hallways, trying to get something on paper.
Leading the charge for First Brands was Weil Gotshal & Manges, the law firm tasked with keeping the company from collapsing. And collapse was a real threat. Without the loan, they said, the company would be forced into a messy fire sale that wouldn’t cover much of anything.
Creditors backing the deal said this was the only real option. But the committee of unsecured creditors wasn’t buying it. Their advisers warned the loan could carry an interest rate as high as 74%, which they described as totally outrageous.
But again, Christopher said, “There are no better terms out there.” He admitted he didn’t love that the lenders would get top priority for both the new and old debt, but said this was an ugly case all around. “This is anything but a common case,” he added.
Buried in the loan terms is another protection; if the money runs short, First Brands agreed to guarantee $200 million for admin expenses. That includes employee wages, building leases, and advisers’ pay.
No one in the room wanted to be the one left hanging if this whole thing spiraled further down.
Founder gets hit with lawsuit while court eyes more hearings
While all that was happening in court, First Brands’ new management hit its founder, Patrick James, with a fresh lawsuit. They claim Patrick stripped the company of billions, draining it dry before everything blew up. He denies it, obviously.
But the lawsuit is now one of the biggest bets left on the table. If they win, it could bring real money back into the estate. And yes, there’s already a formula in place for who gets what if they manage to claw back anything from Patrick or anyone tied to him.
Now the court has more coming.On Monday, lawyers will meet again to decide whether Patrick can be stopped from selling off his assets while the case against him plays out.
Then later this month, the judge will hear arguments on whether to bring in an independent examiner to dig into all the shady stuff that went down at First Brands before it filed for bankruptcy.
Meanwhile, with lawyers and consultants billing like crazy, Christopher called it “an expensive room” and told both sides to work faster before the fees eat what’s left. Estimates say professional fees alone could hit hundreds of millions of dollars before this thing wraps, according to the Financial Times.
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