Prudential Unit Lends $500 Million in Private Credit to Affirm
An investment arm of insurer Prudential Financial will buy up to $500 million of consumer loans from technology-backed consumer lender Affirm Holdings for a period of three years.
Most of the loans come due in six months and Affirm will be able to re-lend the investment throughout the life of the deal, allowing it to finance $3 billion of buy-now-pay-later loans.
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The deal is part of a growing wave of transactions pairing a handful of large private-credit investors with financial technology companies that are replacing banks as go-to lenders for the American public.
Prudential's PGIM Fixed Income also purchased $500 million of Affirm loans in December and made a private investment in a $525 million securitization of consumer loans from SoFi Technologies. Affirm announced a $4 billion partnership with Sixth Street Partners in December and a $750 million deal with Liberty Mutual Investments in January.
The insurers and pensions whose money PGIM manages are hungry to own private ABS, or asset-backed securities, because such debt pays a higher interest rate than publicly traded and even private corporate debt.
PGIM aims to buy private ABS that returns about 1.5 percentage points more than public variants, said Edwin Wilches, the firm's co-head of securitized products. The company recently hired a new head of private ABS, Oliver Nisenson from private investment powerhouse Blackstone, to expand the business.
Nonbank lenders like Affirm are cultivating stables of large financing partners to ensure they have sufficient capital to lend, even when public debt markets freeze up. Affirm focuses on three channels: warehouse loans from banks, public ABS bond sales and negotiated deals from private-credit firms, said Chief Capital Officer Brooke Major-Reid.
Insurers, investment firms and nonbank lenders are increasingly teaming up to do lending that used to come from banks. That is creating complex entanglements that are new to regulators. Advocates say the new lenders are more stable than banks because they are disbursing cash from long-term investors rather than from daily deposits.
Write to Matt Wirz at matthieu.wirz@wsj.com
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