When First Brands Group filed for Chapter 11 protection, most commentary focused on financial engineering failures, governance gaps, and the scale of losses in private credit markets. The more important story, however, sits beneath the surface: the magnitude of unsecured trade credit exposure embedded in ordinary commercial relationships, unprotected, under-governed and largely invisible until it was too late.
This bankruptcy is a case study in the critical importance of trade credit insurance for companies that extend terms to large customers. It's a liquidity, earnings and risk governance tool, not simply an insurance product.
What makes the First Brands bankruptcy particularly instructive is that many suppliers believed risk had been reduced, not increased, in the months preceding the filing.
In the years preceding bankruptcy, First Brands raised large amounts of capital across multiple channels, including conventional debt, structured financing and supply-chain-linked liquidity programs. Public reporting indicates that approximately $12 billion of capital flowed through the business during this period. This level of funding access signaled stability: financial backing, market confidence and an ability to re-finance through turbulent times, even during the COVID pandemic.
At the same time, credit optics appeared to be improving. In late 2023, ratings outlooks were revised positively, reinforcing the perception that leverage and liquidity were stabilizing. For suppliers, this combination, capital availability plus ratings momentum, signaled that First Brands was well-capitalized, strategically important, and supported by sophisticated investors. Even as late as 2025, the company was still sitting at a 'B+' rating level before the rapid deterioration into distress.
In hindsight, this was a classic credit trap.
Large capital raises and 'improving credit narratives' can create a perception of reduced risk, though they often introduce, or conceal, deeper structural strain:
For many trade creditors, these signals led to lax credit discipline at precisely the moment when discipline should have increased. This is a recurring theme in large corporate failures: the moment risk appears lowest is often when exposure is quietly building.
Bankruptcy filings reveal a two-tier unsecured creditor structure that should give any CFO or board pause.
The largest unsecured claims in the First Brands case are dominated by supply-chain finance and factoring counterparties, effectively financial institutions operating as trade lenders. Reports suggest aggregate unsecured trade claims presented by these financial counterparties range between $600 – $900 million.
Behind those financial claims sits the group that actually supplied goods and services: manufacturers, logistics firms, electronics suppliers, packaging providers, and tooling partners.
Among the largest disclosed non-financial suppliers, the average unsecured exposure at the time of bankruptcy was approximately $8-9 million per vendor. These amounts are material to cash flow, earnings, and covenant headroom for most middle-market and even large public companies.
These aren't fringe exposures. These were important business relationships where suppliers were acting as lenders, often without board-level access or formal risk transfer in place.
Trade credit is one of the largest uncollateralized lending pools in the global economy, and it sits quietly inside working capital. When a buyer files for bankruptcy, that 'revenue' immediately becomes a distressed asset, subject to uncertain recoveries, multi-year proceedings and significant discounts.
In the First Brands case, unsecured suppliers now sit behind secured lenders, debtor-in-possession (DIP) financing and administrative claims. Recent reporting suggests the business may face liquidation or piecemeal asset sales, a scenario in which unsecured recoveries typically collapse to pennies on the dollar.
At that point, reserves and allowances are irrelevant. The loss is real, immediate and often unrecoverable.
This is precisely the risk trade credit insurance is designed to eliminate.
A properly structured trade credit insurance program could have helped to:
Instead of provisioning for losses, or waiting years for uncertain recoveries, insured suppliers could have converted non-payment into a predictable financial outcome, protecting EBITDA and cash flow at the worst possible moment in the cycle.
As traditional insurers reduced capacity in the months leading up to the filing, alternative providers remained active, offering structures that effectively purchase defaulted or bankrupt claims at 90-100% of face value for a predetermined fee.
These solutions are increasingly being used with traditional trade credit insurance programs to ensure continuity of protection, particularly when credit profiles deteriorate faster than market appetite can adjust.
Access to capital, perceived high levels of liquidity and cash, as well as favorable credit narratives, don't eliminate counterparty risk, they often obscure it.
If a single customer failure can materially impact cash flow or earnings, the company is self-insuring its receivables, whether it intends to or not.
Trade credit insurance can help organizations to:
There's a greater probability that a company will experience a material loss in its accounts receivable than in any other asset class on the balance sheet. For most organizations, accounts receivables represent approximately 40% of total assets and they are the only asset with a direct, simultaneous impact on both the income statement and cash flow.
And while First Brands is an extreme case, it is not isolated. Over the past several months, major bankruptcies across multiple sectors have followed remarkably similar patterns; apparent access to capital, liquidity solutions that masked underlying strain, improving optics just before deterioration, and large pools of unsecured trade creditors left exposed when the company finally failed.
That is precisely why trade credit risk must be transferred, not merely managed.
To find out more about how trade credit insurance can help protect your balance sheet and minimize exposure, please contact us.
