"Cockroach theory" re-emerges? Another subprime lender, PrimaLend, goes bankrupt, revealing pressure on low-income borrowers in the US and causing a chain reaction.

After defaulting on debt interest payments, PrimaLend Capital Partners engaged in months of negotiations with creditors before ultimately filing for bankruptcy. This is the latest sign of pressure in the niche sector of the US economy that serves low-income consumers. PrimaLend Capital Partners focuses on serving subprime borrowers and providing financing to car dealerships. The company's main clients are car dealerships that "sell cars while lending", which primarily target low-income borrowers. According to its website, the company's products include accounts receivable, real estate, and automobile inventory financing. The company also stated that it has secured bankruptcy financing commitments from existing lenders. PrimaLend filed for bankruptcy just weeks after "buy here, pay here" dealer Tricolor Holdings also filed for bankruptcy, as the current delinquency rate on car loans for low-income Americans has reached its highest level in decades. Donald Clark, President of Asset Based Lending Consultants, said that consumer distress means that lenders providing funds to subprime loan businesses must be extra cautious. "Be vigilant, don't take things lightly," Clark said. "Now, tomorrow, every month, you need the borrowers' financial statements. Don't wait a few months to ask for them, by then there may be a lot of new defaults already." The sudden liquidation of Tricolor shocked investors. While the company is currently under investigation for potential fraud and misconduct, this highly publicized bankruptcy case, along with the collapse of auto parts supplier First Brands Group, and the bad debt write-offs related to fraud at regional banks Zions Bancorp and Western Alliance, has raised concerns: after years of easy credit, there may be other lurking problems. Some investors are now looking for other risks in their portfolios. "We are very fragile" JPMorgan Chase CEO Jamie Dimon warned last week that there may be more pain points in the credit sector, saying, "When you see one cockroach, there's likely more." Clark of ABLC said that lenders are too complacent in providing funding to whom and why, as they need to put the money to work, which masks concerns about risk. He said that as early as 2022, he advised a lender not to invest in First Brands, based on some of the same risk signals described by investors after the company's bankruptcy, including a lack of detailed disclosures. "You're providing hundreds of millions of dollars in loans to a company, but you're not opening the hood to see what's inside? Is money that easy to make?" Clark asked. "Unless we are honest and rational about the risks we face and the need for more rigorous due diligence, we are very fragile." According to court documents filed by PrimaLend in the northern region of Texas, the estimated assets and liabilities of the company are both less than $500 million. According to sources familiar with the matter, the lenders to this bankrupt company and its affiliated entities include the Canadian Imperial Bank of Commerce and the Amarillo National Bank. Both the Canadian Imperial Bank of Commerce and the Amarillo National Bank declined to comment. PrimaLend CEO Mark Jensen stated in a press release: "No debt has been demanded for immediate payment or acceleration as a result of this process. We highly value our relationships with dealer-borrowers and look forward to continuing to serve the 'buy here, pay here' industry in the future." According to information on its website, PrimaLend has been in operation since 2007 and describes itself as a lending institution that says "yes" when others say "no" to borrowers.