For the second consecutive year, Affirm’s point of sale (POS) securitization programme was named the esoteric ABS issuer of the year. The company delivered strong growth, expanded issuance, secured triple-A ratings, and set up new shelves, all while broadening its investor base.
“We significantly grew our network and strategically and thoughtfully expanded our funding ecosystem, including through our ABS programme,” says Brooke Major-Reid, chief capital officer at Affirm. During its 2022 fiscal year, Affirm grew total gross merchandise volume by 87%, nearly doubled active consumers to roughly 14 million people, and increased active merchants by 710%, adding new partners to an impressive list that includes Amazon, Shopify, Target, and Walmart.
“Roughly 80% of transactions are from repeat users, which really speaks to the momentum of the business and the value of our solutions,” adds Major-Reid.
Affirm debuted its inaugural securitization in July 2020. Since then, the company has scaled its ABS programme. Despite all the market turmoil over the last two years, affirm has closed 10 successful ABS transactions and generated a level of investor enthusiasm rarely seen for nascent asset class issuers.
Our team takes a long-term approach to the ABS market which is reflected in how we structure transactions to facilitate the needs of consumers and investors. With multiple channels, Affirm’s funding approach is designed to be both diverse and durable
The programme has over 60 institutional investors and nearly $11bn in funding capacity. Total issuance reached $3.7bn across three ABS shelves, each of which are designed to support different segments of the company’s financing offerings. Affirm’s static and revolving deals received triple-A ratings from DBRS, representing one of the fastest rating migrations for a fintech company.
“When risk is being repriced, there is often a flight to quality,” says Major-Reid. “Our commitment to generating quality assets and maintaining strong credit performance have been key components in attracting a diverse mix of investors. We also achieved our first triple-AAA ratings this past year, which further reinforces the growth and constructive evolution of our programme.”
Affirm’s loans range from just a few weeks to as long as 60 months – making it one of the only buy now, pay later providers to offer such a wide range of financing options. ABS issued from the revolving shelf, deals with the A and B monikers, contain short-dated loans of just a few months, with Affirm retaining the first loss portion to demonstrate its belief in the assets and ability to underwrite consumer credit risk. Deals issued under the static shelves, known by the Z and X monikers, contain 0% APR and interest-bearing longer-term loans, respectively. Investors range from global asset managers, pension funds, insurance companies, and banks.
“We’re honored to have the support from such a wide range of ABS investors and bi-lateral partners with the ability to provide access to deep committed pools of capital,” says Major-Reid. “Our team takes a long-term approach to the ABS market which is reflected in how we structure transactions to facilitate the needs of consumers and investors. With multiple channels, Affirm’s funding approach is designed to be both diverse and durable.”
A hallmark of Affirm’s strength as an issuer is that the company is not overly reliant on any one funding channel for funding or liquidity. Roughly half of funding is supported by forward flow, followed by ABS, and to a lesser extent warehouse lines. This diversification provides redundancy in Affirm’s funding model and bolsters its ability to navigate periods of volatility.
As for Affirm’s future plans for the ABS market, the company aims to become a programmatic, benchmark issuer in the coming years. The company values and recognises the importance of deep pools of capital as evidenced by ongoing efforts to enhance the ratings profile, maintain stable credit performance, and ensure consistency in structure and go-to-market. Having cultivated strong relationships with capital partners, Affirm intends to continue to thoughtfully access the ABS market even in challenging environments.
“Our investors are partners and we're always looking to innovate and create opportunities to successfully access the market,” says Major-Reid.
Affirm brings the same qualities to its capital markets strategy as it does to building cutting-edge technology – a focus on precision, durability and quality that creates enduring trust-based relationships.
“I am grateful for the mission-driven, innovative culture that has contributed to Affirm’s success and the support of our many investors and partners. Looking ahead, we believe that the combination of our superior technology and disciplined risk management will continue to distinguish our programme,” concluded Major-Reid.