Global investment firms Carlyle (NASDAQ: CG) and KKR (NYSE: KKR) announced that one or more strategic partnerships comprised of funds and accounts managed by Carlyle and KKR’s respective credit businesses have agreed to purchase an approximately $10.1 billion portfolio of prime student loans from Discover Financial Services (NYSE: DFS).
“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 $54 billion in ABF assets under management and a team of more than 50 professionals directly involved in the ABF effort globally.
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.
