Peloton bike loans peddled to eager Wall Street shoppers

Wall Street has found a way to take advantage of some of America’s safest consumers. A slice of debt backed by a bunch of loans for people who buy the popular Peloton fitness bike.

Affirm, the market leader in ‘buy now, pay later’ services where customers pay in installments, has sold hundreds of millions of dollars in loans for Peloton equipment such as indoor bikes, cycling shoes and weights. transaction.

Since 2020, the company has raised more than $ 2.2 billion through six deals. Three broadly reflect Affirm’s large loan portfolio and three are a collection of unsecured, interest-free loans. Peloton customers, these folks said. They total $ 845 million.

The final senior tranche of Peloton d’Affirm-backed transaction is the most protected against underlying borrower defaults and offers coupons above 1%. This is only about 0.2 percentage point higher than the equivalent US Treasury bond when pricing the deal. During April.

While the deal highlights some of the financial magic that helped spur the current payments boom during the online shopping pandemic surge, the low returns are valued most by investors. This suggests that he is keen on exposing himself to individual borrowers. In the USA.

proton had benefited during the pandemic from a rapid increase in home fitness. Its static bikes are some of the most expensive on the market, starting at $ 1,495 and going up to nearly $ 3,000 with accessories. Customers tend to be wealthy with a very high FICO score, which is a measure of the quality of consumer credit in the United States, and have a history of very low credit default rates.

Affirm offers a 12- to 43-month interest-free loan for Peloton purchases. Peloton provided approximately 20% of online lender revenue of $ 870.5 million in the fiscal year ending June 30, 2021.

Some of the loans go through Wall Street securitization machines and are conditioned to support the payment of new debt purchased by investors such as asset managers like DoubleLine Capital and insurance companies like MetLife. ..

Francisco Paez, head of structured products research at MetLife, said the product was particularly popular with insurers looking for “secure and predictable cash flow.”

“Given the current pricing environment, we find these particular securitizations attractive because they offer high value relative to the amount of risk,” Paez added.

According to the DBRS Morningstar valuation document, the transaction raises additional capital by securitizing loans to a large number of consumers at more than 11,000 merchants, as well as to customers of its largest partner, Peloton. This is part of Affirm’s broader action strategy. ..

Affirm does not disclose the structure of the securitization loan for sale. Peloton loan-backed transactions are even less disclosed because they are personally negotiated with investors.

However, according to DBRS valuation document on Affirm’s latest $ 500 million transaction, including loans from Peloton and other traders, the securitization has an average principal balance of $ 585 million. . Included in individual loans. Due to the short term nature of the loan, the deal is replenished with a new loan because its average term is less than one year. Affirm is scheduled for 2026, but will be issued until the expiration of transactions that may arise earlier.

“At the end of the day, the performance is very good thanks to the underwriting,” said Imran Ansari, who led the evaluation of the transaction at DBRS Morningstar. “The loans have low balances and low monthly payments, which reduces the stress on borrower payments. ”

Representatives for Affirm and Peloton declined to comment. Double Line declined to comment.

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