Pagaya's $800M ABS Upsize Eases Near-Term Funding, But High Leverage and Credit Risks Linger

What happened

Pagaya Technologies, an AI-driven credit platform, relies heavily on asset-backed securities (ABS) for funding, as the DeepValue report highlights its high leverage (net debt/EBITDA ~7.3x) and fragile GAAP profitability. On February 4, 2026, the company closed an $800 million AAA-rated personal loan ABS transaction, PAID 2026-1, launching its 2026 capital markets activity. The deal attracted 32 unique investors, mostly returning from prior transactions, and was upsized by 33% due to strong demand, indicating continued investor appetite. However, this funding success does not address core vulnerabilities such as credit impairments or potential spread widening, which the report flags as key downside risks. Thus, while the transaction supports short-term liquidity for network growth, it leaves longer-term financial and operational challenges unresolved.

Implication

The $800 million ABS upsize provides immediate capital to fuel Pagaya's network volume, potentially boosting fee revenue and adjusted EBITDA in the near term. Returning investor participation signals trust in Pagaya's platform, which may help secure future deals and modestly lower funding costs. However, the DeepValue report emphasizes that Pagaya's earnings remain volatile due to high debt levels and reliance on fair-value marks, with credit performance critical to sustainability. Investors should view this as a temporary positive, as any deterioration in consumer credit or ABS spreads could trigger margin compression and equity downside. Consequently, the WAIT rating is maintained, with better entry points around $15 or after sustained GAAP profitability confirmation.

Thesis delta

The new ABS deal slightly reduces near-term funding risk but does not alter the core investment thesis. Pagaya remains overvalued at current levels with significant leverage and sensitivity to credit cycles. Investors should still wait for a pullback to $15 or clear evidence of sustained margin improvement and deleveraging before considering a position.