PrimaLend Capital Partners, an auto financing company focused on subprime borrowers, has filed for bankruptcy, and it’s not the first to do so. Just weeks ago, Tricolor Holdings, another auto lender, went under. Investors who remember the word “subprime” from the 2008 financial crisis, it’s easy to wonder if this is the beginning of something worse, or just a blip on the radar. Eliza Ronalds-Hannon and Victor Swezey report for Bloomberg:
PrimaLend Capital Partners filed for bankruptcy after months of negotiations with creditors following missed interest payments on its debt, the latest sign of stress in a pocket of the US economy catering to low-income consumers.
The Plano, Texas-based provider of financing to auto dealerships focused on subprime borrowers said it was pursuing a sale of the business in bankruptcy court and would continue to fund and service loans to its own borrowers. It also said it has received commitments for bankruptcy financing from existing lenders.
PrimaLend’s filing comes weeks after the bankruptcy of one such “buy here, pay here” dealership, Tricolor Holdings, and as lower-income Americans are falling behind on car loans at the highest rate in decades. The consumer pain means lenders to businesses that finance subprime loans must exercise extra caution, said Donald Clarke, president of Asset Based Lending Consultants.
“Pay attention. Don’t fall asleep,” said Clarke. “You need financial statements from your borrowers now, tomorrow, every month. Not in a few months when a whole new slew of defaults could have already hit.”
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