Affirm signs $4 billion loan deal with private equity firm Sixth Street

Two hot areas in finance — fintech and private lending — are coming together in a new multibillion-dollar joint venture.

Confirm holdings The private equity firm, which has invested $4 billion in loans over three years, is taking its largest equity commitment with a new partnership from Sixth Street.

Sixth Street puts up-front capital to write short-term installment loans for Affirm with terms between four and six months. After repayment, the capital is rolled back into the pot to provide more loans, amounting to more than $20 billion that can be extended over the three years of the partnership. The deal includes a ramp, and credit sales won’t begin until 2025, according to a person familiar with the terms.

As private lending has exploded in recent years, alternative asset managers are increasingly looking to non-bank, fintech companies to invest capital. Fintech firms choose what they see as more efficient sources of funding that can scale up or down based on the demand of their end users.

Unlike banks that rely more on deposits to make loans, Affirm and many of its peers opt for a variety of financing models, including warehouse facilities, asset-backed securitizations and so-called flow-through agreements it signed with Sixth. Street. That means Sixth Street intends to buy Affirm-generated credits for consumers when they shop online through platforms from Amazon to Apple. PayPal announced A similar deal was struck this summer with KKR for loans in Europe.

But traditional banks are not completely out of the financial supply chain. They finance these loans indirectly, along with private credit funds, from the banks’ own balance sheets.

The entire ecosystem is funding higher capacity for more short-term installment loans and buy-now, pay-later products in anticipation of demand growth. As of September 30, Affirm had $16.8 billion in funding, up 130% over the past three years. In the first nine months of the year, the growth of total trade volume was 34%, which is higher than last year, but lower than the level of 2022.

Affirm provides loans to consumers with APRs ranging from 0% to 36%, depending on the purchase, the merchant, and the likelihood that the consumer will repay the loan. If the consumer defaults or defaults on the payment, he has no additional debt, which means that there will be no additional income for the investors if the loan is not repaid on time. Affirm’s delinquency rate of more than 30 days compared to active balances was 2.8 percent as of September.