Sixth Street Ink’s $4 billion consumer loan confirmation deal

On By Littum

(Bloomberg) — Sixth Street agreed to buy as much as $4 billion of consumer loans from buy-now, pay-later lender Affirm Holdings Inc., marking the financial technology firm’s largest capital commitment to date.

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The deal will be in the form of a so-called forward-flow agreement, through which a buyer agrees to buy loans before they have arisen. With the transaction, Affirm will have access to off-balance sheet financing to support more than $20 billion in loan originations over the next three years, according to a statement seen by Bloomberg News.

Non-bank lenders have bought consumer loans in droves from buy-now-pay-later lenders, including Affirm, in recent months as private credit firms have gained interest in the $5.2 trillion asset-based finance market, which includes auto and home loans. Earlier this month, Prudential Financial Inc.’s PGIM Fixed Income bought $500 million in loans from Affirm. Fortress Investment Group and Blue Owl Capital Inc., among others, have been scooping up similar debt portfolios.

The asset-based team at Sixth Street, run by partner Michael Dryden, has been active on this front, having agreed to buy Goldman Sachs Group Inc.’s GreenSky unit as part of an investor consortium.

“We look forward to being a key funding partner for Affirm and continuing to build on this relationship to support the company’s growth in the coming years,” Dryden said in the statement. Dryden, a former Credit Suisse Group AG banker, moved to Sixth Street more than two years ago.

Affirm shares rose 3.6% to $71.22 at 9:39 in New York. They have increased 40% this year.

Buy now, pay later loans allow borrowers to pay in installments, sometimes with interest-free repayment periods. The concept boomed during the pandemic when consumers were stuck at home and saw more ads for the loans on shopping websites. This deal also comes as one of Affirm’s primary competitors, Klarna Bank AB, is preparing an initial public offering in New York. Earlier this year, Klarna also struck a £30 billion ($39 billion) deal to offload buy-now loans it originates in the UK with a subsidiary of hedge fund Elliott Investment Management.

Affirm has various financing channels in addition to loan sales and forward-flow agreements. Fintech is a regular issuer on the asset-backed bond market, where it repackages loans into securities of varying risk and size. The firm sold its most recent deal in November, according to data compiled by Bloomberg. The Canada Pension Plan Investment Board has also committed as much as $1.4 billion to the company, according to a letter to shareholders in August.