Nothing left to reorganise
First Brands is the cleanest available test of what recoveries look like when credit was extended through structures nobody had to mark, and the answer for junior creditors is zero.
Judge Christopher Lopez has ordered First Brands Group into Chapter 7 liquidation, rejecting the restructuring plan its lenders and creditors had negotiated as "unconfirmable under any circumstances" (FT). The plan's whole architecture was a litigation trust: senior lenders, who had already put up $1.1bn of bankruptcy financing, would fund lawsuits chasing the roughly $25bn the auto-parts maker paid out in the years before its 2025 collapse. The targets included founder Patrick James — now facing criminal fraud charges over fabricated invoices and double-pledged collateral, with two of his finance executives already pleaded guilty — and, more importantly for our purposes, the off-balance-sheet lenders that financed First Brands' working capital. That is the part worth sitting with. First Brands was not primarily a bank borrower. It was funded through factoring and supply-chain finance arrangements that sat outside the audited balance sheet, sold to funds that never had to mark them against anything. The bankruptcy estate's plan was an attempt to reach back through those structures and recover money. The court has now said it cannot: the delay before any litigation proceeds arrived in 2028 was itself a legal defect, given the estate had burned through the DIP loan and racked up nearly $2bn of new administrative claims during eleven months in Chapter 11. So the sequence is: opaque financing, alleged double-pledging, no buyer, $2bn of fees and costs accrued while nothing was sold, and now liquidation in which — on the estate's own lawyers' account — junior creditors holding billions get nothing. The loss was not created yesterday. It was created when the loans were made. Yesterday it was simply recognised.