Tricolor issues social bond in U.S. consumer auto lending

By Edlyn Cardoza

Tricolor recently announced a $212 million social bond, a first in the United States collateralised by consumer auto asset-backed securities (ABS), to empower underserved, low-income communities and improve access to mainstream financing, ultimately allowing them to build a better future. J.P. Morgan Securities LLC acted as the sole lead book-running manager.

This noteworthy achievement validates the application of capital markets investments to expand financial opportunities for low-income communities. It also highlights a path for other purpose-driven enterprises using for-profit models to address social issues at scale. The success of these loans and the bond is rooted in Tricolor’s use of artificial intelligence (AI) to underwrite and extend affordable loans to credit invisible customers successfully.

“We are excited to be the first in the U.S. to achieve a social bond designation across all auto consumer lending, enabling us to facilitate capital markets investment towards underserved Hispanic communities,” said Daniel Chu, founder and CEO of Tricolor. “This milestone issuance validates a path for capital markets investors to help accelerate our strategy to reverse systemic financial inequality in America, providing deserving people with access to reliable, affordable transportation and moving them into the financial mainstream, having been oversubscribed by an average of three times across all of the investment grade bonds.”

“Congratulations to Tricolor for demonstrating an innovative new way to leverage social bonds,” George Wilkins from JPMorgan. “This first for the Auto ABS market will help establish a new precedent for attracting support from capital markets investors for underserved populations.”

The Tricolor Social Bond is collateralised with loans that provide affordable access to low-income borrowers with no FICO score for financing the purchase of a motor vehicle. Tricolor has secured a Second Party Opinion from S&P Global Ratings to provide an opinion on the social benefits of this Framework and its alignment to the International Capital Markets Association (ICMA) Social Bond Principles.

The more than 59 million Hispanics in the United States would collectively rank as the eighth largest economy globally. Yet, according to the FDIC National Survey of Unbanked and Underbanked Households, 32% of this US Hispanic population has no or limited access to mainstream credit.

Tricolor uses artificial intelligence (AI), nearly 15 years of proprietary customer insights, and over 25 million unique non-traditional credit attributes to unlock financially inclusive opportunities for low-income, credit invisible Hispanics left behind by mainstream financial providers. To date, Tricolor, a U.S. Department of the Treasury certified Community Development Financial Institution (CDFI), has disbursed over $2 billion in affordable auto loans as part of its mission to empower underserved Hispanics and provide them with a path to a better future through both physical mobility and upward financial mobility.

Tricolor has now completed eight well-received ABS transactions and is the only issuer in all of subprime auto ABS with loans primarily backed by no-file or thin file borrowers. The Company issued its first securitisation in July 2013. In September 2021, Tricolor closed a $90 million convertible preferred equity investment from funds managed by BlackRock.