Credit analysis firm Pagaya secures $75 million from Oak HC/FT

Publicly traded credit research firm Pagaya (Nasdaq: PGY ) plans to go shopping for other fintechs after securing a new $75 million investment from longtime backer Oak HC/FT, the company tells Axios exclusively.

Why it’s important: The investment will give Pagaya dry powder to make acquisitions in a buyer’s market for fintech deals.

Details: With its investment, Oak HC/FT will receive Series A convertible preferred shares with a 6% PIK annual dividend and an additional minimum return in certain circumstances.

• According to Pagaya CFO Michael Kurlander, the conversion price is $1.25, or about a 35% premium to yesterday’s close.
• In particular, the preferred shares will not have any special management or voting rights.

Status: Pagaya’s market capitalization has fallen since it went public via SPAC merger at a valuation of $8.5 billion last June, landing at about $620 million at the close on Wednesday.

• But, according to CEO Gal Krubiner, the same dynamics that have snarled Pagaya’s valuation have also created attractive buying opportunities in the venture-backed fintech market.
• “The valuation of companies is declining, the amount of funding is very low … and we think there is a unique opportunity to extend M&A and approach good, founder-led companies with unique capabilities that are struggling a bit with funding in these markets and bring them under Pagaya the umbrella, says Krubiner.

Between the lines: Pagaya is looking for companies that operate in categories where they do not currently have a presence, such as home loans or solar loans.

• It is also looking at potential acquisitions of embedded financing solutions that could make it easier for Pagaya to work with banks and other lenders to provide credit.

The big picture: While the current macro environment has hit Pagaya’s valuation, the prevalence of high interest rates has not dramatically slowed the credit analysis business.

• Along with the Oak HC/FT transaction, the company reports that it expects to be at the high end of or exceed first quarter guidance for network volume, total revenue and adjusted EBITDA.
• “We’re actually seeing more applications, we’re seeing more flow, and we’re becoming more relevant to lenders to solve their liquidity problems,” says Krubiner.

Context: OakHC/FT has been an investor in Pagaya since it led the then-startup’s $14 million Series B funding round in 2018.

• According to an SEC filing, the firm owned approximately 13.5% of Pagaya Class A shares shortly before the SPAC merger was completed.
• After the transaction, it will hold about 16% of Pagaya’s basic outstanding shares, Kurlander says.