Patrick Boyle On Finance AAA Rated Junk: What Tricolor and First Brands Reveal About Credit Markets!
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Oct 5, 2025 Two supposedly AAA-rated companies, Tricolor and First Brands, faced rapid collapses, exposing fragilities in the credit market. The discussion dives into double-pledged collateral, private credit risks, and the disconnect between risk and reward. Macro pressures like inflation and consumer demand are also examined, alongside rising delinquencies in subprime loans. Insights into Wall Street's reactions and questions about due diligence raise alarms over hidden risks, all while the market appears unfazed by these failures.
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AAA-Rated Auto Loans Went Bad
- Tricolor packaged high-interest subprime auto loans into AAA-rated securities and sold them to investors.
- When repayments faltered the securitization collapsed and bonds plunged to pennies on the dollar.
First Brands Collapsed After Big Pitch
- First Brands was marketed as a $6 billion loan opportunity shortly before it imploded and revealed massive hidden liabilities.
- Its top-tier loans now trade around a third of face value after bankruptcy.
Leverage, Not Demand, Drove Failures
- Both firms relied heavily on layered debt and securitization rather than underlying business strength.
- That capital-structure focus amplified stresses from tariffs, inflation, and weak consumers.