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A US bankruptcy judge gave First Brands final approval to tap a $1.1bn loan funding the car parts maker through bankruptcy, after overnight negotiations between the company and creditors led to a breakthrough.
Several creditors had objected to loan terms they viewed as too generous to the more than 80 hedge funds and money managers that agreed to provide the new funds. The financing will help keep the company operating while it attempts to stabilise its business and eventually sell itself.
One of the most lucrative aspects of the case could be future litigation claims, particularly against the company’s founder, Patrick James. New management of First Brands sued James earlier this week for allegedly looting the company of potentially billions of dollars, which his spokesperson has denied. Advisers for the company agreed to a specific formula that will split any future proceeds from that litigation.
Separately, First Brands agreed to guarantee that at least $200mn of administrative expenses — including paying leases and employee wages as well as advisers — would be paid first if the company did not have enough money to pay back the secured lenders.
Judge Christopher Lopez in Houston, Texas, said the financing “allows the parties to continue to work”. However, he shared some concerns with the loan terms, including allowing the lenders to get higher priority status for repayment of $3.3bn in prior loans to the company.
The arrangement was not common, “but this is anything but a common case”, he said. “There are no better terms out there.”
Advisers to a committee of unsecured creditors had estimated the interest rate on the loan at as much as 74 per cent.
Nearly 100 lawyers and advisers arrived in the packed Houston courtroom on Thursday to fight over terms of the loan, which First Brands’ lawyers have described as essential to keep the company from quickly having to liquidate its assets, which would likely yield far less in recovery for creditors.
Lawyers from Weil Gotshal & Manges, which represents the company, spent Thursday in court on several breaks in conference rooms and hallways in an attempt to reach an agreement and receive the new financing.
Lawyers will reconvene in Houston on Monday for a hearing on whether the company is allowed to impose a restraining order against James to prevent him from selling assets. A hearing later this month will decide whether First Brands can appoint an examiner to investigate alleged wrongdoing at the company in the lead-up to its bankruptcy.