$1.5 Trillion Credit Market MELTDOWN - Chaos Erupts Following RAPID COLLAPSE of Major Companies

27th September 2025

Tricolor Holdings — What’s Going On. Collapse, Bankruptcy, and Allegations.

What Tricolor was / how it operated

Tricolor Holdings was a U.S. company that both sold used cars (through dealership operations) and provided subprime auto financing (i.e. “buy-here, pay-here” / “in-house” auto loans).

It was specialized in lending to “underserved” borrowers, including people with no credit history or limited documentation (for instance, Tricolor’s site claimed it didn’t require a Social Security number in some cases).

The company also bundled its auto loans into asset-backed securities (ABS) and sold those securities to institutional investors.

It had relationships with banks that provided warehouse lines (short-term credit lines that finance the origination of loans) to Tricolor.

Collapse, Bankruptcy, and Allegations

In September 2025, Tricolor filed for Chapter 7 bankruptcy, which means liquidation rather than reorganization.

The bankruptcy came amid serious fraud investigations and allegations, particularly around double pledging collateral. The allegation is that Tricolor may have used the same loan portfolios as collateral for multiple bank lines, thereby misleading different lenders.

One bank, Fifth Third Bancorp, publicly disclosed discovering “alleged fraudulent activity” in one of its commercial borrowers (later linked to Tricolor) and took an impairment charge of about $200 million.

Other large institutions — JPMorgan Chase, Barclays — are said to face exposure (losses) due to their involvement in Tricolor’s securitization or lending arrangements.

Interest payments to bondholders are being clawed back in some cases as the bankruptcy case proceeds.
Bloomberg

The U.S. Department of Justice is reportedly investigating the matter.

Impacts & Risks

The collapse is likely to reverberate across the subprime auto finance sector, possibly tightening standards, raising costs of capital, or increasing scrutiny of securitization practices.

Dealers and customers are already experiencing disruption: dealerships have shut, customers are unsure about their car loans (who services them now).

There’s a risk of legal battles, clawbacks, competing claims over collateral, and long delays in recovering funds from the liquidation process.

Tricolor’s story is one of a high-growth, high-risk enterprise that mixed retail car sales with subprime lending, financed through bank credit lines and securitization. The collapse suggests that the risk was more than just credit risk — the structural and accounting/transactional methodologies (especially collateral pledging) are under question. Whether the fraud allegations hold up is still to be determined.

First Brands — it seems to be a significant piece in the unfolding drama around credit, opaque structures, and corporate distress.

What is First Brands

First Brands Group, LLC is (or was) an automotive aftermarket parts company. It sells a variety of components such as wiper blades, water/fuel pumps, filtration, brake parts, spark plugs, etc.
Financial Times
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Bloomberg
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vehicleservicepros.com
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It was formerly known (or has roots) in Trico / TRICO Group (Tri-Continental) — the wiper blade manufacturer.
Financial Times
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Wikipedia
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vehicleservicepros.com
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Over time it expanded via acquisitions (for example, acquiring Brake Parts Inc. (Raybestos) and Champion Laboratories (LuberFiner filters / Champion wipers) in 2020.
autolite.com

It also made a move to acquire Horizon Global, a towing / trailer equipment company, to broaden its aftermarket reach.
Businesswire

So, it is (or was) a relatively large consolidator in the automotive parts / aftermarket space, using acquisitions to build scale and cross-product synergies.

What’s Going Wrong / Current Crisis

In recent months, First Brands has become deeply troubled financially. Some of the key issues:

Opaque / off-balance-sheet financing & SPEs

First Brands is reported to have used a complex structure of special purpose entities (SPEs) and off-balance-sheet obligations tied to invoice financing / receivables factoring / inventory financing that were not fully disclosed or transparent.

Some of those SPEs / affiliates, including those under the “Carnaby” name, have already filed for Chapter 11 bankruptcy.

The scale of these hidden liabilities is alarming: some estimates put them at several billion dollars (in addition to known debt).

Liquidity crisis / seizure of cash

A recent event has accelerated the crisis: apparently, a bank that was also a creditor seized funds during a transfer (i.e. the company was moving cash, but the bank asserted rights over it) — effectively locking up liquidity.

That seizure reduced the company’s available cash, intensifying pressure.

Debt distress / refinancing failure

First Brands has close to $6 billion in private loans (and possibly more, once off-balance obligations are included).
The Wall Street Journal

It had attempted to refinance or raise new senior debt (e.g. via Jefferies), but the efforts stalled when lenders demanded more transparency (quality-of-earnings reviews, more disclosure on the off-balance arrangements).

The debt securities already outstanding have been trading at deep discounts (junior debt trading at “just cents on the dollar”) because of extreme caution among creditors.

Bankruptcy / restructuring is imminent / already starting

Some of the affiliated entities (SPEs) have already filed Chapter 11.

First Brands is reportedly preparing for or imminently heading into bankruptcy (or a restructuring) to get a debtor-in-possession (DIP) loan to maintain operations and preserve value.

The group is also engaging financial and legal advisors (e.g. Lazard, Weil, Alvarez & Marsal) in restructuring / rescue talks.

How First Brands and Tricolor Are Linked (or Parallels)

The collapse or stress in Tricolor (subprime auto finance) has sent strong ripples through credit markets, especially in sectors with asset-backed finance, securitization, structured deals, and weak transparency. First Brands’ troubles are being viewed partly as a kind of “contagion” or warning sign in credit markets.

Both companies appear to have relied heavily on leverage, structured financing / securitization / off-balance vehicles, and in both cases, doubts are now emerging about how much risk or debt was hidden or understated.

Investors have called these companies “canaries in the coal mine” for broader credit market vulnerabilities.

Tricolor and First Brands aren’t isolated accidents but early signals of broader stress in leveraged, opaque parts of the credit markets. Here’s what analysts and creditors are worried about:

Why More Collapses Are Possible

Opaque Financing & Off-Balance Structures

Both Tricolor and First Brands used complex structures (securitizations, special purpose entities, warehouse lines).

These can hide leverage until liquidity dries up — and many mid-market companies do similar things.

Private Credit Boom → Weak Underwriting

Over the past decade, trillions of dollars flowed into private credit and non-bank lenders, often with looser covenants.

When the Fed raised rates sharply (2022–2023), debt servicing costs surged. Now, with earnings not keeping pace, cracks are appearing.

Sectoral Pressure

Subprime auto finance: Rising delinquencies, higher funding costs, tighter bank scrutiny. Smaller lenders could fail.

Auto parts / manufacturing supply chain: High debt loads, cost inflation, EV transition challenges.

Retail, healthcare, and real estate: Already seeing distress from interest costs + changing demand.

Liquidity Crunch

Banks are now more cautious after being burned (e.g., Fifth Third on Tricolor, various banks on First Brands).

That means less refinancing and more forced bankruptcies when maturities hit.

Who’s Seen as At Risk

Other subprime lenders (especially in autos, personal loans, BNPL).

Highly leveraged roll-ups (companies built by private equity through acquisitions, financed with layers of debt).

Suppliers with hidden SPE debt (like First Brands’ “Carnaby” affiliates).

Companies reliant on asset-backed securities (ABS) with weak collateral (delinquent loans, inflated valuations).

Analysts are calling these companies “canaries in the coal mine” — not necessarily the biggest players, but the ones that show where credit stress is breaking first.

The Big Picture

This doesn’t mean a 2008-style systemic crisis, but credit markets are repricing risk.

Expect:

More bankruptcy filings in the next 6–12 months, especially among mid-market firms.

More clawbacks / fraud probes if collateral or securitization practices are sloppy.

A harder environment for anyone who depends on rolling over debt cheaply.

Is any of this likely to hit other countries like UK or Japan or Europe

Yes — while Tricolor and First Brands are U.S.-based, the mechanics of their collapse (hidden leverage, off-balance-sheet financing, securitizations) are global phenomena, and stress can spill across borders. Here’s how it could hit the UK, Europe, and Japan -

Direct Transmission (Lenders & Investors Abroad)

European banks (Barclays, Deutsche, etc.) and Japanese megabanks (MUFG, SMBC, Mizuho) have been active in structured credit and warehouse lines in the U.S.

Example: Barclays reportedly had exposure to Tricolor’s securitizations.

Japanese banks are among the world’s biggest funders of auto ABS and private credit.

If those banks eat losses, they may tighten lending globally, hitting unrelated borrowers.

ABS & CLO Markets

Tricolor used asset-backed securities (ABS), First Brands used off-balance “SPE” financings — these are exactly the kinds of assets that flow into European CLOs, UK pension funds, Japanese insurers, etc.

If defaults spike, ABS spreads widen, making financing more expensive for similar companies worldwide (e.g., UK car-finance lenders, European subprime consumer lenders).

“Copycat Risks” in Other Regions

UK / Europe:

The UK has a vibrant subprime auto finance market (e.g., Moneybarn, Advantage, Oodle). These rely on securitizations too.

Consumer arrears are rising with cost-of-living pressures, so some UK auto lenders could face stress if capital dries up.

Japan:

Less subprime auto lending, but Japanese firms are very exposed as lenders and investors in global ABS/CLO deals.

Japan’s megabanks have been seeking yield abroad — if more U.S. or European mid-market collapses occur, they’ll feel it.

Continental Europe:

Large private equity roll-ups in healthcare, retail, and manufacturing were financed with leveraged loans/CLOs.

If First Brands is the “template” (hidden debt via affiliates), similar European mid-caps could be exposed.

Contagion Through Risk Appetite

Even without direct exposures, these collapses spook investors:

Private credit funds in London, Frankfurt, Paris may raise yields, demand more covenants, or pull back from deals.

Japanese insurers (big investors in U.S. and European CLOs) may cut allocations.

That makes it harder for leveraged companies everywhere to refinance → more defaults.

Bottom Line:

Yes, the UK, Europe, and Japan are exposed — not so much to Tricolor’s borrowers in Dallas or First Brands’ wiper blades, but to the financing structures behind them.

The risk is less about one collapse, more about a tightening of credit conditions globally as investors demand transparency and higher yields.

Expect pressure first in subprime lenders (UK car finance, EU consumer credit) and PE-backed roll-ups with lots of hidden leverage.

Companies / Sectors Already Under Strain

Marelli (Japan, auto parts)

Private equity-owned by KKR. Marelli has ~ ¥650 billion (~US$4.2 billion) in debt.
Financial Times

It’s already in distressed-debt negotiations with investors, facing falling demand from big customers.
Financial Times

Because of its debt load and exposure to volatile demand, it is considered a real “watch-this” case.
Financial Times

Nippon Steel (Japan)

Recently downgraded by S&P because its acquisition of U.S. Steel has strained its finances.
Reuters

It’s not in the same business model risk (i.e. subprime auto finance or hidden SPE debt), but it shows how even large, “safe” industrials are under pressure from debt & acquisitions.
Reuters

Wood Group (UK, oil services / engineering)
Has a heavy debt burden; its share price has collapsed.
The company is in refinancing talks, which suggests lenders are being asked for concessions. That means terms may deteriorate.
Financial Times

Asda (UK, retailer)
Owned via a leveraged buyout. The acquisition debt is large (some estimates between £4–7.5 billion).
Rising interest rates and tighter margins (on retail, energy costs, etc.) make high leverage riskier. Analysts & MPs have flagged Asda in this respect.

CarFinance 247 (UK, auto finance / sub-prime exposure)
A company that brokers car finance for less-than-perfect credit customers. Its probability of default (PD) has been volatile.
While it hasn’t collapsed, its credit risk has consistently been viewed with concern in periods of economic stress.

Broader Sectors & General Risk Flags

Private Equity-backed companies in the UK / Europe
Many firms depend on refinancing or external funding. When interest rates rise (as they have), these firms often face much higher debt servicing costs. Warning from the Bank of England officials: many UK companies back by PE or private credit use leverage & complex financial arrangements; if investor appetite for risk drops, the knock-on could hit them heavily.

Shadow banking / Private credit markets
Because many non-bank lenders, funds, and investment vehicles are less regulated, there can be less transparency about their liabilities, funding sources, or collateral. UK authorities have already sounded risks about dependence on these.

Auto finance / subprime consumer credit sectors
Given what happened with Tricolor, sectors lending to less credit-worthy borrowers are particularly sensitive. Regulatory or mis-selling issues (as in discretionary commission arrangements in UK) could expose lenders.

“Zombie firms” / debt overhang in Japan
Research shows Japan has many firms with high debt that may only survive because of supportive financial conditions (low rates, favorable debt terms). If conditions worsen, these “zombies” are at risk.