First Brands nears bankruptcy settlement, tees up business unit sales

By Dietrich Knauth

NEW YORK, Feb 27 (Reuters) - Bankrupt auto parts maker First Brands is close to a settlement with its creditors, seeking to wind down most of its operations while teeing up separate sales for four business lines that are being funded by customers such as Ford F.N and General Motors GM.N, a company attorney said Friday.

First Brands has been unable to find a buyer for the whole company, after lenders, customers and potential buyers learned of the extent of alleged fraud in the company's pre-bankruptcy lending agreements and financial statements, company attorney Matt Barr said at a court hearing in Houston.

The company is now pursuing separate sales of its Walbro, Horizon, TMD and Pumps business lines, Barr said. Those sales are being finalized and will be supported by major automakers whose prepayment for parts has funded First Brands' operations in recent weeks.

Barr said the company's fraud, which has resulted in indictments of the company's founder Patrick James and his brother Edward James, was "far more severe" than anyone realized when the company filed for bankruptcy, adding that revelations about false information in loan agreements and financial statements have severely strained relationships with customers and suppliers.

"There was simply no trust in the company," Barr said.

First Brands filed for protection from creditors on September 28 with more than $9 billion of liabilities, sparking fear among Wall Street lenders exposed to the privately held, Cleveland-based company. The company began its bankruptcy with a new $1.1 billion loan from its existing group of lenders, but it had burned through most of that cash by January and has recently been relying on short-term funding from Ford and GM.