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One of the largest middle men in First Brands’ financings has said that “a lot of people made a lot of money” lending to the bankrupt car parts maker, as they chased the high yields that it paid on its debt.
The comments from Raistone chief executive David Skirzenski on Wednesday at a conference for investors in trade and supply chain finance come as a Houston bankruptcy court looks to untangle a web of obligations asset managers, including Raistone, claim they are owed from First Brands and its customers.
“Frankly a lot of people made a lot of money over many, many years on First Brands,” Skirzenski said at the Global Trade Review annual conference in New York. “So they’re not all sad. They’re not all kicking themselves.”
“This is the business if you do single-B risk,” he added, referring to lending to companies with low credit ratings.
Skirzenski’s company played a crucial role in facilitating capital raisings for First Brands. It runs a technology platform that helped connect the car parts company with larger investors.
First Brand’s founder and owner has since been accused of fraud — which he denies — and investors expect to take painful losses on some $12bn of debt the company has amassed.
Lawyers representing the car parts company have disclosed that billions of dollars of borrowings First Brands secured through off-balance sheet financings from groups such as Raistone cannot be accounted for. They have told a judge that the borrowings were in many cases tied to assets that never existed or were already pledged to other creditors.
Raistone alleged in October that as much as $2.3bn had “simply vanished”, as it pushed for the appointment of an outside examiner as part of the bankruptcy proceedings. In its complaint, it said it was owed at least $172mn.
Filings show Raistone helped arrange hundreds of millions of dollars in loans, which investors are now claiming they are owed in the bankruptcy.
First Brands often paid interest in the mid-teens percentage range, compared with the typical 5 to 8 per cent that might be charged on similar loans.
Raistone is looking to sell itself, according to people familiar with the potential transaction. The sales process, which was earlier reported by Bloomberg, is being run by investment banking and trading firm Seaport Global. Seaport also owns a stake in Raistone.
“Conflicts were discussed at the board level and it was decided that the best outcome would be someone familiar with the business to run the sale,” said a person familiar with the matter. “Time was of the essence and the company needed to keep supporting clients and the workout of First Brands”.
Raistone and Seaport declined to comment.
Skirzenski said that Raistone had “adjusted staff” levels and was still busy on deals. The Financial Times earlier reported that Raistone had laid off 60 people as a result of the First Brands debacle, keeping 40 in total.
He noted that First Brands was a “fascinating story” and “would be a book one day”.
At Wednesday’s conference for specialist lenders, First Brands was acknowledged early in the day as “the elephant in the room” by Jonathan Richman, Santander’s head of US trade finance and working capital.
It came up repeatedly on panels and on the sidelines of the event near Times Square. Sofia Hammoucha, the global head of trade and working capital at Standard Chartered, said the “over-leverage and lack of disclosure” around First Brands’ collapse would prompt investors to take more care.
Some bankers and due diligence experts said they expected lenders to start conducting more thorough field tests to inspect that the assets securing their loans exist.
Others were less sure of the impact First Brands would have on the opaque world of supply chain finance. Mansour Davarian, the head of transaction banking solutions at Lloyds, said there had been no diminution in demand from private credit providers.
Stuart Roberts, the head of sales and distribution at Procura Inventory Management, called it “a depressingly familiar tale that seems to happen every five years or so” where red flags are missed as money managers race to invest capital.
