When “Boring” Wins: Lessons From Recent Industry Bankruptcies
The recent bankruptcies of Tri-Color and First Brands have caught investors’ attention and sparked questions about the health of certain corners of private credit. Both companies operated in areas that overlap with strategies often used in specialty finance, subprime auto lending, and factoring. On the surface, their collapses could be interpreted as signs of weakness in these sectors. A closer look, however, reveals something different: failures driven by governance lapses, unsustainable debt structures, and misaligned incentives.
For investors, the lesson is not that auto lending or factoring are broken models. It’s that discipline, transparency, and collateral focus are the difference between sustainable returns and sudden losses.
When Complexity Masks Risk
At its core, lending is simple: the real challenge is not deploying capital but getting it back. Problems arise when structures become so intricate that they obscure risk.
In the case of First Brands, the use of off-balance-sheet financing, including factoring, reportedly at annualized rates above 30%, should have been a flashing warning light. High-cost financing tools, when applied this way, are often less strategic choice than a signal of financial distress, serving as a last resort to stave off a looming bankruptcy.
Complex structures, layered collateral pledges, and opaque reporting can all create a distance between the lender and borrower. And the greater the distance, the harder it becomes to ensure repayment.
Why “Buy Here / Pay Here”
Breaks Down
Tri Color’s failure highlights another issue: incentive misalignment. The “buy here / pay here” model combines selling vehicles and providing financing under one roof. In this setup, the incentive to push sales can override credit discipline. Inflated vehicle valuations and overlooked red flags in borrower quality can result in loans being booked, but repayment risk is ignored.
By contrast, lenders who finance independent originators — with no stake in pushing inventory can maintain stricter underwriting standards and avoid these pitfalls.
The Strength of a Disciplined Approach
At Garrington, we sometimes describe our lending model as “boring.” What we really mean is measured and disciplined. Our focus is always on tangible collateral: what it is, what it’s worth, and how we can realize value if needed. We prefer to be the sole senior secured lender, maintaining direct relationships with ownership and management. We insist on audits, cash controls, and personal guarantees.
This approach lacks the flash of large, complex financings, but it delivers what matters most: durability. It’s why we close only a fraction of the opportunities we review. Discipline often means saying no more than saying yes, and that is precisely what protects investors.
Looking Ahead
What failed at Tri-Color and First Brands was not auto lending or factoring as tools; it was the absence of governance, the misuse of leverage, and a lack of transparency that turned financing solutions into liabilities.
In the weeks ahead, we will share more in-depth commentary, including dedicated pieces on each case and what they signal for private credit investors. For now, the lesson is clear: when the headlines turn volatile, steady and disciplined lending continues to prove its worth.
