KKR agrees to buy up to 40 billion euros of PayPal’s Pay-Later loans
KKR agreed to purchase as much as 40 billion euros (S$58.7 billion) of buy-now-pay-later loan receivables from PayPal Holdings in a deal that frees up the payments giant to do more share repurchases.
The agreement is part of a 3 billion euros loan commitment that allows private credit funds and accounts managed by KKR to purchase loans originated by PayPal in France, Germany, Italy, Spain, and the UK, according to a statement. PayPal expects the transaction to generate US$1.8 billion in proceeds, allowing it to repurchase an additional US$1 billion of shares this year.
“Our collaboration with KKR will allow us to accelerate our PayPal Pay Later originations alongside market demand in Europe while preserving free cash flow for other strategic initiatives,” Gabrielle Rabinovitch, senior vice-president and acting chief financial officer of PayPal, said in the statement. “This transaction is yet another example of our disciplined approach to capital allocation.”
Buy-now-pay-later loans have become increasingly popular, especially among younger consumers, as a way to split up larger purchases and pay them off in installments. PayPal joined the fray in 2020 and has since issued more than 200 million of the loans to more than 30 million customers around the world.
With the new deal, KKR’s private credit funds and accounts will acquire “substantially” all of PayPal’s existing European buy-now-pay-later loan portfolio and eligible future loans, according to the statement. PayPal will remain responsible for customer-facing activities such as underwriting and servicing.
PayPal has said for months that it’s been looking to offload a significant portion of its receivables. The deal allows the company to continue offering buy-now-pay-later loans, which it has said entice users to use its services more, without using up large portions of its balance sheet.
Credit has become KKR’s biggest business by assets. The firm just last month elevated Dan Pietrzak to become global head of private credit as it looks to compete in the increasingly heated market where rivals have doubled down.
“Having the ability to work exclusively with a scaled and high-quality strategic partner like PayPal is a testament to the strength and maturity of our asset-based finance business,” Pietrzak said in the statement.
Morgan Stanley served as the financial and structuring adviser to PayPal, while Freshfields Bruckhaus Deringer, Pérez-Llorca and Allen & Overy Luxembourg were the firm’s legal advisers. KKR Capital Markets structured and arranged the debt and Latham & Watkins LLP was the private equity firm’s legal counsel. BLOOMBERG
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