Santander’s Exposure to First Brands Founder Patrick James Reaches $300 Million

Santander’s exposure to companies owned by First Brands Group founder Patrick James has reportedly grown to $300 million.

The increase was caused by James defaulting on a loan he took out to buy a French car parts group, The Wall Street Journal (WSJ) reported Wednesday (Nov. 19), citing unnamed sources.

The loan added to the amounts James already owed Santander for receivables financing and for a facility with First Brands units in Mexico and Brazil, according to the report.

Reached by PYMNTS, Santander declined to comment on the report.

First Brands, a global supplier of auto parts, announced Sept. 29 that it and some of its affiliates initiated voluntary U.S. Chapter 11 cases in a bankruptcy court. The company said it expected its global operations to continue without disruption during the Chapter 11 cases.

On Oct. 13, First Brands announced that James, the company’s founder and CEO, resigned from the company.

PYMNTS reported on Oct. 13 that First Brands relied heavily on invoice factoring and that during its Chapter 11 proceedings, investigators alleged that some receivables had been sold more than once, meaning the same invoices were effectively pledged to multiple buyers. According to court filings and contemporaneous coverage, payments that should have gone to factoring partners were instead retained internally.

On Oct. 16, PYMNTS reported that a First Brands creditor, Raistone, alleged that direct lenders, bondholders and other stakeholders had effectively lost track of $2.3 billion in opaque financing vehicles. Under scrutiny are trade receivable financing, reverse factoring, inventory pledges and other off-balance sheet constructs that were at the core of how First Brands funded its aggressive acquisition spree.

It was reported Nov. 3 that after the bankruptcies of First Brands and the now-defunct subprime lender Tricolor Holdings, together with fraud allegations involving corporate borrowers, banks were tightening security to stop similar incidents.

The banks’ measures include greater due diligence, a demand for more extensive financial histories from companies, and, in some cases, a requirement that borrowers allow lenders to perform more frequent checkups before signing off on a loan.

According to the Wednesday report by the WSJ, banks and financial firms around the world expect heavy losses from the collapse of First Brands, as the company borrowed about $11 billion in loans and invoice financing before its bankruptcy.