PayPal/KKR: payment group finds willing buyer for its specialist assets

Online shoppers appreciate the one-click ease of using PayPal to buy things. PayPal likes simple solutions too.

Earlier this week, the fintech group announced a deal with private capital group KKR to sell up to €40bn in loans. PayPal itself has a brand name and tens of millions of customer relationships. But management and shareholders would prefer to stick to asset-light transaction fee income, rather than assuming credit risk on its balance sheet.

Selling loans is not a clever, new mousetrap. But rather than attempting to securitise a package of loans through an investment bank, KKR can deal with this itself as an integrated entity. The leveraged buyout specialist has diversified to include a $200bn credit investment business along with a life insurance affiliate, Global Atlantic, hungry for yield.

KKR wants to invest in “asset-based” finance. These fixed-income products differ from typical corporate debt, and include mortgages, car loans, consumer lending and home improvement loans.

As US regional banks shy away from lending, private capital lenders can more than fill the void. They can pick off specific parts of the banking value chain which they prefer to specialise in.

For example, buy now, pay later loans are typically short-term in nature and unsecured. KKR has committed €40bn to purchase over a few years. But the KKR lending facility is in total €3bn reflecting how much of these loans would ultimately be outstanding at any given time.

PayPal expects the loan portfolio sale to immediately generate proceeds of $1.8bn that it would plough back into its existing share repurchase programme. It could use the funds. The company’s shares, which benefited from the ecommerce and tech boom during the pandemic, are off almost 80 per cent from their 2021 peak.

Any such financial engineering may help but not enough to reverse fully the company’s sagging fortunes. Still, such one-click problem-solving gives PayPal management some breathing room.