DALLAS: Tricolor Holdings, a used-car seller and subprime lender that focuses on undocumented immigrants in the US Southwest, filed to liquidate in bankruptcy.
Dallas-based Tricolor didn’t give a reason for its collapse in its Wednesday filing.
But hints of trouble emerged a day earlier, when regional lender Fifth Third Bancorp said it had discovered alleged fraud at one of its clients.
People with knowledge of the matter told Bloomberg the client was Tricolor, and that JPMorgan Chase & Co and Barclays Plc were also expecting to write down loans tied to the company.
The company’s focus on loans to undocumented immigrants drew scrutiny earlier this year. Some investors were concerned that the business model came with heightened risk amid President Donald Trump’s immigration crackdown.
Tricolor’s Chapter 7 bankruptcy petition, filed in US Bankruptcy Court in Dallas, claimed liabilities between US$1bil and US$10bil and assets in the same range.
The filing listed at least 25,000 creditors. The company has hired Sidley Austin as its legal adviser. Wednesday’s filing follows reports that the lender had at least temporarily furloughed most of its staff in Texas, Arizona and California.
Like many non-bank auto lenders, Tricolor funded the loans it made by packaging them into asset-backed securities that it sold to bond investors.
Tricolor has sold almost US$2bil worth of such securities since 2022, many of which remain outstanding, according to data compiled by Bloomberg. Its most recent sale was a US$217mil bond in June.
According to people with knowledge of the matter, JPMorgan, Barclays and Fifth Third were so-called warehouse lenders to Tricolor, effectively offering short-term credit lines to fund the company’s loans until it could sell bonds backed by those loans.
Cincinnati-based Fifth Third said in filings it was taking an impairment of 85% to 100% on a US$200mil loan to a company that it didn’t identify.
Chief executive officer Tim Spence, speaking at a conference on Wednesday, called the loss a “one-off” incident but said the bank expected “a fair amount of litigation” to follow.
In a filing late on Tuesday, Fifth Third said that it was “working with the appropriate law enforcement authorities in connection with this matter.” — Bloomberg
