Tricolor bond prices drop following Chapter 7 filing

Tricolor ’s bond prices plummeted in the days following the subprime lender’s Chapter 7 bankruptcy filing, with little recovery since then in the riskiest tranches. A drop signals that investors see a sudden increase in risk of nonpayment and losses. Auto Finance News analyzed pricing across the bonds in Tricolor Auto’s asset-backed securitization (ABS) deals, based on data from CreditFlow , formerly Finsight , which tracks securities. Looking back to August, before the Sept. 10 bankruptcy filing , the average price across all Tricolor bonds was holding near par value, or full price, before falling sharply on the heels of the company’s collapse. Some of the bonds rebounded in the weeks following the bankruptcy filing, evidence of a return of investor confidence in the less risky tranches. [caption id="attachment_58355503" align="aligncenter" width="1189"] (Courtesy/CreditFlow)[/caption] By tranche Pricing by tranche — with the less risky, senior bonds in higher tranches (A) and riskier, junior bonds in lower tranches (C-F) — shows that, prior to the filing, all tranches were close to par, indicating positive investor sentiment on repayment. After the filing, the higher-tranche bonds dipped into the 70% to 95% range of face value, while the riskier tranches fell precipitously into the 10% to 40% range of face value, according to the AFN data analysis. Numbers in the 70%-plus range likely indicate that investors believe there will still be a strong recovery on the bonds, Nicole Byrns , partner at Dumar Capital Partners , told AFN . “It doesn’t get to true distress prices until you get to 50% or 40%,” she said. [caption id="attachment_58355501" align="aligncenter" width="800"] (Courtesy/CreditFlow)[/caption] Bankruptcy is a lengthy process and can take years to resolve outstanding debt obligations, prompting some investors to recoup what they can immediately, Byrns said. “If the loans were good and if it was a clean bankruptcy process, those payments will probably get restarted, or those loans will get refinanced ... but it doesn't sound like that's happening anytime soon,” she said. “It'll take years of litigation before they see anything on those bonds.” “It'll take years of litigation before they see anything on those bonds.” -- Nicole Byrns, partner at Dumar Capital Partners In fact, a distribution date to Tricolor’s noteholders was missed in September and interest payouts were clawed back , according to published reports. Notes downgraded Further, investors such as insurance companies cannot hold low-rated bonds without facing large capital charges, Byrns said, noting, “They might get rid of [them] because it’s too expensive.” Kroll Bond Rating Agency on Sept. 22 downgraded all 34 of its outstanding ratings across seven Tricolor Auto securitization transactions and maintained a “Watch Downgrade” status, according to a release. Many classes of notes were downgraded from low-risk ratings of AAA to A down to CCC and C, which indicates a higher risk of default of losses and mixed recovery expectations. A C rating means the class is expected to be near default with low recovery expectations, according to KBRA. Moody’s Ratings on Sept. 23 downgraded 16 classes of notes in five of Tricolor’s ABS deals and maintained its downgrade watch, according to a release. Many of the notes fell into non-investment-grade status. S&P Global also on Sept. 22 suspended its ratings on six classes of Tricolor notes in the one ABS deal it rated due to insufficient information, according to a release. Distribution widens between prices An analysis of Tricolor bond prices post-bankruptcy by distribution shows that, prior to September, the bonds were trading at similar prices. However, after the Sept. 10 Chapter 7 filing, the distribution between bond prices became more varied — with some down to 20% of par value and lower. Distribution information, with the grey areas representing the variation of bond prices on a particular day, allows for a quick comparison of price fluctuation amid uncertain versus stable periods. [caption id="attachment_58355502" align="alignnone" width="800"] (Courtesy/CreditFlow)[/caption] Outliers in the distribution index could indicate that investors sold off riskier tranches at fire sale prices and indicates that investor sentiment on Tricolor’s value is more mixed across senior versus junior bonds. — Additional reporting by Gonzalo Diez Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 15-17 at the Bellagio Las Vegas. Learn more about the 2025 event and register here .

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