Writer: Eric Bank
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
OppFi recently announced a new $150 million revolving credit line with existing partner, Castlelake. The four-year flexible loan agreement will help OppFi save money, lowering its interest rate by 150 basis points. The new rate is equal to the Secured Overnight Financing Rate (SOFR) plus 6%, down from SOFR plus 7.5%.
OppFi is a leading fintech platform with a mission to help subprime consumers borrow money. The core audience consists of borrowers who have had trouble securing traditional credit.
We recently spoke with OppFi Founder, CEO, and Executive Chairman Todd Schwartz, who called the transaction a “testament to the strength and durability” of OppFi’s business model. He noted that it will help OppFi grow in spite of the shifting rate environment.
The move comes at a volatile period for nonprime lenders. Analysts have mixed forecasts: JPMorgan Chase recently downgraded several OppFi competitors, while Zacks issued a more positive outlook at the same time. The sector is contending with slimmer margins due to higher costs and increasing delinquency rates.
The new credit line signals Castlelake’s confidence in OppFi. It gives the lender access to cheaper capital, which is a competitive edge.
Schwartz told us, “It keeps our capacity strong for growth and originations and also incrementally improves terms and then price. We saw price on the spreads, which benefits the business. We’re also seeing SOFR come down. The Fed just cut another 25 basis points.”
The Castlelake credit line replaces a deal from three years ago. The savings will help OppFi improve its margins and support reinvestment. “It’s 100 basis points of savings that drops to the bottom line, but it also allows us more ability to expand lending volume,” Schwartz said.
Profitability and Growth Strategy
The benefits to OppFi are better margins and more operating leverage. The company manages about $600 million in gross receivables and $400 million in capital financing. The leverage provided by the new credit line avoids an overreliance on equity.
The company’s capital structure is a good match for its size and goals, according to Schwartz, who added that it will help OppFi grow new originations and revenues over the next few years.
Earlier this year, OppFi expanded a second revolving credit line with Blue Owl Capital with better terms. The second line means OppFi is less vulnerable to concentration risk. “We never want a single point of failure,” Schwartz said.
OppFi’s new financing will help it strengthen its business in 40 states. Schwartz said the new deal will help marketing and product development: “We’re doing a lot of work on our new loan origination system, which we’re excited to migrate over early next year.”
The upgraded system should help improve processing and make it easier to price risk accurately.
Credit Risk Management
OppFi’s proprietary Model 6 uses new variables to dynamically price credit risk. It watches macroeconomic signals, including higher subprime auto loan delinquencies, currently about 6.2%.
Schwartz pointed out that the surge doesn’t necessarily equal systemic weakness. Most auto loans begun when they were low have been repriced since. OppFi’s real-time pricing, he described, allows it to repricie without denying access to good borrowers.
The upcoming holidays and stabilizing interest rates put OppFi into a growth season. “We wouldn’t be taking out additional capacity if we didn’t think there was a lot of growth ahead of us,” Schwartz said.
