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ARTICLE · 19 AUGUST 2024

Subprime Auto ABS Litigation Revs Up

Davis+Gilbert LLP
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Davis+Gilbert's Subprime Auto Loan Risk Chronometer has not signaled significant market risk for some time, but new litigation has commenced that is of the type that had been anticipated...

United StatesInsolvency/Bankruptcy/Re-Structuring
Joseph Cioffi
Joseph Cioffi
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Davis+Gilbert's Subprime Auto Loan Risk Chronometer has not signaled significant market risk for some time, but new litigation has commenced that is of the type that had been anticipated and may be an indication of what is to come if the labor market deteriorates further and contributes to weaker performance.

In litigation recently filed in federal court in California, a group of noteholders in a 2022 subprime auto loan ABS transaction have brought suit against underwriter Credit Suisse Securities. Plaintiffs, including River Canyon and other investment funds, allege securities fraud, and intentional and negligent misrepresentation.

The sponsor and seller of the deal at issue was U.S. Auto Finance Inc., an affiliate of originator U.S. Auto Sales, Inc. In 2023, these and other U.S. Auto entities filed for bankruptcy. Plaintiffs' complaint emphasizes that U.S. Auto was "on the verge of bankruptcy" and Credit Suisse's earlier access to the books and records "would

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