PayPal Holdings, Inc. (NASDAQ: PYPL) and KKR, a leading global investment firm, today announced the signing of an exclusive multi-year agreement for a €3 billion replenishing loan commitment under which private credit funds and accounts managed by KKR will purchase up to €40 billion of buy now, pay later (BNPL) loan receivables originated by PayPal in France, Germany, Italy, Spain, and the United Kingdom. Under the terms of the agreement, KKR's private credit funds and accounts will acquire substantially all the European BNPL loan portfolio held on PayPal's balance sheet at the close of the transaction and will also acquire future originations of eligible BNPL loans. PayPal will remain responsible for all customer-facing activities, including underwriting and servicing, associated with its European BNPL products.

While the concept of split installment payments for consumer purchases has been around for decades and online consumer financing has been a strategic offering of PayPal since 2008, BNPL has dramatically increased in popularity over the past several years. Since launching its first BNPL offering in 2020, PayPal has become an industry leader with its PayPal Pay Later products, issuing more than 200 million loans to over 30 million customers in eight markets around the world. In 2022, PayPal processed more than $20 billion of BNPL payment volume globally, up approximately 160% from 2021.

"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," said Gabrielle Rabinovitch, senior vice president, acting chief financial officer of PayPal. "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."

KKR is funding the transaction through its private credit funds and accounts.

"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," said Dan Pietrzak, global head of private credit at KKR. "We look forward to growing our relationship further and serving the financing needs of consumers across Europe through this transaction."

"We are thrilled to deepen our footprint in consumer finance through this transaction and to work with one of the leading players in this space," said Vaibhav Piplapure, a managing director at KKR. "We believe that PayPal Pay Later offers a differentiated experience that positions PayPal to capture additional share in this growing market."

Subject to certain conditions, this transaction is expected to close in the second half of 2023. Upon closing, PayPal expects this transaction to initially generate approximately $1.8 billion of proceeds to be used for a combination of increased capital return to shareholders and general corporate purposes. The transaction is already contemplated in PayPal's full year 2023 guidance for GAAP and non-GAAP earnings per share, and non-GAAP operating margin announced on May 8, 2023. Following closing, PayPal expects to allocate approximately $1 billion to incremental share repurchases in 2023, contributing to an updated outlook of approximately $5 billion in total share repurchases this year.

KKR Capital Markets structured and arranged the debt for the transaction. Morgan Stanley & Co. LLC acted as the financial and structuring advisor to PayPal. Freshfields Bruckhaus Deringer LLP, Pérez-Llorca, and Allen & Overy Luxembourg acted as legal advisors to PayPal. Latham & Watkins LLP served as legal counsel to KKR.