As Tricolor Holdings' moves through its Chapter 7 bankruptcy proceedings, a rating agency followed through on its intention to downgrade seven of its Tricolor Auto Securitization Trust (TAST) transactions, and a bankruptcy court has appointed San Diego-based fintech Vervent as successor servicer.
Amid these developments and allegations of fraud, investors say they are remaining vigilant about loosened underwriting standards, particularly among companies that serve subprime borrowers.
Our immediate focus is to stabilize the portfolio by validating data and re-establishing clear communication
Kroll Bond Rating Agency on Monday said it downgraded all 34 outstanding ratings from seven TAST transactions, citing concerns that the trust could miss payments to investors on the September distribution date.
Ensuring TAST stays current on payments now falls to Vervent, after a court authorized the company to assume servicing a majority of about 100,000 subprime auto loans in Tricolor Holdings' portfolio.
"Our immediate focus is to stabilize the portfolio by validating data and re-establishing clear communication with borrowers," Vervent CEO David Johnson told Asset Securitization Report through an email. "The timeline depends on the information provided through the bankruptcy process, but this is a matter for the court."
While rating agencies raise the flag of caution about cash flows to the bonds, investors emphasize that deal structures and ABS valuations—the latter having stabilized over the last few trading sessions—are less concerning than underwriting practices.
One pressing question, says Tracy Chen, a portfolio manager at Brandywine Global, which does participate in the subprime auto ABS space,
is whether the Tricolor bankruptcy is indicative of a broader industry phenomenon.
"Underwriting standards were not up to par," with Tricolor, Chen said, noting that immigrant borrowers made up most of the lender's target customer base. Often this customer base does not have social security data, let alone FICO scores, Chen said. Another alarming concern is allegations of collateral being double pledged to banks.
Brandywine Global did not subscribe to TAST securities, but prefers issuers with more robust underwriting, and stronger histories—particularly preferring those that have weathered previous credit cycles, Chen said.
For its part, Vervent says it will support investigations by regulatory and law enforcement authorities.
"Our view is that legal certainty helps restore trust," Johnson said. "If we are ever called upon, we will cooperate fully, and we expect similar standards across our industry."
Experience managing consumer assets through past credit cycles is a big concern for investors, especially now as consumers manage pressures such as inflation and a tighter employment market.
We expect recoveries to be broadly consistent with industry norms.
At least recovery rates, which are critical in used vehicle portfolios in case cars need to be seized, sold and their proceeds dedicated to the securitization trust, seem to be on good footing. Shortly before Tricolor's bankruptcy news broke, the Manheim Used Vehicle Value Index, which measures used vehicle prices, was 2.2% higher in the first two weeks of September 2025 than for the full month a year earlier.
The increase was negligible month-over-month, but it still supported a positive sign for used vehicle portfolios.
"We expect recoveries to be broadly consistent with industry norms," Johnson said.
