Blue Owl Capital has agreed to buy up to $2 billion of consumer installment loans from financial technology lender Upstart Holdings as part of an effort to push into asset-based finance, according to a statement seen by Bloomberg News.
The private credit lender will snap up the debt over the next 18 months, through a so-called forward-flow agreement, where a buyer agrees to purchase loans before they have been originated. The deal also includes $290 million of personal loans that have already been handed out, according to the statement.
Apollo Global Management Inc.’s structured credit business Atlas SP Partners will provide debt financing for the loan purchases.
Blue Owl’s investment comes as the firm is trying to position itself as a one-stop shop for borrowers by moving into other credit products. Last month, it completed its acquisition of Atalaya Capital Management, which focuses on asset-based finance, a type of lending that allows firms to hand out debt backed by a borrower’s assets, like auto loans or equipment leasing debt.
Atalaya, founded by Ivan Zinn, structured and closed the deal with Upstart.
The sale marks one of Upstart’s “largest purchase commitments ever,” Upstart Chief Financial Officer Sanjay Datta said in the statement, adding it will help boost the firm’s “efforts to expand access to affordable credit.”
Founded in 2012, Upstart is one of several consumer-facing startups that blossomed during the pandemic, drawing in borrowers with promises of quick personal loan approvals thanks to artificial intelligence.
But, the firm’s stock price has slid since its 2021 highs, as fintech lenders struggle thanks in part to high interest rates and the fact that traditional banks pulled back from taking loans off their balance sheet.
In the past 18 months, Upstart has pivoted to private credit. Aside from Blue Owl, it has struck deals with Castlelake, Eltura Capital Management, Centerbridge Partners and Ares Management, Bloomberg previously reported.
These deals show how private credit lenders are trying to claw consumer credit business from banks, at a time when competition for corporate debt has been fierce, too. The debt’s investment-grade type structure can also be an attractive selling point for insurance companies looking to diversify their allocations.
Often, those consumer loans can later be repackaged into bonds and sold to buyers of asset-backed securities. Upstart has tapped the ABS markets before, most recently in October 2023, according to data compiled by Bloomberg News.
For Upstart, these agreements help the company reduce its reliance on its balance sheet to fund its own loans, the firm’s chief executive officer, Dave Girouard, said during an earnings call in August.
Upstart saw a net loss of $54 million in the second quarter, and negative adjusted EBITDA of $9 million, according to a filing in August. About 91% of its loans are “fully automated,” Datta said on an August call discussing the firm’s second-quarter earnings.