Tricolor Holdings’ Trustee Seeks Control of 100,000 Stalled Auto Loans

The trustee managing the bankruptcy of Tricolor Holdings is working to gain control over approximately 100,000 subprime auto loans that are currently in limbo. This move follows the company’s filing for bankruptcy on September 10, 2023, amidst allegations of fraud. The trustee aims to hold these loans under court supervision while determining how to allocate proceeds to creditors.

During the initial court hearing, attorney Charles Gibbs revealed that it took nearly a week to access Tricolor’s headquarters. Lawyers are still attempting to gain full access to the company’s operations. Tricolor, which primarily lent to individuals with limited or no credit history, collapsed suddenly, impacting major financial institutions. Banks such as JPMorgan Chase & Co. and Barclays Plc are preparing for losses potentially amounting to hundreds of millions of dollars, while investors who purchased asset-backed bonds from Tricolor just months ago have seen significant declines in their investments.

The situation has garnered attention from federal prosecutors, who are now investigating the fraud claims against the company. According to trustee attorney Charles Brackett Hendricks, the number of auto loans held by Tricolor exceeds the number of vehicles equipped with GPS-tracking systems, which could aid in repossession efforts. He noted that around 100,000 auto loan customers are reaching out for guidance on how to manage their payments.

Another key player in this evolving scenario is Vervent Inc., which has been appointed to take over the servicing of the auto loans. Derek Gamble, the chief compliance officer for Vervent, indicated that Tricolor has 89,000 cars equipped with GPS systems. These systems are crucial for tracking vehicles that may need to be repossessed.

Hendricks informed the court that the U.S. Department of Justice is conducting two separate investigations into Tricolor. As the company entered bankruptcy, Vervent was contracted to manage loan servicing, including payment collections and repossessions. Gibbs is seeking judicial approval for Vervent to continue these services, with Judge Michelle V. Larson indicating she would consider granting this approval once legal teams finalize the wording of a proposed court order.

In a related context, Wilmington Trust Corp., the trustee for Tricolor’s asset-backed bonds, informed bondholders that the company has not made any interest or principal payments since its bankruptcy filing. For any cash flow to resume within the bond agreements, Vervent requires access to Tricolor’s records and systems. Reports from court indicated that Tricolor has effectively no employees remaining, complicating the transition process. Gamble mentioned that Vervent is engaging former employees of Tricolor to assist in the servicing transition.

Hendricks emphasized the overwhelming volume of inquiries from consumers regarding their loans, stating, “The numbers, as the court can probably guess, are somewhat staggering.” This case is registered as Tricolor Holdings, LLC, 25-22487, in the U.S. Bankruptcy Court for the Northern District of Texas (Dallas).

The unfolding developments surrounding Tricolor Holdings illustrate the far-reaching effects of its sudden bankruptcy on financial institutions and consumers alike. As the trustee navigates the complexities of the case, the focus remains on ensuring that creditors receive appropriate distributions from the stalled auto loans.