Financial services group Jefferies (JEF) is reportedly one of a number of private credit firms exposed to troubled auto parts supplier First Brands Group.
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Financial Concerns
According to an article in the Financial Times, Chicago-based UBS (UBS) O’Connor and a hedge fund owned by Jefferies have provided invoice financing to First Brands Group, which last month ditched a $6 billion loan deal after investors reportedly expressed concerns about its financial disclosures.
First Brands Group, which sells parts such as windshield wipers and fuel pumps, has since appointed Deloitte to carry out a “quality of earnings review” to calm those concerns.
It is understood that the review is partly focused on First Brands Group’s use of factoring, which allows companies to sell outstanding customer invoices to third parties such as banks or investors in return for upfront cash.
FBG has also reportedly made use of supply-chain finance, according to ratings agency reports. This allows a company’s lenders to pay its suppliers upfront and then collect the money from the company itself at a later date.
These financing techniques are often treated as off-balance sheet and not included in the overall debt figures.
Major Exposure
There are concerns that there are billions of dollars in financing facilities linked to FBG’s suppliers and customers. That leaves investors exposed if the invoices are not paid.
However, it is not clear what the level of individual exposures are.
It is understood that Jefferies’ trade-finance-focused fund Point Bonita Capital has exposure to debt linked to FBG’s invoices. Other names on the tightrope include London-based Pemberton and Katsumi Global.
These legal and regulatory risks can be of huge importance to financial firms and their investors. As seen below, Jefferies is more exposed than most in its sector.
There are also said to be concerns over the number and pace of debt-fueled acquisitions carried out by FBG, as well as the lack of public information about its owner Patrick James. There are also fears over the impact of President Trump’s tariffs on the auto sector and what this means for the health of FBG and its loans.
Is JEF a Good Stock to Buy Now?
On TipRanks, JEF has a Moderate Buy consensus based on 1 Buy and 1 Hold ratings. Its highest price target is $60. JEF stock’s consensus price target is $57, implying a 12.10% downside.
