(Bloomberg) --Castlelake LP has agreed to buy up to $4 billion of consumer installment loans from fintech lender Upstart Holdings Inc., as private credit shops muscle into consumer lending.
Under the agreement, alternative lender Castlelake will buy a book of loans Upstart has already created, according to a statement seen by Bloomberg, and will invest in future origination via a so-called forward-flow agreement.
The financing comes as direct lenders are trying to get their hands on consumer loans, cutting into banks' business and taking advantage of the sometimes volatile market for asset-backed debt. Specialty finance shops such as Atalaya Capital Management, Hyland Hill Investment Partners have also ramped up their efforts in recent months.
"With sustained consumer demand for affordable credit and the ongoing retrenchment of traditional lenders, we believe that private capital represents an increasingly important part of the financing market for companies seeking steady, secure growth," said Isaiah Toback, partner and deputy co-chief investment officer at Castlelake, in the statement.
Eltura Capital Management participated in the financing as co-investor and minority partner. With the transaction, Castlelake will provide Upstart with the ability to grow its business, the statement said. The firm also participated in a financing for consumer lender LendingPoint earlier this year, backed by personal loans.
Upstart's shares rose as much as 25% after news of the financing hit the market.
Positive Run
For Upstart, the commitment represents more welcome news after a better quarter. Its shares surged as much as 40% Wednesday, the most on an intraday basis in two years, after the cloud-based, artificial-intelligence lending platform posted consensus-beating first-quarter results. The firm also said in an earnings call that it plans to enter the home lending market, via home equity lines of credit, later this year.
Upstart has tapped the asset backed securities markets before, bundling its loans into bonds of varying risk and size. It last sold this kind of debt in February, issuing just under $200 million of securities. ABS issuance is down over 17% compared to this time last year, with some issuers having
Upstart, which has originated $32 billion in loans since its foundation in 2012, uses AI to approve borrowers for debt, connecting consumers with banks and credit unions, the statement said.
(Updates with share prices move in sixth paragraph.)
--With assistance from Will Daley.
© 2023 Bloomberg L.P.
