KKR and PayPal Announce Multi-Year Agreement for €40 Billion Pay Later Loan Portfolio Acquisition

KKR and PayPal Announce Multi-Year Agreement for €40 Billion Pay Later Loan Portfolio Acquisition

PayPal Holdings, Inc. (NASDAQ: PYPL) and KKR, a leading global investment firm, have recently revealed a significant collaboration. The two companies have entered into an exclusive multi-year agreement for a replenishing loan commitment of €3 billion. Under this agreement, private credit funds and accounts managed by KKR will purchase up to €40 billion of buy now, pay later (BNPL) loan receivables originated by PayPal in key European markets including France, Germany, Italy, Spain, and the United Kingdom.

The terms of the agreement state that KKR’s private credit funds and accounts will acquire a substantial portion of PayPal’s European BNPL loan portfolio held on its balance sheet at the transaction’s closing. Additionally, KKR will have the opportunity to acquire future originations of eligible BNPL loans. It’s important to note that PayPal will continue to be responsible for all customer-facing activities associated with its European BNPL products, including underwriting and servicing.

The concept of split installment payments and online consumer financing has been present for decades, but the popularity of BNPL has seen significant growth in recent years. PayPal, a frontrunner in this space, launched its first BNPL offering in 2020 and has since become an industry leader. To date, PayPal has issued over 200 million loans to more than 30 million customers across eight markets worldwide. In 2022, PayPal processed over $20 billion of BNPL payment volume globally, representing a remarkable increase of approximately 160% compared to 2021.

Gabrielle Rabinovitch, Senior Vice President and Acting Chief Financial Officer of PayPal, expressed the value of the buy now, pay later service, stating that it enhances PayPal’s checkout experience, drives engagement, payment volume growth, and repeat use, while also bringing high-value customers to their merchants. Rabinovitch further emphasized that the collaboration with KKR will accelerate PayPal’s Pay Later originations in line with market demand in Europe, while preserving free cash flow for other strategic initiatives. She considers this transaction as another demonstration of PayPal’s disciplined approach to capital allocation.

KKR will fund the transaction through its private credit funds and accounts. The firm’s global head of private credit, Dan Pietrzak, highlighted the significance of the partnership, noting that working exclusively with a reputable and scaled strategic partner like PayPal attests to the strength and maturity of their Asset-Based Finance business. KKR aims to deepen its footprint in consumer finance through this transaction and believes that PayPal Pay Later offers a differentiated experience that will allow PayPal to capture additional share in the growing market.

The transaction is subject to certain conditions and is expected to be finalized in the second half of 2023. Upon closing, PayPal anticipates generating approximately $1.8 billion in proceeds, which will be utilized for increased capital return to shareholders and general corporate purposes. The transaction has already been factored into PayPal’s full-year 2023 guidance for GAAP and non-GAAP earnings per share, as well as non-GAAP operating margin, as announced on May 8, 2023. Following the completion of the transaction, PayPal plans to allocate approximately $1 billion towards incremental share repurchases in 2023, leading to an updated outlook of approximately $5 billion in total share repurchases for the year.

KKR Capital Markets played a key role in structuring and arranging the debt for the transaction, while Morgan Stanley & Co. LLC acted as the financial and structuring advisor to PayPal. Legal advisory services were provided by Freshfields Bruckhaus Deringer LLP, Pérez-Llorca, and Allen & Overy Luxembourg for PayPal, and Latham & Watkins LLP served as legal counsel to KKR

About PayPal

PayPal has remained at the forefront of the digital payment revolution for more than 20 years. By leveraging technology to make financial services and commerce more convenient, affordable, and secure, the PayPal platform is empowering hundreds of millions of consumers and merchants in more than 200 markets to join and thrive in the global economy. For more information, visit https://www.paypal.com.

About KKR

KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life and reinsurance products under the management of Global Atlantic Financial Group. References to KKR’s investments may include the activities of its sponsored funds and insurance subsidiaries. For additional information about KKR & Co. Inc. (NYSE: KKR), please visit KKR’s website at www.kkr.com and on Twitter @KKR_Co.