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In Latest Edition of ‘There’s Nothing Wall Street Can’t Make Money Of’: Fintech Lender Finds How To Turn Everyone’s Commitment To Fitness At Home During The Pandemic Into An Investment solid.
San Francisco-based Affirm has sold hundreds of millions of dollars in debt-backed securities to people who bought Peloton fitness bikes, a new report reveals.
Roll and negotiate
Starting at $ 1,500, Peloton’s home exercise bikes are some of the most expensive on the market. But it also means that the clientele of the fitness phenomenon consists largely of rich people with high credit scores. When they take out loans, they rarely default.
Affirm – a “buy now, pay later” company that offers short-term, interest-free loans to people – made 20% of its $ 870.5 million in revenue from Peloton products in its last fiscal year.
The lender used to borrow money from his consumer loan balances, but quickly realized he could bundle those loans into securitizations and sell them on Wall Street:
- Since last year, Affirm has raised $ 2.2 billion in six securitization transactions. Three of the agreements reflect Affirm’s larger loan portfolio, which includes clients from some 11,000 merchants.
- The other three transactions – totaling $ 845 million – included pooled loans primarily made to Peloton customers, according to the Financial Times.
“At the end of the day, the performance is so good because of the underwriting,” said Imran Ansari, analyst at DBRS Morningstar, in an interview with the outlet.
How it works: Affirm’s latest $ 500 million securitization deal included one million individual loans to Peloton customers and other merchants, with an average balance of $ 585. Because the loans are short term – typically less than a year – they are replaced with new loans until the deal ends in 2026.
What investors do: The annual interest rate is a little over 1%, not much more than what you get from a US government bond. But the terms also protect investors from defaults. In other words, all the high-energy glare of a Platoon class has been diced and repackaged into something as boring and reliable as a fixed income treasury bill.
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