Two Trendy Areas in Finance Combine in Multibillion-Dollar Joint Venture
Affirm Holdings has secured its largest-ever capital commitment from private credit firm Sixth Street, which is investing $4 billion worth of loans over the course of three years. The partnership will see Sixth Street committing capital upfront for Affirm to underwrite short-term installment loans, between four- and six-month timeframes. Once paid back, the capital will roll back into the pot to make more loans, amounting to more than $20 billion that could be extended over the three years of the partnership.
The deal is part of a growing trend in the finance industry, where private credit firms are increasingly looking to invest in nonbank, fintech companies to access more-efficient sources of financing that can scale up or down based on demand. Unlike traditional banks, which rely on deposits to make loans, fintech firms like Affirm opt for a variety of funding models, including warehouse facilities, asset-backed securitizations, and forward flow agreements.
As part of the deal, Sixth Street will purchase loans originated by Affirm for consumers as they buy items online through platforms such as Amazon and Apple. The partnership is expected to fund higher capacity for short-term installment loans and buy now, pay later products, anticipating demand growth. Affirm’s funding capacity has grown 130% over the past three years, with gross merchandise volume growth of 34% in the first nine months of the year.
Affirm provides credit to consumers at APRs between 0% and 36%, depending on the purchase, merchant, and likelihood of payment. The company’s delinquency rate of more than 30 days as a percentage of active balances was 2.8% as of September. The deal is expected to ramp up in 2025, with the loan sale commencing then.