KKR & Co. Inc. (NYSE: KKR) has announced its acquisition of up to €40 billion ($44 billion) worth of buy-now-pay-later loan receivables from PayPal Holdings, Inc. (NASDAQ: PYPL). This deal grants PayPal more flexibility for share repurchases.
Following the news, PayPal Holdings (PYPL) experienced a remarkable 3.70% surge in their shares, while KKR & Co. (KKR) witnessed a 1% decline in their stock on Tuesday.
The agreement forms part of a €3 billion loan commitment, enabling private credit funds and accounts managed by KKR to purchase loans originated by PayPal in France, Germany, Italy, Spain, and the UK. This exciting development has the potential to generate $1.8 billion in proceeds for PayPal, empowering them to repurchase an additional $1 billion worth of shares this year.
Buy-now-pay-later loans have gained immense popularity, particularly among younger consumers, as a convenient method to divide larger purchases and repay them in manageable installments. Joining this growing trend in 2020, PayPal has issued over 200 million of these loans to more than 30 million customers worldwide.
Under this new deal, KKR’s private credit funds and accounts will acquire “substantially” all of PayPal’s existing European buy-now-pay-later loan portfolio, including eligible future loans. Notably, PayPal will retain responsibility for customer-facing activities, such as underwriting and servicing.
PayPal has expressed its intent to offload a significant portion of its receivables for several months. This agreement enables the company to continue offering buy-now-pay-later loans, which have proven to attract more users to its services, without excessively impacting its balance sheet.
KKR’s credit division has emerged as its largest business in terms of assets. In its effort to compete in an increasingly competitive market, where competitors have doubled down, KKR recently appointed Dan Pietrzak as the global head of private credit.
Morgan Stanley played a pivotal role as the financial and structuring adviser to PayPal. In addition, Freshfields Bruckhaus Deringer LLP, Pérez-Llorca, and Allen & Overy Luxembourg served as legal advisers to the company. KKR Capital Markets arranged and structured the debt, with Latham & Watkins LLP serving as the legal counsel for the private equity firm.