Affirm’s ABS: canary in the coal mine? (update)

Canary in the BNPL coal mine?

From Bloomberg Friday:

Affirm, the leading U.S. “buy now, pay later” lender, delayed a proposed sale of asset-backed securities on Friday after much of it had already been sold to fund managers.

A major investor in the highest-rated part of the deal, also its largest tranche at over $400 million, reportedly backed out at the last minute due to general market volatility which could have resulted in higher risk premiums. important than society intended. , said three people with knowledge of the matter. This AAA tranche was almost entirely sold when the transaction was halted, two of the investors said.

The $500 million ABS began premarketing, an early but formal step in the sales process, on March 4. The deal is backed by cash flow from point-of-sale consumer installment loans, including split-payment loans, an option that allows shoppers to pay for a purchase in four interest-free installments every two weeks. , according to a pre-sale report from DBRS Morningstar.

A reminder — BNPL companies lend to consumers who buy goods online without interest. They then collect the money over a set period of time. Usually three months. Revenue comes from a combination of late fees, late interest charges and merchant fees.

So what does this say about the credit quality of these assets if investors are already pulling out of securitization mid-market? It’s worth pointing out that the deal was primarily to refinance an existing ABS-linked credit revolver.* But that speaks to some concerns in fixed income markets at the moment.

It should also be noted that $8.2 billion from Affirm’s last 10-Q showed that overdue payments rose from 4% of total loans outstanding as of June 30 last year to 6.4% at the end of 2021. During, it should be added, a rather benign period for the consumer altogether.

It looks like we’re discovering that the buh-n-pul fraternity might be more financial than “fintech” after all.

Which, come to think of it, could explain this:

*This article has been edited to clarify that the ABS deal was primarily related to the refinancing of an existing revolver.

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