Drafted to Fail: First Brands and the Hidden Risks in Standard Investment Limits
>> Since First Brands’ Chapter 11 filing in late September, the auto parts company’s collapse has quickly become one of the most scrutinized credit events of the year. The headlines are familiar—allegations of fraud as funds backed by major asset managers were left holding the bag after the bankruptcy revealed the company had racked up $12 billion in loans and opaque “off-balance sheet financing.”1
But for LP investors in those funds, the story isn’t just about how First Brands’ extensive liabilities went undetected. It’s about how their funds managed to accumulate excessive exposure to the borrower despite standard “hard” investment limits in their fund documents that were supposed to mitigate the effect of exactly this kind of event.
Breaking the limit without breaching it: the 20% limit that wasn’t
The Financial Times reports that one credit fund had 30% of its portfolio tied to First Brands, despite a 20% “max position limit” in its fund documents.2 Yet according to the manager, the fund hadn’t violated its concentration limits.
How can that be? The answer lies in the drafting of the investment limitation provisions—precisely the sort of subtle detail we spot when we review LPAs at DocsDiligence. These clauses often look tighter than they are, and a small drafting nuance can conceal dangerous risks—and lead to major losses.
In this case, the manager appears to have sidestepped the cap by dividing the fund’s receivable financing position across direct exposure to First Brands and indirect exposure to one or more affiliated entities. The legal entities were distinct even though the credit risk was economically unified, resulting in a 30% economic exposure that complied—at least formally—with the letter of a 20% limit.
In the rest of our writeup, we look at:
Single obligor: a provision that clearly falls short
The right way to draft a concentration cap: affiliates, subsidiaries and guarantees
Other subtle loopholes in investment limitations
Conclusion: drafting matters, especially when it sounds “standard”
Feel free to get in touch using our access request form (Request Article).
1 “The secretive First Brands founder, his $12bn debt and the future of private credit.” Financial Times (October 15, 2025) at https://www.ft.com/content/83734e55-f3a6-46b6-865e-f16667d2fd3b. 2 “UBS fund holds 30% exposure linked to First Brands.” Financial Times (October 7, 2025) at https://www.ft.com/content/39da5f5a-e7e6-4678-9c82-60e5a5e023e8.
All content is copyright 2025 by DocsDiligence, Inc. No redistribution or republication of any of the information contained herein, in part or whole, is permitted without the express prior written consent of DocsDiligence, Inc. The use of this report is subject to the terms and conditions of your subscription agreement. The information contained in this report is intended to generally describe certain documentation features. This report is not comprehensive and should not be treated as a substitute for professional advice in any specific situation. DocsDiligence, Inc. makes no warranty, express or implied, as to the fitness of the information in this report for any particular purpose. If you require legal or other expert advice, you should seek the services of a qualified attorney or investment professional. DocsDiligence, Inc. does not render, and nothing in this report constitutes, legal or investment advice, and recipients of this report will not be treated or considered by DocsDiligence, Inc. as clients or customers except as described in the subscription agreement between DocsDiligence, Inc. and the subscriber. The reader should be aware that the final interpretation of any limited partnership agreement, private placement memorandum, subscription agreement, side letter, or other fund document, will generally be determined by the fund sponsor or its counsel, or in certain circumstances, by a court or administrative body.
