Jefferies Faces First Brands Bankruptcy at Investor Day
Three weeks ago, executives at Jefferies might have been excused for thinking the lead storyline at the bank’s investor day this coming Thursday would have been details of an enhanced partnership with Sumitomo Mitsui Banking Corp. That changed last week, when Jefferies disclosed exposure to debt from the bankruptcy of auto parts supplier First Brands.
Reassurance Amid Concerns
Jefferies CEO Rich Handler and President Brian Friedman sought to stem the tide of concern from investors, who have sent the bank’s stock plunging 22.6% since Sept. 30, just after First Brands declared bankruptcy. The executives said Jefferies’ exposure to First Brands is about $45 million – a far smaller figure than the $715 million mentioned in last week’s disclosure.
“Relative to the scale of Jefferies, we are confident that any losses or expenses from these investments can readily be absorbed and do not threaten our financial condition or business momentum,” Handler and Friedman wrote. They believe the impact on the bank’s equity market value and credit perception is overdone and expect corrections soon as better understanding prevails.
First Brands Transition
First Brands announced the resignation of its CEO and founder, with the chief restructuring officer stepping in as interim chief executive. The company is investigating off-balance-sheet financing while facing scrutiny from the Justice Department.
The company received bankruptcy financing to continue operations, but it falls short of the total owed to receivables purchasers, leading to the need to sell its brand portfolio. Meanwhile, investigations continue into alleged fraudulent activities.
Jefferies’ Position
Handler and Friedman clarified Jefferies’ limited involvement with First Brands, emphasizing the bank’s role as a financial adviser in one acquisition and underwriter of a single loan. They also addressed inaccurate or conflated allegations against the bank.
In an FAQ portion of their letter, the executives refuted claims of undisclosed fees and lack of awareness regarding fraudulent activities at First Brands. They highlighted Jefferies’ strong assets and liquidity, reassuring investors of the bank’s stability.
Looking Ahead
Handler and Friedman outlined a resolution timeline, emphasizing the bank’s commitment to recovering assets for co-investors. They also underscored Jefferies’ partnership with SMBC and recent financial performance, aiming to shift focus to the bank’s growth and potential at the upcoming investor day.
While uncertainties linger, Jefferies remains focused on navigating the challenges posed by the First Brands bankruptcy and maintaining its position in the market.
Source: Here
