Subprime Lender Tricolor Slated for Growth, Multiple Securitizations in 2019

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Buy-here, pay-here lender Tricolor Auto Acceptance LLC, a niche player that focuses on Hispanic car buyers, is on track to issue at least two asset-backed securitizations in 2019, Chief Executive Daniel Chu told AFN.

Though Chu declined to disclose the size of the potential transactions, he expects the offerings to outpace the $101.7 million securitization Tricolor issued earlier this month.

Tricolor’s originations are set to hit $200 million by yearend, with volume on pace to increase 25% next year, he said. Investors will likely favor Tricolor’s origination experience, verification procedures, funding operations, and quality control.

However, according to a Nov. 7 Kroll Bond Rating Agency presale report: “The Company’s obligors typically have limited financial means coupled with negative past credit history or no credit history.” In Tricolor’s previous securitization, 48.2% of the loans had no Fico scores. Though Kroll noted that “Tricolor has developed a proprietary risk model to underwrite consumers with limited or no credit history.

It utilizes multiple data sources, including alternative data providers, and focuses on the stability of the obligors in terms of residency and employment.” Chu is confident that Tricolor’s analytical processes — which include artificial intelligence capabilities in its underwriting system with Phenx Machine Learning Technologies — will enable it to appropriately vet consumer data.

“We have developed a risk model that provides us with the ability to segment consumers who either don’t have a Fico score or have a thin credit file,” Chu said. “We have demonstrated our ability to leverage this model and generate predictable and consistent performance in our loan portfolio, so we have been successful in overcoming any issues related to the profile of the market we serve.”

Tricolor’s previous securitization was backed by loans with a weighted average Fico score of 583 and a weighted loan-to-value ratio of 124.7%. Average loan balances were $17,742, and average interest rates were 17.68%.

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