First Brands' off-balance-sheet SPV financings: Onset, Evolution, Aequum, CarVal and UMB

analysisAlongside the funded debt of the FBG debtors, the first-day declaration describes special purpose vehicles (SPVs), the "SPV Debtors", that took part in lease, inventory and equipment financings recorded off the group's balance sheet. The obligors are subsidiaries of Viceroy Private Capital, LLC and Carnaby Capital Holdings, LLC, not subsidiaries of First Brands Group, LLC, and they are not obligors under the term loans or the asset-based (ABL) facility. In these programs an SPV borrower buys or exchanges inventory or raw materials from other debtor subsidiaries, uses that inventory as a borrowing base to obtain loans and may sell the finished inventory back to other debtors or to third parties. ¹

analysisOn March 28, 2024 Broad Street Financial, LLC entered into a credit agreement with Aequum Capital Financial II, LLC as administrative and collateral agent for a $45 million asset-based revolving facility; Broad Street could buy inventory such as brake parts, electronics, steering components, calipers, pumps and motors directly from First Brands Group, LLC and its subsidiaries and borrow against it, held about $66 million of inventory as of July 31, 2025, and was guaranteed by Broad Street Financial Holdings, LLC, with liens on all assets of both companies. Inventory sold back to the debtors had to be bought by Viceroy Private Capital, LLC if no other debtor bought it. ¹

analysisOn December 2, 2024 Global Assets LLC and Global Assets GmbH, a German limited liability company affiliated with the debtors, entered into a credit agreement with UMB Bank, N.A. as administrative and collateral agent for another $45 million asset-based revolving facility, using finished parts, raw materials and semi-finished products bought from certain debtors as the borrowing base; they held about $68 million of inventory as of July 31, 2025, and Carnaby Capital Holdings, LLC guaranteed their obligations; here too, Viceroy Private Capital, LLC had to buy inventory sold back if no other debtor bought it. About $77.8 million of principal was outstanding under the Broad Street and Global Assets facilities together at the petition date. ¹

analysisThe two "CarVal" facilities date from 2022. On May 31, 2022 Carnaby Inventory II, LLC entered into a $60 million asset-based revolving facility with GLAS Trust Company LLC as administrative agent; it could buy manufactured inventory such as brake parts, or raw materials, from the debtors and could engage debtor subsidiaries that have contracts with maquiladora manufacturers to produce inventory for it. On July 6, 2022 Carnaby Inventory III, LLC entered into a $100 million facility with the same agent on the same model. As of August 2, 2025 the two borrowers held about $116 million and about $133 million of inventory. First Brands Group Holdings, LLC guaranteed both, together with Carnaby Inventory Holdings II, LLC and Carnaby Inventory Holdings III, LLC respectively, and about $159.0 million of principal was outstanding under the two CarVal facilities at the petition date. ¹

analysisEvolution Credit Opportunity Master Fund II-B, L.P. provided two uncommitted inventory finance facilities of up to $150 million each: to Patterson Inventory, LLC under an agreement of November 9, 2023, and to Starlight Inventory I, LLC under an agreement of March 28, 2024, each guaranteed by its holding company and secured by a pledge of its equity and liens on its assets. The borrowers could buy eligible inventory from First Brands Group, LLC and its subsidiaries and borrow against it; they held about $376 million of inventory as of August 2, 2025, and about $230 million of principal was outstanding at the petition date. The first-day declaration added that Evolution's inventory may have been commingled with the inventory of the FBG debtors before the petition date and that the Special Committee would review the issue. ¹

analysisOnset Financial, Inc. financed the group through two master leases. Carnaby Inventory IV, LLC entered into Master Lease Agreement No. OFI1445416 on June 28, 2022, guaranteed by First Brands Group Holdings, LLC, Viceroy Private Capital, LLC, Carnaby Capital Holdings, LLC, Carnaby Capital, LLC and Carnaby Inventory Holdings IV, LLC. Carnaby FA, LLC entered into Master Lease Agreement No. OFI1545465 on October 24, 2023, guaranteed by Carnaby Capital Holdings, Viceroy, First Brands Group Holdings, Carnaby Capital, Carnaby FA Holdings, LLC, Eagle Casting Holdings, LLC and Eagle Casting, LLC; the first-day declaration notes that Eagle Casting, LLC also guarantees the senior credit facilities. ¹

analysisUnder the master leases Onset lends funds to Carnaby Inventory IV, LLC to acquire inventory or equipment from First Brands Group, LLC on Onset's behalf; the inventory is then leased back to Carnaby IV and may ultimately be repurchased by First Brands. The debtors stated that they believe the master leases may not be true leases and reserved their rights to have them recharacterised as financings. Including interest, fees and forbearance fees, about $1.9 billion was outstanding under the master leases and related forbearances at the petition date. ¹

analysisIn 2025 the lessees fell behind. On May 1, 2025, after failing to make monthly payments of about $208 million due that day, Carnaby Inventory IV and Carnaby FA entered into a first forbearance agreement with Onset that extended the deadline to May 30, 2025 in exchange for late and forbearance fees of about $35 million. When they also missed June payments of $198.5 million, a second forbearance on June 1, 2025 extended the deadlines to June 27 and July 27, 2025 for fees of about $73.5 million and an additional monthly payment of about $223 million. ¹

analysisA third forbearance of June 30, 2025 restructured the Onset payment schedules to total payments of $1.9 billion, about $380 million more than was due before the first forbearance: $20 million by July 3, 2025 (paid), $570 million on August 29, 2025, monthly payments through August 20, 2026 and a $645 million balloon payment on August 31, 2026. In connection with it, Viceroy Private Capital, LLC pledged 15% of its membership interests in First Brands Group Holdings, LLC to Onset. After the $570 million payment was missed, Onset delivered a notice of default and acceleration on September 9, 2025. ¹

analysisOn September 22, 2025 Evolution Credit Opportunity Master Fund II-B, L.P. notified the debtors of a claimed default under the facility of Starlight Inventory I, LLC for failure to pay about $110 million of principal and $7.8 million of accrued interest, and separately claimed that about $4.7 million due on purchased receivables had not been paid. The first-day declaration adds that the company's advisers had recently become aware that inventory subject to Evolution's security interest may have been commingled with collateral securing the ABL facility, a dispute placed under the Special Committee's investigation. ¹

analysisOn September 24, 2025 thirteen SPV debtors filed Chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of Texas, among them Global Assets LLC, Carnaby Capital Holdings, LLC, Broad Street Financial, LLC, Broad Street Financial Holdings, LLC, Carnaby Inventory II, LLC, Carnaby Inventory III, LLC, Patterson Inventory, LLC and Starlight Inventory I, LLC. The first-day declaration calls the filings a protective measure, because certain inventory financing lenders could otherwise have exercised remedies, in some cases proxy rights or foreclosure, before forbearances could be obtained. ^{1 2}

analysisSome SPV lenders contested the filings. Secured lenders of Broad Street Financial, LLC and of Carnaby Inventory II and III moved to dismiss those SPVs' Chapter 11 cases, the Carnaby lenders on October 30, 2025 and the Aequum lenders on November 10, 2025, alleging that on the eve of bankruptcy First Brands had replaced the SPVs' independent managers with managers who also sat on the parent companies' boards and who then approved the filings, which the lenders called unauthorized and in bad faith. The debtors and the Official Committee of Unsecured Creditors opposed dismissal, arguing that the operating agreements had been properly amended before the petition and that the SPVs were operationally integrated into the First Brands enterprise. These positions are summarised in a law-firm client alert of January 2026; a hearing on the Carnaby lenders' motion was scheduled for January 9, 2026, and no ruling on the motions was found in the retained record. ^{3 4}

analysisIn their verified adversary complaint of November 3, 2025 against Patrick James, the Patrick James Trust and affiliated companies (Adv. Pro. 25-03803), the debtors allege that, under James's leadership and direction, inventory purportedly transferred by First Brands subsidiaries to SPV debtors under the Evolution and Onset facilities stayed on the subsidiaries' balance sheets and in the borrowing base of the First Brands credit facilities, including the ABL facility, so that the same inventory supported loans both to the subsidiaries and to the SPVs. The complaint says Evolution lent about $240 million to an SPV debtor against what First Brands represented as $370 million of inventory, that First Brands kept the inventory without paying the SPV, and that by the end of September 2025 few if any assets remained in the SPV. None of this has been adjudicated. In a motion to dismiss filed on December 15, 2025 the defendants argued that the complaint does not connect Patrick James to any alleged double-pledging of collateral, and a spokesperson for James said James continues to deny the "baseless accusations". The bankruptcy court later granted a motion of the United States to intervene and stayed discovery in the adversary proceeding pending the parallel criminal case; on May 29, 2026 the district court dismissed James's appeal of that order for lack of jurisdiction. ^{1 2 3 4}

analysisThe same complaint alleges that cash from Onset was transferred to a non-debtor entity controlled by Patrick James known as "Bowery Finance II" instead of to the FBG subsidiaries entitled to it under the transaction documents, that inadequate books and records were kept for the SPV debtors and that their cash was frequently commingled with that of non-debtor entities. It describes the Bowery Finance II account as a "slush fund" through which nearly $12 billion flowed from 2022 through 2025, including transfers between Patrick James, the Patrick James Trust and James's affiliated entities. These allegations are also unadjudicated: the defendants' December 15, 2025 motion to dismiss argued that the complaint does not tie Patrick James to any alleged double-pledging, James's spokesperson denied the "baseless accusations", and the discovery stay that followed the intervention of the United States remained after the district court dismissed James's appeal on May 29, 2026. ^{1 2 3 4}

analysisIn a declaration of January 11, 2026 in the dispute with Evolution, as reported in the press, co-chief restructuring officer Daniel Jerneycic said the recorded value of the initial inventory purchases by Patterson Inventory, LLC and Starlight Inventory I, LLC from First Brands appeared overstated by about $140 million, that the expected resales and replacement purchases did not appear to have occurred, and that borrowing base certificates presented to Evolution did not reflect actual business activity. Jerneycic said invoices were issued to Brake Parts Inc by an entity controlled by Patrick James, and that funds paid to the SPVs were round-tripped back to Brake Parts Inc through another James-controlled entity, apparently solely to generate bank-statement activity for Evolution. These statements of the debtors' restructuring officer were not adjudicated; a spokesperson for Patrick James said James "has always acted ethically and continues to deny the baseless accusations against him". ³

analysisIn a report filed with the bankruptcy court in July 2026 in support of the proposed liquidating plan, as reported in the press, the debtors' expert Marc S. Kirschner called the SPV facilities structurally unworkable. In Kirschner's account the SPVs had no employees, assets or inventory of their own, held no board meetings, adopted no resolutions and relied on First Brands and other Patrick James entities to pay their bills, while First Brands employees performed their functions. Kirschner said there was a good-faith basis to believe the SPVs were insolvent from their inception, that their debts exceeded $200 million a month in 2025 and were repaid with further SPV, factoring and supply-chain financing, and that SPV lenders knew or should have known of the scheme. These are the opinions of an expert retained by the debtors and were not adjudicated; Patrick James has denied allegations of fraud, and in August 2026 the bankruptcy court found the plan, which relied on these litigation claims, not feasible and ordered the cases into Chapter 7 liquidation. ^{5 6}

analysisThe same July 2026 report, as reported in the press, says $12 billion was funneled from 2022 to 2025 through the Bowery account controlled by Patrick James, which was used to commingle funds and facilitate transfers to many Patrick James entities. According to Kirschner, proceeds that flowed into the SPVs were promptly transferred out, commingled and disbursed to affiliates or creditors; the ledgers of Carnaby Inventory II and III showed inventory reduced monthly for cash received from Patrick James entities to service the CarVal lenders rather than recorded purchases and sales; and the FBG debtors appear to have recycled funds from SPV lenders to pay pre-existing creditors, including other SPV lenders. Like the rest of the debtors' expert report, filed in support of the plan, these opinions were not adjudicated, Patrick James has denied allegations of fraud, and the court's August 2026 finding that the plan was not feasible sent the cases into Chapter 7 liquidation. ^{5 6}

analysisOn Onset, Kirschner's report says Onset lent more than $2 billion through Carnaby FA, LLC under a structure in which the SPV bought inventory or equipment from a First Brands company, sold it to Onset and leased it back, and that the facility could not operate as papered because the SPV had to buy inventory, replace inventory sold and service debt to Onset at interest rates of up to about 200%. Kirschner said Onset should have known this was impossible, citing late-filed financing statements after pushback from Edward James, Edward James's insistence on being the only person to communicate with Onset and Edward James's role as an investor alongside Onset in the SPV deals, and said the triple-digit rates would be substantial evidence that the transactions were made for inadequate consideration. These unadjudicated expert opinions were filed in July 2026 in support of the plan, which the court found not feasible in August 2026 before ordering the cases into Chapter 7 liquidation. Onset has denied wrongdoing, saying it is a victim that did business in good faith with First Brands and blaming the James brothers for the collapse; no response by Edward James to these statements was found in the retained record, and in the criminal case Edward James pleaded not guilty on February 4, 2026. ^{5 7 8 6}

analysisThe indictment in United States v. Patrick James and Edward James, 26 Cr. 29 (S.D.N.Y.), unsealed on January 29, 2026, alleges that the off-balance-sheet debt principally related to inventory-financing arrangements of entities wholly owned and controlled by Patrick James (the "James Entities"), which were nominally separate from First Brands but had no independent business operations. Through them, it alleges, at least three inventory financers advanced funds to buy First Brands inventory that was pledged back to them, or entered sale-leaseback transactions; the arrangements were directed by Patrick James, negotiated by Edward James and kept off First Brands' financial statements, and loan proceeds were routed through a customer-collections entity outside the corporate structure so that they appeared to be ordinary customer receipts. The charges are accusations and the defendants are presumed innocent unless proven guilty. On February 4, 2026 Patrick James pleaded not guilty to all nine counts and Edward James to counts two through nine; trial was set for February 9, 2027. ^{1 2 3}

analysisThe same indictment, unsealed on January 29, 2026 in 26 Cr. 29 (S.D.N.Y.), further alleges that in July 2025, in response to high-priority lender diligence requests and at the direction of Patrick James, a senior First Brands executive falsely represented that the company had "no off-balance sheet financing" involving "special purpose entities" and that all related-party relationships were disclosed, when about $2 billion of undisclosed off-balance-sheet debt had been incurred through the James Entities. It also alleges that the James Entities pledged inventory said to be unencumbered that was already pledged to First Brands' senior lenders, that falsified inventory schedules were supplied to the off-balance-sheet lenders, and that bank transfers were structured at Edward James's direction to mimic purchases and resales of inventory. These allegations, too, are accusations under the presumption of innocence; both brothers pleaded not guilty on February 4, 2026 (Patrick James to all nine counts, Edward James to counts two through nine), with trial set for February 9, 2027. ^{2 1 3}

analysisOnset gives the opposite account of its role. In a motion to dismiss the debtors' suit, reported in March 2026, Onset said it had funded nearly $3 billion to First Brands from 2018 to 2025, secured by inventory and equipment, and that it was still owed at least $2.17 billion at the Chapter 11 filing; the motion said Onset and its funding partners, like other lenders, had been deceived by falsified inventory schedules, fake account documentation and collateral that was often double- or triple-pledged to different lenders. Onset has publicly denied wrongdoing and called itself a victim of the James brothers. This is Onset's own account in pending litigation: the debtors' suit against Onset alleges the opposite, and the claims had not been adjudicated. ^{1 2}

analysisPatrick James and the other defendants in the estate's suit blamed the lenders instead. Their December 15, 2025 motion to dismiss argued that off-balance-sheet lenders, Onset Financial in particular, charged onerous fees; that Onset, which contends its claim totals $1.9 billion, holds a guaranty from Viceroy Private Capital, LLC that is inconsistent with its claim to be an equipment lender and "more consistent with a commercial payday loan"; and that these lenders' "predatory practices" drove the company into default in the weeks before the Chapter 11 filing. These are arguments in a motion to dismiss, not findings of the court. ³

analysisEvolution's collateral was disputed in the bankruptcy. After the September 2025 filing, an agreed court order entered that November allowed the Patterson and Starlight SPVs to keep selling inventory provided they held at least $335 million of collateral at certain locations. In December Evolution filed an emergency motion alleging a shortfall of about $44 million, which First Brands disputed on the ground that enough inventory was held elsewhere; at a January 13, 2026 hearing Judge Christopher Lopez said the order's plain language did not specify those locations but that more evidence was needed. In a January 12, 2026 filing Bank of America, as administrative and collateral agent for asset-based lenders, argued that Evolution had not proved a valid first-priority lien because the inventory was already subject to its lenders' liens before First Brands sold it to the SPVs. When these competing positions were reported in January 2026 the court had not decided lien priority. In April 2026 the Patterson and Starlight cases were converted to Chapter 7 under a settlement for which the debtors sought emergency approval on April 8, 2026; no ruling on the alleged shortfall or on lien priority was found in the retained records. ^{4 5 6}

analysisEvolution itself had pressed for that step. In a motion reported on March 12, 2026, it asked the court to move the brake-parts business lines covered by its special financing from Chapter 11 into Chapter 7, saying the borrowers owed about $230 million of principal and had no revenue-generating operations and that no prospect of reorganization existed. The settlement filed on April 8, 2026 allowed the Evolution SPV debtors' cases to be converted, and Patterson Inventory, Patterson Inventory Holdings, Starlight Inventory I and Starlight Inventory Holdings I were converted to Chapter 7 in April 2026. ^{1 4}

analysisIn an adversary suit brought by Bank of America against Aequum, Judge Christopher Lopez ruled in June 2026, as reported, that Aequum could sell inventory in its possession but could not spend the $18 million of proceeds until the court decided who owned the collateral stored in a Cardone warehouse in Arlington, Texas. The judge said Aequum's funds had gone not to First Brands for the collateral but to Bowery Finance, a company owned by former chief executive Patrick James and not part of First Brands, and that there was no evidence in Cardone's or First Brands' books that Broad Street Financial, LLC had bought the collateral, so earlier liens appeared to remain in place. The judge also said both Bank of America and Aequum appeared to have extended credit in good faith and may both have been deceived, and said the oral ruling did not decide who owns the inventory or whether a transfer occurred, which were left for trial. ⁷

analysisUMB Bank, as administrative agent for lenders to a $45 million credit facility tied to the group's off-balance-sheet special purpose entities, filed an emergency motion asserting that First Brands' advisers had abandoned more than $55 million of special purpose entity property and were routing debtor-in-possession financing to the group's Ultinon lighting business at the expense of other secured lenders; according to the same published summary of court filings, the inventory financing of the special purpose entities was backed in part by Ultinon inventory. These are UMB Bank's assertions, and no ruling on the motion was found in the retained record. ⁸

analysisAn October 2025 press report, citing Fitch Ratings, said First Brands' troubles appeared to stem from billions of dollars of off-balance-sheet financing, including receivables factoring and inventory reverse-factoring, and named Pemberton Asset Management, Evolution Credit Partners and Aequum Capital among the private credit firms exposed through such structures; the report gave no exposure amounts. ⁹