First Brands’ Refi on Pause Over Skepticism of Finances, Will Commission Quality of Earnings Report

First Brands’ over $6 billion dollar-equivalent refinancing is on pause as the company seeks to commission a quality of earnings report from an “internationally recognized accounting firm,” according to sources. Through the QoE, the company will aim to assuage investor concerns over First Brands’ financial disclosures, specifically on its accounts receivable factoring programs, they added. The company is already audited by BDO USA.

The Jefferies-led deal was short of book size a day ahead of its original commitment deadline, according to sources. The gap stood at around $1 billion as recently as midweek last week, the sources added, noting that the remaining amount lay in the second lien tranche.

First Brands’ large existing first lien investor base easily rolled into the new first lien tranches, sources noted. But the $1.5 billion second lien, which launched at SOFR+950 bps with 95-96 OID, was more difficult as it is nearly $1 billion larger than the existing second lien tranche and requires a larger investor base to get comfortable with subordinated debt below large first lien paper.

The company is a serial acquirer of auto parts companies using debt financing, most recently securing a $250 million term loan led by Sagard to fund an acquisition, as noted in previous coverage.

First Brands, an aftermarket auto parts manufacturer, has been telegraphing its refinancing for months, solidifying terms weeks ago, as reported. The deal would extend debt maturities to 2030.

The existing lender base is largely supportive of the business, touting its ability to generate strong cash flow, a cash margin wide of peers and its ability to withstand cyclicality. Newer investors often express concerns over EBITDA adjustments, favoring a true leverage closer to 4x, above the marketed net leverage of 2.6x.

Even with optimistic EBITDA addbacks, investors favor the business’ resilience to expected weakness in the auto market and broader economy. First Brands’ tariff exposure has also been reduced by nearshoring and reshoring efforts away from production in China.

Jefferies launched the deal to the broader market on July 21. In addition to the second lien, the deal features a $2.7 billion floating-rate first lien term loan paying SOFR+500 bps with 96-97 OID, an €850 million (about $984 million) floating-rate first lien term loan paying Euribor+500 bps with 96-97 OID and a $1 billion fixed-rate first lien term loan in the 9% to 9.5% area with 98 OID. The deal will also upsize the existing ABL to $500 million from $250 million, according to sources.

S&P Global Ratings rated the deal B+ and assigned the second lien term loan a B-. The ratings agency said that it expects leverage to reach 5x in 2025 and notes that the higher margin on the proposed second lien will be offset by an expected decline in interest rates.

While a final credit agreement has yet to be circulated, according to sources, Octus’ Americas Covenants Team gave the initial document a 2.75 on a scale of 1 to 5 for borrower flexibility and lender protection, with 5 being the least protective for lenders.

The company’s existing capital structure is shown below:
 

Octus’ Private Company Analysis has published on First Brands, most recently with an update in relation to the refinancing.

Jefferies declined to comment. First Brands did not immediately respond to a request for comment.