Both Jefferies Financial Group and UBS have disclosed sizable exposures to First Brands Group, an auto-parts supplier that filed for bankruptcy in late September—putting new focus on the risks embedded in private credit and trade finance portfolios.
On Wednesday, Jefferies revealed that a subsidiary of one of its asset management units, Point Bonita Capital, had invested roughly one-quarter of its $3 billion trade finance portfolio in assets tied to First Brands. The firm purchased about $715 million in receivables—customer invoices that First Brands sold to generate immediate cash flow.
For context, factoring—the sale of receivables for upfront cash—is a common working-capital strategy used by middle-market companies. In this case, First Brands received early payment from Point Bonita, while the fund collected the cash when customers such as Walmart and O’Reilly Auto Parts later paid their bills.
That arrangement fell apart on Sept. 15 when First Brands stopped forwarding customer payments to Point Bonita, throwing the value of those receivables into question. Because Point Bonita primarily manages third-party assets, Jefferies won’t shoulder all the losses. However, the firm disclosed that one of its divisions owns 5.9% of the fund.
Jefferies also owns 50% of Apex Credit Partners, a separate credit fund that held $48 million in structured credit instruments tied to First Brands. While most of those loans are held by external investors, Apex itself took on the highest-risk portion of the debt stack—meaning it will be among the first to absorb losses if recoveries fall short.
Analysts at Morgan Stanley estimate Jefferies’ total potential losses from the First Brands exposure could reach $44.6 million, which they described as modest relative to the firm’s overall capital base. A Jefferies spokesperson declined to provide further comment.
UBS, meanwhile, disclosed in bankruptcy filings that its funds hold more than $500 million in First Brands financing, according to reports from Bloomberg. Roughly $116 million of that exposure is tied to O’Connor, a UBS hedge fund the bank recently agreed to sell to Cantor Fitzgerald.
Cantor Fitzgerald, now seeking to revise the terms of that pending acquisition, has reportedly requested changes to reflect the unexpected deterioration in First Brands-linked assets. A Cantor spokesperson declined to comment.
A UBS representative confirmed that several of its funds were affected by the First Brands bankruptcy but emphasized that the exposure remains limited and diversified. “This event affects many private credit and working capital providers across the industry,” the spokesperson said. “We are working to determine the potential performance impact on the small number of our affected funds and remain focused on protecting client interests.” The firm declined to comment on whether the O’Connor transaction terms were under renegotiation.
The bankruptcy has now entered a forensic phase. Newly appointed directors at First Brands are combing through company records, investigating missing collateral, and probing whether certain receivables were sold multiple times—a scenario that could significantly complicate creditor recoveries. Court filings list numerous global investment funds among First Brands’ creditors, though it remains unclear how much lenders will ultimately recoup.
For wealth managers and institutional allocators, the episode offers a cautionary case study in the opacity of private credit and trade finance structures. While factoring and receivables-backed financing have long served as essential liquidity tools for industrial borrowers, the rapid growth of private funds entering this space has outpaced the transparency available in traditional credit markets.
First Brands had been a heavy borrower in both syndicated loan markets and private channels. Beyond its on-balance-sheet debt, the company relied on billions of dollars in off-balance-sheet arrangements, including receivables factoring and inventory reverse-factoring programs. Those layers of financing, often structured to optimize cash flow and extend supplier payment cycles, can mask leverage and complicate recovery efforts when borrowers run into distress.
Fitch Ratings weighed in on Tuesday, stressing that First Brands’ collapse does not, in its view, signal a systemic problem across the broader private credit market. “First Brands’ troubles appear to stem from billions of dollars in off-balance sheet financing, including receivables factoring and inventory reverse-factoring arrangements,” Fitch noted in a report. The agency said its estimated private credit default rate remained steady at 5.2% in August—unchanged from July, though slightly above the 4.6% level recorded in December.
Still, the incident underscores how even mainstream institutions—Jefferies, UBS, and their clients—can face surprises when private credit meets complex supply-chain finance. These types of exposures often sit in funds marketed as conservative alternatives to traditional fixed income, appealing to advisors seeking yield for clients in a higher-for-longer interest rate environment.
For registered investment advisors overseeing allocations to private credit vehicles, the situation is a reminder to evaluate the underlying collateral quality, structure, and transparency of these funds. Factoring portfolios can appear low-risk when counterparties are household names like Walmart or O’Reilly, yet that apparent safety depends on intermediaries’ adherence to cash-handling agreements and the borrower’s financial discipline.
Point Bonita’s troubles illustrate how operational risks—in this case, a borrower ceasing to forward payments—can override the credit strength of the end customer. Advisors reviewing fund documents should pay close attention to how receivables are held, how proceeds are controlled, and whether third-party verification mechanisms exist to ensure payments reach investors as intended.
From a portfolio construction standpoint, the episode also reinforces the importance of diversification within private credit allocations. Even though Jefferies’ and UBS’s exposures appear manageable relative to their balance sheets, smaller asset managers or advisors who concentrate too heavily in similar trade finance strategies could face more significant drawdowns if defaults spread.
Moreover, the bankruptcy’s ripple effects may prompt regulators and rating agencies to take a closer look at the growing web of off-balance-sheet lending. Over the past several years, private credit has expanded rapidly into niche segments such as receivables financing, inventory lending, and supply-chain credit—areas once dominated by banks but now largely financed by asset managers and private funds. These strategies can provide attractive yield, but they also rely heavily on contractual trust and complex cash flows that are not always transparent to end investors.
For advisors managing client exposure through interval funds, BDCs, or private debt partnerships, the key takeaway is to ask detailed questions about liquidity, borrower diversification, and deal verification. How often are receivables reconciled? Who controls the lockbox accounts? What protections exist if a borrower like First Brands suddenly stops remitting payments?
The First Brands case may also influence how large banks and buyers approach private credit transactions in the near term. Cantor Fitzgerald’s move to revisit its acquisition terms for UBS’s O’Connor hedge fund shows that counterparty risk can spill into broader M&A negotiations. The event could lead to more conservative pricing on portfolios with significant trade finance exposure, particularly where receivable verification is weak.
Meanwhile, the muted market reaction suggests investors view the problem as isolated. Jefferies’ shares opened lower after the disclosure and were down about 3.9% by midday Wednesday, while UBS shares were largely unchanged. Analysts attributed the drop more to sentiment than to any material hit to earnings.
Still, the broader lesson for wealth managers and their clients is clear: the expansion of private credit into nontraditional areas brings both opportunity and new layers of complexity. Due diligence must go beyond yield metrics and manager reputation to include structural and operational risk analysis—especially when funds engage in factoring or supply-chain finance.
For now, Fitch’s assessment that private credit default rates remain contained offers some reassurance. But the First Brands bankruptcy may prove to be a stress test for how well the industry’s documentation, cash controls, and investor protections hold up in practice.
As private credit continues to scale and attract institutional and high-net-worth capital, wealth advisors will need to weigh the balance between access and transparency. The First Brands fallout serves as a timely reminder: when it comes to private lending, even a “secured” receivable can become unsecured the moment control over cash slips away.
For RIAs advising clients in this space, the priority should be vigilance—asking deeper questions, verifying collateral chains, and ensuring that every layer of risk in a private credit portfolio is understood, documented, and justified.
