Carlyle and KKR Strategic Partnerships Agree to Acquire Approximately $10.1 Billion Prime Student Loan Portfolio from Discover Financial Services
Carlyle and KKR have agreed to acquire a $10.1 billion prime student loan portfolio from Discover Financial Services. The acquisition, led by Carlyle's Credit Strategic Solutions team and KKR's asset-based finance strategy, showcases their expertise in private student loans and asset-backed finance. This transaction allows Discover to simplify its operations and business mix.
The deal is expected to close by the end of 2024, subject to customary conditions. Monogram , a Carlyle portfolio company, will manage the portfolio, while Firstmark Services, a Nelnet subsidiary, will service the loans. This strategic move highlights the evolving lending landscape and the increasing role of private markets in providing flexible solutions to financial institutions.
- Acquisition of a large $10.1 billion prime student loan portfolio
- Demonstrates Carlyle and KKR's expertise in private student loans and asset-backed finance
- Potential for increased revenue and market expansion in the student loan sector
- Leverages KKR's scale and experience in ABF investing
- Transaction completion subject to customary closing conditions, introducing potential delays or uncertainties
- Integration challenges may arise in managing and servicing the large loan portfolio
Insights
The acquisition of an approximately
For Discover Financial Services, the sale is a deliberate effort to optimize their balance sheet and streamline operations. This move may generate substantial liquidity for DFS, which could be deployed into more strategic initiatives or used to pay down debt. Investors in DFS might see this as a positive development, potentially leading to an improvement in the company's financial health.
In the short term, this transaction could lead to increased market confidence and potentially a rise in share prices for Carlyle, KKR and DFS. Long-term impacts include the enhancement of Carlyle and KKR's portfolio diversification and stabilization of DFS's financial metrics.
This acquisition underscores the growing trend of strategic partnerships in the financial services sector. Carlyle and KKR's move to acquire a substantial student loan portfolio signals confidence in the asset-backed finance market. Such deals mitigate risks through diversification and provide stable returns.
For retail investors, understanding the dynamics of asset-backed finance is crucial. These loans, backed by tangible assets (in this case, student loans), offer a relatively secure investment compared to unsecured loans. This trend could suggest that traditional financial institutions are evolving to focus more on risk management and leveraging strategic partnerships to optimize their portfolios.
Long-term, this may indicate a shift towards more collaborative and diversified financial models, presenting both risks and opportunities. The news suggests Carlyle and KKR are positioning themselves well for future growth in the asset-backed finance space.
“This acquisition highlights Carlyle’s proven expertise in private student loans and asset-backed finance, demonstrating our Global Credit business’s ability to provide scaled, tailored solutions to meet our clients’ dynamic needs,” said Akhil Bansal, Head of Credit Strategic Solutions at Carlyle. “As the lending space evolves, we believe private markets are well-positioned to offer financial institutions increased flexibility amidst this transformation.”
“We are pleased to leverage our scale, deep experience in ABF investing and capital markets capabilities to be a capital solutions provider of choice to financial institutions that are focusing on optimizing their balance sheets,” said RJ Madden, a Managing Director at KKR. “This transaction demonstrates the value that scaled private lenders can bring to key areas of the economy as the priorities of traditional lenders continue to evolve.”
“We're very pleased to consummate this transaction with two outstanding strategic partners in Carlyle and KKR," said Dan Capozzi, Executive Vice President and President of Consumer Banking at Discover. "This agreement represents an important milestone in our journey to simplify our operations and business mix.”
Carlyle’s investment in the portfolio was led by its Credit Strategic Solutions (“CSS”) team, a group within its Global Credit business focused on asset-backed investments. The highly experienced team seeks to leverage the knowledge, sourcing, structuring, and breadth of the entire Carlyle investment platform to deliver tailored asset-focused financing solutions to businesses, specialty finance companies, banks, asset managers, and other originators and owners of diversified pools of assets.
KKR’s investment in the portfolio comes primarily from its asset-based finance strategy and other credit vehicles and accounts. KKR has made more than 80 ABF investments globally since 2016 through a combination of portfolio acquisitions, platform investments and structured investments. The firm has approximately
The transaction is expected to close by the end of 2024 subject to customary closing conditions.
KKR Capital Markets and TCG Capital Markets structured and arranged the debt for the transaction. Monogram LLC, a portfolio company of Carlyle, will serve as portfolio manager for the student loan portfolio. Firstmark Services, a subsidiary of Nelnet, Inc. will service the loans in the portfolio. Sidley Austin LLP served as legal advisor to KKR and Carlyle. Paul Hastings LLP also served as a legal advisor to Carlyle and Clifford Chance LLP also served as a legal advisor to KKR. Wells Fargo served as exclusive financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP served as legal counsel to Discover Financial Services in connection with the transaction.
About Carlyle
Carlyle (NASDAQ: CG) is a global investment firm with deep industry expertise that deploys private capital across three business segments: Global Private Equity, Global Credit and Global Investment Solutions. With
About KKR
KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life and reinsurance products under the management of Global Atlantic Financial Group. References to KKR’s investments may include the activities of its sponsored funds and insurance subsidiaries. For additional information about KKR & Co. Inc. (NYSE: KKR), please visit KKR’s website at www.kkr.com. For additional information about Global Atlantic Financial Group, please visit Global Atlantic Financial Group’s website at www.globalatlantic.com.
About Discover Financial
Discover Financial Services (NYSE: DFS) is a digital banking and payment services company with one of the most recognized brands in
View source version on businesswire.com: https://www.businesswire.com/news/home/20240717003713/en/
Media Contacts:
For Carlyle:
Kristen Ashton
212-813-4763
Kristen.ashton@carlyle.com
For KKR:
Julia Kosygina
212-230-9722
media@kkr.com
For Discover Financial:
Matthew Towson
224-405-5649
matthewtowson@discover.com
Source: KKR
FAQ
What is the value of the student loan portfolio KKR and Carlyle are acquiring from Discover Financial Services?
When is the KKR and Carlyle acquisition of Discover's student loan portfolio expected to close?
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How does this acquisition align with KKR's investment strategy?
