3 red flags First Brands couldn’t cover up - Early red flags that pointed to deeper trouble

If the First Brands bankruptcy proved anything, it’s that numbers can lie – and sometimes spectacularly. On paper, the company looked unstoppable: $5 billion in revenue in 2024, EBITDA margins north of 20%, and close to $1 billion in cash reserves – all achieved within just six years. Reinforcing its image as a fast-growing, financially solid business was the fact that its auditor had fully signed off on the company’s glowing financials. In reality, First Brands was teetering on the edge. The company’s reported $6 billion in long-term debt masked billions more hidden through factoring, supply-chain financing, and off-balance-sheet SPVs, pushing total obligations somewhere between $10 billion and $50 billion. And that impressive $986 million cash balance? In reality, the company had barely $12–14 million in its accounts. The company’s smoke-and-mirrors act made it look like a collapse no one could have predicted. But that’s not entirely true. Despite First Brands’ best efforts, a few red flags were hiding in plain sight. Here are three they couldn’t cover up.

1.  A straw in the wind - A definitive history of legal troubles

Past litigation often predicts future instability, and history provides ample evidence of this. Think of Pink Energy’s legal troubles before its collapse, Wirecard’s litigious history before €1.9 billion went missing, or Theranos' legal challenges that foreshadowed its eventual fraud conviction. In each case, the legal trouble wasn’t an isolated event; it was an early signal of deeper operational or governance failures. The First Brands story follows the same pattern. In 2009 and again in 2011, founder and CEO Patrick James faced lawsuits accusing him of accounting fraud. The cases were ultimately settled, but the warning signs should have rung louder. For creditors, a founder with a documented pattern of legal disputes should never be just a footnote. Instead, it should be a push to ask whether those same weaknesses are embedded in the business itself. As it turned out, James’s litigation history wasn’t peripheral; it was a preview of exactly how First Brands would eventually unravel.

2. The smoke and mirrors show – Meteoric acquisition-fueled growth

First Brands pursued an aggressive M&A strategy - absorbing more than 24 companies in a short period. The constant churn of acquisitions accelerated the company’s growth and lifted profit margins to well above industry norms, creating the impression of a high-performing, rapidly scaling business. But this kind of meteoric rise, coupled with a sprawling network of newly acquired subsidiaries, should have prompted far closer scrutiny from creditors, especially since the buying spree was funded by debt. Was this truly strategic expansion or simply growth-by-accumulation designed to obscure the company’s underlying profitability and leverage ratios? It’s a trajectory reminiscent of Evergrande, whose debt-fueled acquisition spree projected unstoppable momentum—right up until the façade collapsed.

3. A pebble in the shoe - Poor customer reviews

Despite not being a highly visible brand, First Brands had a steadily growing volume of bad customer reviews and Better Business Bureau complaints. Our company’s proprietary risk-monitoring algorithms flagged this trend early. By January 2024, First Brands’ Google Review Index (our customer-review-based risk index) had already fallen into negative territory. It remained there, driven by a consistent stream of complaints about the company’s product quality across its portfolio. The data made it clear that these were not isolated incidents but a sustained deterioration in customer sentiment. Compounding this were negative Glassdoor ratings, which revealed internal issues such as employee dissatisfaction and operational frustration—factors that often correlate with broader financial and execution risks. For creditors, these patterns should have indicated that the company’s glossy financials could have been masking deeper structural problems.

What creditors can learn - Beyond the metaphors

Let’s be clear – none of these red flags is a definitive sign that a company is destined to collapse. But they are warnings. Sometimes these warnings remain harmless metaphors; other times, they foreshadow very real and very costly failures. What matters is that creditors don’t dismiss them. These signals should raise eyebrows and trigger enhanced due diligence long before the cracks widen into something catastrophic. In First Brands’ case, these red flags were accompanied by other signs such as delayed supplier payments, cash flow issues, and widespread off-book financing. Put together, it is a reminder that not all risks show up in financial statements. 

For creditors, the takeaway is clear: traditional underwriting models that rely primarily on audited financials and management narratives are no longer enough. Early-warning signals now live in unconventional places such as review platforms, news cycles, and digital sentiment trails. The creditors who spot these signals early can demand better disclosures, tighten covenants, or exit before the damage compounds. The ones who don’t risk being blindsided by companies that look solid on paper but are cracking everywhere else. First Brands may be an extreme case, but the lesson isn’t: when the numbers look too good, that’s exactly when you look harder.