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Private investment group Sixth Street will pump $4bn into a vehicle to buy loans from US fintech Affirm in a deal that will give the lender firepower to make billions of dollars in additional consumer loans.
The pact, which is expected to give Affirm the ability to make $20bn in new loans in the next three years, is the latest tie-up between a private credit fund and consumer credit provider, as the industry taps new avenues to lend to Americans struggling from years of high inflation.
The structures allow companies such as Affirm and Sweden-based Klarna — which specialise in “buy now, pay later” loans — to offload debt they have underwritten from their balance sheets, shifting the risks to investors. That in turn frees up their capacity to lend anew.
Fintech SoFi in October forged a $2bn pact with investment group Fortress. Days later, Klarna struck a deal to sell its UK buy now, pay later portfolio to US hedge fund Elliott, which it said would free up capital to underwrite £30bn of new loans.
KKR, Carlyle and Castlelake have also been hoovering up asset-backed loans as clients, including insurers, hunt for higher-returning debt. The industry has been on a spree, buying student loans, credit card debt and a wave of bonds backed by solar panels, music catalogues and data centres.
The investments in consumer debt come as the finances of many Americans show some signs of weakness, with higher interest rates weighing on households. Data from the Federal Reserve Bank of New York shows credit card and car loan delinquencies have picked up, although they remain within historic norms.
Sixth Street, which manages more than $80bn, has been expanding its investments in asset-backed finance. This year, the group, alongside KKR and Pimco, purchased home improvement lender GreenSky from Goldman Sachs for less than $500mn. That business originates $7bn of loans a year.
Sixth Street will fund the Affirm joint venture and hold equity in the business buying the fintech’s loans, relying on bank debt to cover the remainder of the purchase prices of the debt beyond its $4bn commitment.
“We are honoured to establish this new long-term partnership with Sixth Street as we continue to strengthen and diversify our platform to support our ambitious growth plans with capital efficient funding,” said Brooke Major-Reid, chief capital officer at Affirm.
Affirm, which is worth more than $25bn, was founded by PayPal co-founder Max Levchin. Its shares have risen around 40 per cent this year.
