Canary in the BNPL coal mine?
Of Bloomberg on Friday:
Affirm, the leading US-based “buy now, pay later” lender, delayed a planned sale of asset-backed securities on Friday after much of it had already been sold to money managers.
A major investor in the top-rated portion of the deal, also its largest tranche of more than $400 million, is said to have pulled out at the last minute due to general market volatility that may have resulted in higher risk premia than the company wanted, three people said with knowledge of the matter. This AAA piece was almost entirely sold when the deal was halted, two of the investors said.
The $500 million ABS began pre-sale on March 4, an early but formal stage in the sales process with an option that allows buyers to pay for a purchase in four interest-free payments every two weeks, according to a pre-sale report from DBRS Morningstar .
As a reminder, BNPL firms lend money interest-free to consumers who buy goods online. You then recover the money over a set period of time. Usually three months. Revenue is generated through a mix of late fees, late interest and merchant fees.
So what does it say about the creditworthiness of these assets if investors withdraw from securitizations while they are still being marketed? It’s worth noting that Affirm’s most recent 10-Q of $8.2 billion showed delinquencies increased from 4 percent of total outstanding loans as of June 30 last year to 6.4 percent at the end of 2021. While, we should add, quite a favorable time for the consumer, all things considered.
It seems we’re finding out that the Buh-n-Pul fraternity might be more finance than “fintech” after all.
Which, when I think about it, could explain this: