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Top brass at Ares, Apollo and Blackstone were called to Westminster last Wednesday by the UK’s Financial Services Regulation Committee, who wanted to better understand the risks associated with the growth of private credit.
Obviously, the collapse of First Brands was high on the agenda. Each of the representatives was asked by parliamentarians to explain their employer’s exposure to the failed auto-parts conglomerate and how “this exposure came back to your funds”.
Apollo, which successfully shorted the company, went first. The firm’s co-head of European credit, Tristam Leach, assured the committee that it was not exposed to First Brands upon its collapse.
Ares, which had no direct exposure, was next. Co-president Blair Jacobson went on to explain the group’s lack of involvement.
Finally, Blackstone sought to provide its own assurances.
“I would just add we also had no exposure at the time of bankruptcy,” head of international credit and insurance at Blackstone, Daniel Leiter, told the committee, five minutes after the question was initially asked. Proceedings swiftly moved on.
But hang on — that’s not quite the whole First Brands story for the world’s largest alternative investment manager.
Eagle-eyed readers, market participants, and anyone else with a vague interest in the collapse of the Cleveland-based group may be aware that Blackstone did have one of the largest exposures to First Brands just days before it filed for bankruptcy — dumping its entire position when the loan was already trading around 40 cents on the dollar.
So while Leiter was technically correct — Blackstone’s exposure (which it retained after the Financial Times first raised questions about its off-balance sheet debt) might not have landed it in US bankruptcy court — the saga certainly did lose his company tens of millions of dollars.
His comments fall slightly short of those made by Blackstone president Jonathan Gray at the Financial Times Private Capital Summit in London last month, weeks after First Brands filed for bankruptcy. When asked about the firm’s exposure then, Gray simply said: “We did previously. We don’t today.”
Others avoided the risk, Apollo’s Leach told the panel, partly because First Brands’ profile meant that it necessitated “a degree of rigour in your underwriting process and perhaps a degree of caution”.
Sandwiched between Ares’ Jacobson and Blackstone’s Leiter, he added: “Why they did not give more caution to other market participants, I can’t speculate on.”
A Blackstone spokesperson told us:
“We’ve said (and it has been reported publicly) that Blackstone had prior exposure to First Brands’ liquid, bank-syndicated debt. The position, which was not private credit, was de minimis in the context of our $500B overall credit platform. We exited prior to the bankruptcy, which was fully reflected in the firm’s strong third quarter investment performance.”