March 6 (Reuters) – Western Alliance said on Friday it had sued Jefferies Financial for not making payment of $126.4 million due to the regional lender for loans tied to bankrupt auto parts supplier First Brands Group.
Shares of Jefferies fell nearly 3%, while Western Alliance declined more than 7.3% in trading before the bell.
Western Alliance said it filed a complaint in the New York Supreme Court against Jefferies and others for “breach of contract and fraud” for “conduct related to a commercial loan collateralized by accounts receivable purchased from First Brands Group”.
“We regret that the Bank, as well as a range of lenders to and around First Brands, will suffer losses as a result of this fraud. We believe that the lawsuit is without merit and it will be defended vigorously,” Jefferies said in a statement.
Investors are suing Jefferies, alleging the firm defrauded them into investing in a fund linked to First Brands, which owed Jefferies’ Leucadia Asset Management arm about $715 million of receivables.
First Brands filed for bankruptcy protection in September after lenders probed irregularities in its financial reporting. The company listed $11.6 billion in liabilities, according to court filings.
AGREEMENT BREACHED
Under an October agreement, Jefferies had agreed to complete prepayment of the loan principal by March 31, Western Alliance said. However, after the most recent payment of $42.1 million on January 15, Jefferies told Western Alliance it would not receive the final two principal payments due in the first quarter of 2026.
The bank said it will record a charge-off for the entire remaining $126.4 million loan balance, along with actions to make up for the loss.
“The realization of securities sale gains, supported by planned operating expense reductions, should provide an aggregate offset of $100 million. We are evaluating other pathways to close the remaining $26 million gap,” said Western Alliance CEO Kenneth Vecchione.
A forbearance agreement is a temporary arrangement where the lender agrees to delay or reduce loan payments for a set period, instead of forcing the loan into default.
(Reporting by Pritam Biswas and Ateev Bhandari in Bengaluru; Editing by Shreya Biswas and Sriraj Kalluvila)
