Why a maker of spark plugs and wiper blades has Wall Street worried

12 hours ago

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First Brands, an auto parts supplier, filed for bankruptcy due to concerns over opaque off-balance sheet financing.
The company's financial collapse has spooked investors, with liabilities estimated between $10bn and $50bn against assets of $1bn to $10bn.
First Brands used private debt or 'shadow banking' to borrow against invoices, keeping debt off its balance sheet.
The size and opacity of the debt raised fears of contagion in the financial system, similar to past crises like Greensill Capital and Carillion.
Wall Street worries that First Brands' collapse could signal broader issues in the private debt market, which has grown significantly post-2008.
Concerns include lack of transparency, unregulated private debt markets, and potential knock-on effects on the broader financial system.
The situation highlights risks in the auto market, where companies like Tricolor (a subprime auto lender) have also collapsed.
Experts warn that unregulated debt markets may hold systemic risks, with potential for cascading effects if more dominoes fall.

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