• Jefferies rejects Western Alliance lawsuit over disputed $126.4 million loan
• Executives accuse Western Alliance CEO of making false and misleading statements
• Loan linked to financing of bankrupt auto parts supplier First Brands
• Jefferies says credit was extended to a special purpose vehicle not the bank
• Loan structure allegedly prevents recovery from Jefferies or affiliated entities
• Western Alliance previously requested guarantees that were denied
• Regional bank has reportedly recovered more than half of its lending exposure
• Jefferies also reviewing separate exposure to Market Financial Solutions

A legal dispute between Jefferies and Western Alliance has escalated after the investment bank publicly rejected claims that it owes more than $126 million tied to the bankruptcy of auto parts supplier First Brands.

In a letter sent to clients and shareholders on Monday, Jefferies Chief Executive Rich Handler and President Brian Friedman accused Western Alliance Chief Executive Ken Vecchione of making “false and misleading statements” about the lawsuit filed by the Phoenix based bank last week.

Western Alliance alleges that Jefferies breached contractual obligations and committed fraud after refusing to repay $126.4 million linked to financing arrangements involving First Brands, which filed for bankruptcy in September.

However, Jefferies executives strongly disputed those claims, arguing that Western Alliance did not extend credit directly to the investment bank.

“Both the lawsuit and Mr. Vecchione’s statements ignore the simple reality that Western Alliance did not extend credit to Jefferies,” Handler and Friedman wrote in their letter.

According to Jefferies, the lending relationship was instead structured through affiliated entities connected to the Leucadia Asset Management Trade Finance Group.

Western Alliance began lending money in 2021 to that group, which is affiliated with Jefferies but owned by the Point Bonita master fund. The fund’s business involved purchasing receivables tied to First Brands.

Jefferies executives said the loan agreement cited in Western Alliance’s lawsuit was between the regional bank and a special purpose vehicle that held those receivables.

That structure, they argued, makes the loan non recourse to Jefferies itself.

“The agreement expressly precludes Western Alliance from seeking to recover from the special purpose vehicle’s shareholders, managers or affiliated entities,” Handler and Friedman wrote.

The executives insisted that Jefferies has honored all of its contractual obligations and has no legal responsibility to repay the disputed loan.

“Jefferies honors all its obligations,” they wrote. “Jefferies has no obligation to pay off a non recourse loan Western Alliance chose to make to a special purpose vehicle against First Brands receivables.”

The dispute intensified after Vecchione suggested that Jefferies may have been unable to repay the debt. Handler and Friedman sharply rejected that claim.

“The statement that Jefferies could not repay $126 million is false and absurd,” they wrote.

The executives also pointed out that Western Alliance had requested additional guarantees from the Point Bonita master fund and Jefferies shortly before First Brands filed for bankruptcy.

Those requests were denied, according to the letter. Western Alliance nonetheless proceeded with a forbearance agreement involving the Leucadia entities without obtaining guarantees from Jefferies.

Handler and Friedman said the collapse of First Brands has left many financial institutions facing losses, including Jefferies itself.

“We are genuinely sorry that Western Alliance has joined the ranks of the dozens of financial institutions facing losses because of the fraud at First Brands,” the executives wrote.

They also noted that Western Alliance has already recovered a significant portion of its exposure.

“Unlike many other investors, which have yet to recover any of their investments in First Brands, Western Alliance has been repaid more than half the amount it has loaned,” they said.

Western Alliance did not immediately respond to requests for comment regarding Jefferies’ statements.

In their letter, the Jefferies executives also addressed another potential credit exposure involving London based mortgage lender Market Financial Solutions.

Jefferies estimates the situation could reduce its net earnings by less than $20 million. One of its European subsidiaries had extended a £103 million loan facility to the mortgage company, although the executives warned that some collateral may have been pledged more than once.

Despite that concern, Jefferies said it has already recovered about 25 percent of the facility and believes an additional 40 percent remains secured by valid loans.

“We are continuing to review the remainder of the portfolio,” Handler and Friedman wrote.

As for the First Brands dispute, Jefferies said it remains confident that any losses tied to the bankruptcy will be manageable and will not materially affect the firm’s financial position.

“We are confident any losses or expenses in respect of First Brands can readily be absorbed and do not threaten our robust financial condition or business momentum,” the executives wrote.

They added that their assessment remains unchanged despite the lawsuit filed by Western Alliance.

Jefferies said it will respond more fully to the allegations as the legal process unfolds.