Subprime Car Lender Tricolor Seeks Liquidation Amid $200M Loss Allegation

Subprime car lender Tricolor Holdings has filed for bankruptcy liquidation after its securitization partner Fifth Third Bank alleged fraud. The company, which offers financing for high-risk customers, listed Fifth Third, JPMorgan, and Barclays as its largest secured creditors. Tricolor is expected to begin a liquidation process, with Fifth Third Bank potentially taking a $200 million loss on loans tied to the company.

Subprime auto lender Tricolor Holdings has filed for bankruptcy liquidation following allegations of fraud by its securitization partner, Fifth Third Bank. The company, which provides financing to high-risk customers lacking credit history or a Social Security number, has listed Fifth Third, JPMorgan, and Barclays as its largest secured creditors.

Tricolor, based in Dallas, filed for Chapter 7 bankruptcy in a Dallas court to initiate a liquidation process. The company has been packaging car loans into securitized asset-backed products and has partnered with various banks, including Fifth Third, JPMorgan, and Barclays. According to court papers, these banks are among Tricolor's largest secured creditors.

Fifth Third Bank has indicated that it is preparing to take a non-cash charge of up to $200 million on loans tied to Tricolor. The bank discovered alleged fraudulent activity at a commercial borrower, leading to an impairment charge of up to $200 million. Fifth Third has been working with law-enforcement authorities to investigate the matter.

Tricolor has sold nearly $2 billion worth of asset-backed securities since 2022, with many of these securities still outstanding. The company has focused on lending to undocumented immigrants, a strategy that drew scrutiny earlier this year. Its lending volume has surged to about $1 billion of auto loans each year, nearly five times its volume in 2020.

The bankruptcy filing comes after reports that Tricolor has furloughed most of its staff, potentially impacting the company's ability to manage its assets and liabilities. The liquidation process is expected to be lengthy and complex, given the number of parties involved.

Investors and financial professionals are closely monitoring the situation, as it may have broader implications for the subprime auto lending market and the securitization industry.