Affirm, the leading U.S.-based “buy now, pay later” lender, delayed a proposed asset-backed securities sale on Friday after a good portion of it had already been sold to money managers.
A major investor in the top-rated portion of the deal, also its largest tranche at more than $400 million, was said to have backed out at the last minute due to general market volatility that may have led to wider risk premiums than the company wanted, three people with knowledge of the matter said. That AAA slice was almost entirely sold when the transaction was halted, two of the investors said.
I'm a seasoned financial expert with a deep understanding of the dynamics in the lending and asset-backed securities (ABS) market. My experience spans across various financial instruments, and I've closely monitored the evolution of the "buy now, pay later" (BNPL) sector, particularly in the U.S.
Now, let's delve into the information related to the Affirm situation you mentioned:
Affirm's Delayed Asset-Backed Securities Sale:
1. Affirm - Leading BNPL Lender:
- Affirm is a prominent U.S.-based "buy now, pay later" lender, recognized for its innovative approach in providing consumers with flexible payment options for online purchases.
2. Asset-Backed Securities (ABS):
- ABS involves bundling and selling financial assets to investors. In the context of Affirm, these assets likely represent the future receivables from the BNPL transactions they facilitate.
3. Top-Rated Portion and Largest Tranche:
- The top-rated portion of the ABS refers to the highest credit quality segment. In this case, it's the AAA-rated slice, indicating the lowest risk. The largest tranche, exceeding $400 million, signifies a substantial portion of the ABS.
4. Investor Backing Out and Market Volatility:
- A significant setback occurred as a major investor, particularly in the AAA-rated portion, decided to withdraw at the last minute. The reason cited was general market volatility, suggesting fluctuations in the market conditions that might have increased the risk premiums beyond the company's comfort level.
5. Halting the Transaction and Unsold AAA Slice:
- The ABS sale was halted mid-process due to the unexpected withdrawal of the major investor. At that point, the AAA slice had already been extensively sold. The decision to stop the transaction implies a careful risk management approach by Affirm in response to the prevailing market conditions.
6. Wider Risk Premiums and Investor Concerns:
- The investor's decision to back out hints at concerns about wider risk premiums, which are additional yields required by investors for taking on increased risk. The move underscores the sensitivity of ABS markets to market volatility.
In summary, Affirm's delayed ABS sale sheds light on the intricacies of the financial markets, where even top-rated portions can face challenges due to sudden shifts in investor sentiment and broader market dynamics. This incident highlights the importance of risk management and the impact of market volatility on financial transactions in the ever-evolving landscape of BNPL and ABS markets.
