Writer: Andrew Allen
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
Lending network Pagaya Technologies has announced an arrangement with private credit firm Castlelake to sell up to $500 million in auto loans to the company, according to a press release on the deal.
The agreement between the two companies puts Pagaya in position to grow in the auto lending space, and it also may serve to lift the confidence levels of lenders following a turbulent period for some in the auto industry.
Auto lender Tricolor Holdings, which specialized in offering subprime car loans, filed for bankruptcy in September. A few weeks later, car parts manufacturing company First Brands also filed for bankruptcy.
During a recent call with analysts, JPMorgan Chase disclosed a $170 million charge-off related to lending dealings the company had with Tricolor. Jamie Dimon, the CEO of JPMorgan Chase, issued ominous remarks in the wake of the Tricolor collapse, according to a recent report from Yahoo Finance.
“You can never completely avoid these things, but the discipline is to look at it in cold light and go through every single little thing, which you can imagine, we’ve already done, and maybe there might be more to do,” Dimon said.
JPMorgan Chase’s dealings with subprime auto lender Tricolor led to $170 million in losses.
“I shouldn’t say this, but when you see one cockroach, there’s probably more. Everyone should be forewarned on this one,” he added.
But the deal between Pagaya and Castlelake sends a signal to the market that some investors are still open to purchasing subprime auto loans if the price is right and they believe the loans have followed a comprehensive underwriting process.
A Capital Infusion to Spur Growth
The collaboration between the two companies comes in the form of a forward flow arrangement, which will see Castlelake acquire loans from Pagaya in the future in exchange for an immediate payment of capital.
Sanjiv Das, President and Co-Founder of Pagaya, said in the release that it’s a vital step in allowing the company to accelerate the growth of its auto business, and the deal provides a stable, diversified funding source for Pagaya’s lending partners.
Arrangements of this nature can be crucial to lending networks, permitting them to serve a growing number of customers without having to turn to a traditional bank for financing.
Pagaya partners with leading lenders, including OneMain Financial, that offer credit access to subprime borrowers. The company offers an AI-powered model that analyzes loan applications in real time and allows brands to serve borrowers that they may not have been able to without Pagaya.
Castlelake’s deal with Pagaya suggests to the industry that it believes in the lending network’s strategy despite the failure in the auto lending space industry observers have recently seen.
Gal Krubiner, CEO and Co-Founder at Pagaya, told Reuters that recent headlines have reminded industry stakeholders that caution and confidence must work in unison.
“Our structure with established lending partners, rigorous dealer oversight, and multiple layers of third-party verification is designed to identify and mitigate risk early, while still enabling lenders to grow their customer base responsibly,” Krubiner said.
