Leading members of Australia’s embattled buy now pay later sector face more challenges trying to fund their operations after one of North America’s largest industry players was forced to suspend a securitisation program on Friday.
Affirm Holdings, Inc – the San Francisco based instalment finance company which claims to service 11.2 million American customers – halted a US$500 million bond sale as skittish US investors backed away from plans to participate in the program.
Bloomberg News reported that the planned sale was the first asset-backed securitisation program to be suspended this year in the US.
In a report published on Saturday morning (Sydney time), Bloomberg reported that a major investor had backed away from taking up securities in the program “due to general market volatility that may have led to wider risk premiums than the company wanted”.
An Affirm spokesperson told Bloomberg that the company deferred the sale because of interest rate volatility.
“In light of the heightened levels of rates volatility, and consistent with our disciplined approach to navigating a volatile backdrop, we made the decision to temporarily hold off on issuing this transaction at this time,” the Affirm representative said.
Affirm is one of the largest BNPL providers in the US and delivers interest-free instalment finance to consumers through allied partners such as Amazon and Peloton.
Affirm’s decision to shelve its latest funding effort is potentially significant for the buy now pay later sector globally as it is another indication of wavering investor support for the industry.
Suspension of the program potentially accentuates the risk profile of Australian BNPL providers - because securitisation of customer receivables previously offered a reliable funding fallback in an increasingly problematic environment for capital raisings.
The share prices of Australian and US listed BNPL companies have plummeted by more than 80 per cent in the last year amid heightened scepticism about the sector’s ability to translate sales growth into bottom-line profits.
ASX-listed players such as Zip rely on securitisation and capital raisings to fund new lending to customers and inorganic expansion.
Given the developments in the US affecting Affirm, Zip could find it increasingly difficult and expensive to secure support for future securitisation transactions.
Zip’s last securitisation was completed in September last year when it sold $650 million of asset-backed securities to Australian and offshore investors.
Zip is currently funding its US BNPL activity through a subsidiary known as AR2 LLC, which was acquired through the 2020 buyout of San Francisco-based company, Quad Pay.
AR2 LLC has a $US300 million funding facility, of which $US162 million had been drawn down at the end of December.