PayPal Holdings has entered into a multi-year exclusive agreement with global investment firm KKR for a €3 billion replenishing loan commitment.

Under the deal, KKR-managed private credit funds and accounts will purchase up to €40 billion of PayPal-originated buy now, pay later (BNPL) loan receivables from five European countries, which include France, Germany, Italy, Spain, and the United Kingdom.

Dan Pietrzak — KKR global head of private credit said: “Having the ability to work exclusively with a scaled and high-quality strategic partner like PayPal is a testament to the strength and maturity of our Asset-Based Finance business.

“We look forward to growing our relationship further and serving the financing needs of consumers across Europe through this transaction.”

As per the terms of the agreement, the European BNPL loan portfolio currently held on PayPal’s balance sheet will be substantially acquired by KKR’s private credit funds and accounts at the closing of the transaction.

Additionally, future originations of eligible BNPL loans will also be acquired by KKR. Despite this transaction, PayPal will retain the responsibility for all customer-related activities, including underwriting and servicing its European BNPL products.

PayPal, a pioneer in the industry, has observed a considerable surge in the popularity of BNPL offerings in recent years. Since launching its first BNPL product in 2020, PayPal has issued over 200 million loans to more than 30 million customers across eight global markets. In 2022 alone, PayPal processed over $20 billion of BNPL payment volume globally, marking a rise of approximately 160% from 2021.

Pending certain conditions, the transaction is slated to close in the second half of 2023. Upon closure, PayPal anticipates the deal to initially generate around $1.8 billion of proceeds. These funds will be directed towards a combination of increased capital return to shareholders and general corporate purposes.

This transaction is already considered in PayPal’s full-year 2023 GAAP and non-GAAP earnings per share, and non-GAAP operating margin guidance announced on May 8, 2023. PayPal also plans to allocate approximately $1 billion towards incremental share repurchases in 2023, contributing to an updated outlook of roughly $5 billion in total share repurchases for the year.

Gabrielle Rabinovitch — PayPal senior vice president and acting chief financial officer said: “Buy now, pay later has become a major asset to PayPal’s checkout experience, driving engagement, payment volume growth, and repeat use while delivering high-value customers to our merchants.

“Our collaboration with KKR will allow us to accelerate our PayPal Pay Later originations alongside market demand in Europe while preserving free cash flow for other strategic initiatives. This transaction is yet another example of our disciplined approach to capital allocation.”

  Dan Pietrzak, Gabrielle Rabinovitch, KKR, PayPal, USA