Under Pressure: Analyzing the Tricolor Auto Bankruptcy

The Consumer ABS market was caught by surprise when news of troubles surrounding Texas-based Tricolor Auto broke on September 8, 2025, followed by the company's Chapter 7 bankruptcy filing just two days later. This sudden development triggered notable volatility in Tricolor’s securitized bonds amid public reports and allegations of fraud, which intensified the situation.

The situation is constantly evolving, with new developments surfacing daily. Vervent Inc. received approval as the successor servicer, which previously was not conducted by a third party. Wilmington Trust has resigned as trustee of the Tricolor securitizations, effective 30 days following their announcement. The absence of September remittance reports on all seven outstanding deals has further heightened market anxiety, raising concerns about collateral integrity and potential recovery prospects.

In the secondary market, bonds from the shelf have experienced significant fluctuations, reflecting the volatility and uncertainty surrounding the situation. Prior to the news, both senior and subordinate classes were trading at, near, or above par, but prices dropped sharply as word quickly spread. For instance, Class E from the 2025-1 securitization traded at approximately 106 in the morning of September 8th and dropped to around 12 by September 10th. The chart below shows S&P Global Market Intelligence's Securitized Products end-of-day prices, organized and averaged by class (payment priority) and observed trade prices over the course of September.

The reaction in the broader ABS market has been muted thus far. The unfolding events surrounding Tricolor may lead to a greater market focus on due diligence and regulatory oversight.

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