Tricolor Trustee Targets 100,000 Auto Loans Stuck in Limbo

(Bloomberg) -- The trustee overseeing bankrupt Tricolor Holdings is seeking control of roughly 100,000 subprime auto loans originated by the lender, looking to hold them under court supervision while determining how to distribute proceeds to creditors. 

Tricolor filed for bankruptcy on Sept. 10 with plans to liquidate following allegations of fraud. Speaking at the company’s first court hearing on Thursday, trustee attorney Charles Gibbs said it took nearly a week to get into Tricolor’s headquarters, while lawyers are still working to gain full access to the business.

The sudden collapse of Tricolor, which focused on lending to individuals with little to no credit history, has ensnared some of Wall Street’s biggest players. Banks including JPMorgan Chase & Co. and Barclays Plc are bracing for hundreds of millions of dollars in losses, while investors who piled into asset-backed bonds sold by the company as recently as June have seen the prices of their securities plunge. Federal prosecutors are now looking into the fraud allegations.

The number of Tricolor auto loans is larger than the number of vehicles with GPS-tracking units in circulation.

As many as 100,000 auto loan customers are seeking guidance on where and how to make their payments, Charles Brackett Hendricks, another attorney for the trustee, said during the hearing. Derek Gamble, the the chief compliance officer for Vervent Inc., which is set to take over servicing the auto loans, estimated that Tricolor has 89,000 cars with GPS systems, which can be used to track down vehicles for repossessions.

The US Justice Department has two parallel investigations into Tricolor underway, Hendricks disclosed during the Thursday hearing. 

In the days before the filing, San Diego-based Vervent was brought in to take over as the loan servicer to collect payments, handle repossessions when a borrower fails to pay and to generally oversee the administration of the car loans, Gibbs said.

The trustee was in court seeking approval for Vervent to continue to act as the loan servicer. The judge, Michelle V. Larson, said she will consider authorizing Vervent’s role once lawyers for the trustee and creditors finalize language of a proposed court order.

Investor Call

On a separate call Thursday, Wilmington Trust Corp. — the trustee on Tricolor’s asset-backed bonds — told bondholders that Tricolor has not made any interest or principal payments to the securitizations since its bankruptcy, according to people with knowledge of the matter. 

For cash to start flowing through the bond deals, Vervent needs access to Tricolor’s files and systems, said the people, who asked not to be identified discussing private information. 

Tricolor has essentially no employees left, attorneys in court said on Thursday. Vervent has engaged with multiple former employees of Tricolor to try and assist with the process of transferring servicing, the company’s chief compliance officer, Gamble, said.

In terms of how many consumers are calling about their loans, Hendricks said: “The numbers, as the court can probably guess, are somewhat staggering.”

The case is Tricolor Holdings, LLC, 25-22487, US Bankruptcy Court, Northern District of Texas (Dallas) 

--With assistance from Yizhu Wang and Scott Carpenter.

(Updates with information from investor call in ninth and 10th paragraphs.)

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