The current private credit market turmoil has involved a number of high-profile company failures and ensuing D&O claims. In the following guest post, Sarah Abrams takes a closer look at one recent example of these developments — the bankruptcy of Tricolor Holdings and the ensuing criminal indictment — and considers the broader potential D&O liability and insurance implications. My thanks to Sarah for allowing me to publish her article on this site. Here is Sarah’s article.
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In recent months, there have been a series of high-profile developments involving firms financed in the private credit markets. Some of these developments have involved spectacular flameouts leading to significant D&O claims. One such example involves the September 2025 bankruptcy of subprime auto lender and retailer Tricolor Holdings, LLC (Tricolor). The bankruptcy, followed closely by the criminal indictment of several of the company’s senior executives, illustrates how the convergence of private credit exposure, asset-based lending structures, and governance failures can materially increase D&O insurance underwriting risk.
Tricolor’s Bankruptcy
Tricolor filed its Chapter 7 petition in the Northern District of Texas, stating that it owned and operated a nationwide auto retail and financing platform focused on providing affordable loans to consumers with limited or no credit history. According to the petition, Tricolor’s operations were supported by a web of operating companies, finance entities, securitization trusts, and special purpose vehicles.
In its bankruptcy filings, Tricolor reported assets and liabilities each in the range of $1 billion to $10 billion and listed up to 50,000 creditors, including more than $900 million owed to its largest lender. The corporate ownership chart attached to the filings reflects dozens of debtor and non-debtor affiliates, including multiple auto securitization trusts and funding SPVs used to support liquidity and growth. Notably, Tricolor filed for bankruptcy roughly three months after announcing that it had raised $217 million through an asset-backed securities issuance, a private credit transaction the company said would help expand access to affordable financing for low-income communities, particularly Hispanic borrowers.
Indictment of Tricolor Executives
The criminal indictment unsealed in the Southern District of New York alleges that senior executives at Tricolor orchestrated a multi-year scheme to defraud lenders and investors by manipulating the reporting and classification of loan collateral pledged across multiple credit facilities and securitizations. According to the indictment, from 2018 to 2025, the defendants allegedly double-pledged the same collateral to multiple lenders and SPVs, misrepresented delinquent or ineligible loans as current and eligible, fabricated or altered borrowing-base data and servicing reports, and concealed discrepancies from lenders and auditors as liquidity pressures mounted.
The indictment further alleges that these practices inflated the amount of capital Tricolor could borrow and masked growing financial distress until the structure collapsed, leaving lenders exposed to billions in losses. According to the U.S. Attorney’s Office press release announcing the indictment, one former executive allegedly attempted to conceal the scheme and later directed the payment of more than $6 million to himself, funds prosecutors say were used to purchase a multimillion-dollar property in Beverly Hills.
Discussion
While Tricolor’s bankruptcy is just one in a year that saw an increase in large corporate bankruptcies, the financial fallout, particularly for the lenders that supported Tricolor’s asset-backed securities (ABS), may be significant. As a result, the filings underscore the potential exposure facing D&O underwriters for both Tricolor and its private credit counterparties, reflecting a familiar insolvency-driven pattern involving opaque collateral practices, sprawling affiliate structures, and allegations that management failed to provide lenders, auditors, and other stakeholders with accurate information about the company’s financial condition.
Earlier this year, the D&O Diary considered whether the rapid growth of private credit presents heightened D&O risk, particularly if increased bankruptcies begin to test underwriting assumptions and governance practices. Thus, Tricolor’s bankruptcy may raise questions about how D&O underwriters can evaluate risk when insureds that report, manage, and oversee high-yield or off-balance sheet financing arrangements.
Tricolor’s bankruptcy and the subsequent criminal indictment raise familiar concerns about transparency, collateral integrity, and governance discipline that frequently give rise to follow-on D&O claims in insolvency proceedings. As the Chapter 7 case proceeds, these issues may attract scrutiny from a bankruptcy trustee or creditors seeking to evaluate whether potential claims exist against former directors and officers, which in turn may implicate Tricolor’s D&O insurance program.
The criminal indictment against Tricolor’s former executives alleges a multi-year scheme involving the manipulation and misreporting of collateral pledged to lenders and asset-backed securities investors. If those allegations are substantiated, they may form the basis for civil claims asserting breach of fiduciary duty, failure of oversight, or misrepresentation, if management is alleged to have certified borrowing-base data, loan eligibility, or portfolio performance while the company’s liquidity position deteriorated.
Tricolor’s bankruptcy filings may also raise the prospect of Caremark-style oversight claims, if a trustee or creditors contend that the board failed to implement or monitor adequate internal controls over collateral reporting, loan classification, or intercompany transfers across Tricolor’s extensive network of affiliates and securitization vehicles.
The criminal proceedings against Tricolor may also increase regulatory scrutiny and prompt parallel civil investigations. Although the indictment is directed at former executives, such proceedings could trigger Side A coverage for defense costs if indemnification is unavailable due to bankruptcy or alleged misconduct. As in other insolvency-driven cases, the overlap between criminal allegations and civil fiduciary-duty claims may complicate allocation and conduct-exclusion issues under applicable D&O policies.
Tricolor’s collapse could also have implications for its private credit lenders and asset-backed securities investors. Where lenders relied on periodic certifications, servicing reports, or collateral representations, losses may prompt claims that financing decisions were induced by inaccurate or incomplete information. In turn, private credit managers may face scrutiny from their own investors regarding diligence practices, collateral verification, and concentration risk.
For both Tricolor and its financing counterparties, the case underscores a recurring lesson in insolvency-driven D&O litigation: when access to capital depends on continuous representations about asset quality and collateral integrity, governance failures can quickly migrate from contractual disputes into allegations of mismanagement, failure of oversight, and breach of fiduciary duty.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.