(Bloomberg) -- Carlyle Group Inc. and KKR & Co have sold securities backed by a portion of a $10 billion student loan portfolio that they bought from Discover Financial Services, according to people familiar with the matter.
The $1 billion securitization includes a $424 million fixed rate Aaa-rated portion with a yield of 5.133% as well as a $424 million floating Aaa-rated portion priced at 110 basis points over the Secured Overnight Financing Rate.
Carlyle and KKR each own 50% of the $10 billion portfolio through a joint venture. The firms plan to eventually securitize the majority of the portfolio of prime student loans, said the people, who asked not to be identified discussing a private matter.
Representatives for Carlyle and KKR declined to comment.
Moody's Ratings, which graded a portion of the bonds, said that over 80% of the student loan portfolio includes co-signed loans to high quality borrowers. The weighted average interest rate on the loans is 10.4%, according to a March report.
Carlyle and KKR are executing the deal through parts of their credit arms focused on asset-based finance, an increasingly popular area for private credit managers.
Money managers are growing their private credit arms in part to take advantage of assets that banks have been looking to shed due to capital rules known as Basel III Endgame. Last year, KKR estimated that around $500 billion of assets will shift to private funds, away from bank balance sheets.
Bank of America Corp. is the structuring agent and joint bookrunner on the bond sale, which has not yet closed. Other bookrunners include Barclays Plc, Citigroup Inc., Mizuho Corp., and Sumitomo Mitsui Banking Corp. KKR Capital Markets and the Carlyle Group Capital Markets are also joint structuring agents for the transaction.
Discover said in July it was selling the $10 billion student loan portfolio for a premium to Carlyle and KKR. The deal closed in the fourth quarter of 2024.
Both KKR and Carlyle have made sizable investments into the asset-backed space. Carlyle bought a $415 million private student loan portfolio from Truist Bank in January of 2024. At the same time, Carlyle also announced an investment into Monogram, a loan finance solution provider, which became the portfolio manager of the Discover portfolio. In 2023, KKR agreed to provide €3 billion in debt financing to purchase PayPal loan receivables, in a deal that allowed the investor to purchase up to €40 billion in buy-now-pay-later loan receivables from the company.
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