Judge: Tricolor trustee may use $275K to pay insurance costs

Tricolor Holdings trustee Anne Burns can use up to $275,000 of the company’s cash to keep up insurance on Tricolor’s cars and keep some former staff, a judge ruled this week. The Oct. 27 order allows Burns to pay AFCO Credit Corp . for two months of insurance, and continue paying two former Tricolor staff members to access information , according to U.S. Bankruptcy Court of the Northern District of Texas Dallas Division records. Lake Forest, Ill.-based AFCO provided insurance on Tricolor’s vehicle inventory, James Calandra , managing director and financial advisory services head at CRS Capstone Partners , said during the Oct. 27 hearing. Around 8,000 of Tricolor’s 10,000 vehicles remain at Tricolor dealerships and reconditioning facilities, he said. Without paying the past-due insurance costs of September and October — totaling $244,748.84 — AFCO would cancel its coverage, Calandra said. “The total value of the vehicle inventory is in excess of $125 million ... Protecting the value of the vehicle inventory … is critical to preserving the overall value of the estates.” — James Calandra, CRS Capstone Partners If AFCO receives the two months’ worth of payments, it will not expect another payment until Nov. 16, he said. In the meantime, loan servicer Vervent will have moved “substantially all of the vehicles” to auction locations, he said, noting they would no longer require insurance. The two former Tricolor employees Burns hired have provided “critical access to the debtor’s books and records and numerous online databases,” Calandra said, and are owed around $30,000 total. While representatives from JPMorgan Chase and Fifth Third Bank asserted that some of the cash and vehicles may not be the trustee’s to use, they did not object to the limited use of funds in this instance. “We believe a lot of this cash and the vehicles on the lots may not be state property at all,” Nicholas Baker , a Simpson Thacher and Bartlett lawyer representing JPMorgan Chase, said during the hearing. “Although we’re supportive of the entry of this order … going forward that may not be the case.” To iron out how Burns can use the Tricolor cash in her possession going forward, Judge Michelle Larson , of the U.S. Bankruptcy Court of the Northern District of Texas Dallas Division, will host another hearing on Nov. 17 — amid the end of AFCO's coverage — at 1:30 p.m. CT. Vervent to service collateral for Origin Bank San Diego-based Vervent, which took over loan servicing for Tricolor Holdings, has entered into an agreement to service the collateral Tricolor owed to Ruston, La.-based Origin Bank. The agreement will allow Vervent to collect payments on loans owed to Origin, “repossess or otherwise convert the ownership” of defaulted vehicles if liquidation proceeds are increased, and provide insurance to Origin, according to the Oct. 24 servicing agreement. Vervent will continue to be barred from transferring money out of Origin’s collections account , unless in compliance with court orders, according to the agreement. The agreement requires approval from Judge Larson and was filed with the court today. Burns filed a motion asking the court to rule on the agreement during the Nov. 17 hearing. Origin placed $30.1 million in total loan commitments to Tricolor on non-accrual status after the bankruptcy filing, according to a Sept. 10 8-K filing. Former Tricolor Chief Executive Daniel Chu served on the Origin Bank Board of Directors but resigned days before Tricolor’s bankruptcy filing. Wilmington Trust still bond trustee Meanwhile, Wilmington Trust remains Tricolor’s securitization trustee, more than a month since it signaled its intention to step down. Wilmington is a trustee or collateral agent to more than a dozen Tricolor transactions, according to court documents. The company indicated on Sept. 20 it would step down from the role. However, Tricolor’s trust agreement required Wilmington to find a replacement trustee within 30 days after the notice, or it would be legally obligated to continue. It is unclear if a replacement can be appointed after 30 days. Read more on Wilmington’s replacement search As securitization trustee, Wilmington Trust acts on behalf of Tricolor’s asset-backed securitization investors to ensure their rights are protected. Wilmington Trust declined to comment on the replacement search. The court’s next Tricolor hearing is scheduled for Nov. 4 at 1:30 p.m. CT.

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