First Brands Group’s recent bankruptcy has rattled financial markets and exposed major risks in private credit. Once a fast-growing auto parts company, First Brands used debt to acquire some 24 manufacturers, creating a global parts portfolio featuring brands like Trico windshield wipers, Fram filters, and Carter fuel pumps.

In September 2025, First Brands filed for bankruptcy in Texas amid severe revenue losses and looming liabilities of $10–50 billion against assets of just $1–10 billion, much of it tied up in mysterious off-balance-sheet financing. The company is now at the center of a Department of Justice criminal investigation, accused of double-pledging receivables and losing track of $2.3 billion in funds.

Major institutions are reeling from their exposure: UBS faces over $500 million in losses, Jefferies Group holds $715 million in receivables, while Japanese investors are out $1.75 billion from trade financing. With so many industry giants affected, investors are questioning the resilience of the private credit market.

The fallout is hitting funds hard. Keystone Private Income and Prospect Floating Rate funds each held over 4% of their assets in First Brands-related debt, leaving them vulnerable to sharp portfolio losses—over half of tracked funds underperformed their category, with some dropping into the bottom 20%. ETFs like SRLN locked in losses by selling early, but have still managed to post competitive returns for the year, highlighting how critical diversified holdings and careful position sizing are in volatile credit markets.

The First Brands debacle highlights the dangers lurking in private credit: high yields may mask complex and opaque risks. As economic uncertainty looms, the lesson for investors is clear—thorough diligence, prudent risk management, and disciplined portfolio allocation are essential to weather the next financial storm.