Lawyers for First Brands urged a federal bankruptcy judge in Houston to approve a restructuring plan designed to fund civil lawsuits against those allegedly responsible for a multiyear “Ponzi scheme” at the defunct car parts maker.
First Brands has warned that failure to approve the plan could trigger a chaotic liquidation that could wipe out junior creditors in the company’s multibillion-dollar capital stack.
“Converting these cases to Chapter 7 [liquidation] would be devastating for all junior creditors,” said a lawyer at Weil, Gotshal & Manges, which represents the First Brands estate. “Everybody in that scenario . . . would get a zero.”
Lawyers for First Brands negotiated the Chapter 11 settlement over recent months with groups including Wall Street funds that provided bankruptcy financing as well as unsecured creditors, and longtime lenders.
The centrepiece of the plan is a so-called litigation trust to pursue potentially $1bn from First Brands executives who allegedly looted the company to fund a lavish lifestyle of expensive houses and cars. Senior lenders, who are spending $75mn to fund the trust, agreed to share some legal winnings with junior creditors before they were fully repaid.
