PayPal to sell U.S. credit assets, raises fourth quarter forecasts

(Reuters) - PayPal Holdings Inc PYPL.O said it would sell its $5.8 billion-worth U.S. credit portfolio to Synchrony Financial SYF.N and raised its current-quarter revenue and profit forecasts, sending the company's shares to a record high.

The PayPal app logo seen on a mobile phone in this illustration photo October 16, 2017. REUTERS/Thomas White/Illustration

PayPal’s shares rose as much as 4.43 percent to $76.68, while those of Synchrony gained about 4.1 percent to $33.86 on Thursday.

Synchrony will also buy about $1 billion in participation interests in PayPal receivables held by some investors and a chartered financial institution.

“Our expanded relationship with Synchrony Financial will free up cash currently used to fund consumer credit receivables for other uses,” PayPal Chief Executive Dan Schulman said.

Payments processor PayPal has been looking to expand its digital payments services through strategic partnerships, and by launching or acquiring new services, since separating from online marketplace eBay Inc EBAY.O in 2015.

“PayPal for more than a year has been working toward the implementation of an ‘asset-light’ strategy with regard to its exposure to consumer credit,” said BTIG LLC analyst Mark Palmer.

The company may benefit the most from the expansion of its earnings multiple following the removal of credit-related volatility risk, he added.

The companies said the deal is expected to close in the third quarter of 2018, but did not provide details.

PayPal raised its fourth-quarter revenue forecast to between $3.64 billion and $3.70 billion. The company also increased its per share earnings guidance range to 52 cents-59 cents, from 37 cents-39 cents.

Synchrony said in a regulatory filing it expected the deal to add to earnings in 2019.

Synchrony Bank, a unit of Synchrony Financial, will become the exclusive issuer of the PayPal Credit online consumer financing program in the United States for 10 years when the deal closes.

PayPal and Synchrony Bank have partnered to offer PayPal-branded consumer credit cards since 2004.

BofA Merrill Lynch is the financial adviser to PayPal, while Morgan Stanley & Co advised Synchrony Financial.

Reporting by Roopal Verma, Additional reporting by Aparajita Saxena in Bengaluru; Editing by Sriraj Kalluvila