Pagaya Technologies Ltd.PGY
Pagaya Technologies Ltd. Fair Value Disclosure
FAIR VALUE MEASUREMENT
FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, when available. If such quoted market prices are not available, fair value is based upon a discounted cash flow model that uses, as inputs, observable market-based parameters to the greatest extent possible.
The Company determines the fair value of its financial instruments and conducts an ongoing assessment of the techniques used to ensure their appropriateness, consistent application and the reasonableness of the assumptions. In determining the fair value of each investment security and loan, the Company reviews performance characteristics of the underlying loan pool including origination vintage, borrower credit quality, macroeconomic environment, etc. The Company determines the fair value for each investment security and loan by then estimating significant assumptions including discount rate, cumulative net loss rate and prepayment rate which are reviewed and approved by management.
The Company also engages a third-party valuation service provider to estimate a range of fair values for all significant investments in loans and securities. The Company reviews and validates its significant assumptions with reference to historical performance and expectations of future performance including: discount rate, cumulative net loss rate and prepayment rate. Finally, the Company reviews and validates that the fair value used for financial reporting is within the range of fair value estimates by the third-party service provider for the same significant investment in loans and securities.
Financial instruments are categorized in the fair value hierarchy based on the significance of unobservable inputs and assumptions in the overall fair value measurement. Financial instruments classified as Level 3 within the fair value hierarchy do not trade in an active market with readily observable prices. Accordingly, the Company uses significant unobservable inputs to measure the fair value of these assets. The Company has determined that its certificates, loans and certain subordinated notes meet the definition of Level 3 assets, as their fair value measurements are characterized by a lack of observable market data and a reliance on management's assumptions.
Financial Assets and Liabilities Recorded at Fair Value
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2025 and December 31, 2024, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value (in thousands):
December 31, 2025 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investments in loans and securities (Notes) | $ | — | $ | 67,715 | $ | 340,475 | $ | 408,190 | |||||||||||||||
| Investments in loans and securities (Certificates) | — | — | 532,501 | 532,501 | |||||||||||||||||||
| Investments in loans and securities (Loans) | — | — | 4,578 | $ | 4,578 | ||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Warrant liability | $ | 4,723 | $ | — | $ | — | $ | 4,723 | |||||||||||||||
| Other liabilities (1) | — | — | 13,112 | 13,112 | |||||||||||||||||||
December 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investments in loans and securities (Notes) (2) | $ | — | $ | 115,220 | $ | 125,053 | $ | 240,273 | |||||||||||||||
| Investments in loans and securities (Certificates) (2) | — | — | 533,243 | 533,243 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Warrant liability | $ | 890 | $ | 3 | $ | — | $ | 893 | |||||||||||||||
| Other liabilities (1) | — | — | 6,090 | 6,090 | |||||||||||||||||||
(1) Included in “Accrued expenses and other liabilities” in the consolidated balance sheets. See Note 15 for additional information.
(2) Accrued interest receivable of $14.3 million, previously reported within “Fee receivables” as of December 31, 2024, has been reclassified to conform to the current period’s presentation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis (Level 1 and 2)
Warrant liability (Level 1 and 2)
The Company used the value of the Public Warrants (Level 1) as an approximation of the value of the Private Warrants as they are substantially similar to the Public Warrants, but not directly traded or quoted on an active market.
The following tables summarize the Warrant liability activity for the year ended December 31, 2025, 2024 and 2023 (in thousands):
| Balance as of December 31, 2023 | $ | 3,242 | |||
| Change in fair value | (2,349) | ||||
| Balance as of December 31, 2024 | $ | 893 | |||
| Change in fair value | 3,830 | ||||
| Balance as of December 31, 2025 | $ | 4,723 | |||
Assets and Liabilities Measured at Fair Value on a Recurring Basis (Level 3)
Investments in Loans and Securities (Level 3)
As of December 31, 2025, investments in loans and securities categorized as level 3 investments include loans and securities under the fair value option and securities classified as available for sale which are measured at fair value on a recurring basis. These assets are measured at fair value using a discounted cash flow model, and presented within investments in loans and securities on the consolidated balance sheets. The estimate of fair value of these investments requires significant judgment. The Company uses a discounted cash flow model to estimate the fair value of these investments based on the present value of estimated future cash flows. The cash flow model uses unobservable inputs and reflects management's best estimates of the assumptions a market participant would use to calculate fair value of the particular investment. Primary inputs that require significant judgment include discount rates, net credit loss expectations, expected prepayment rates and consideration of any optional redemption features in the Company's investments.
For securities classified as available for sales, changes in the fair value, other than declines in fair value due to credit, are reflected in other comprehensive income (loss) on the consolidated statements of comprehensive loss. Declines in fair value due to credit are reflected in gains and (losses) on investments in loans and securities on the consolidated statements of operations.
For loans accounted for under the fair value options, all changes in fair value are recognized in the period in which they occur within the gains and (losses) on investments in loans and securities in the consolidated statements of operations.
The following tables summarize the activity related to the fair value of the investments in loans and securities for the year ended December 31, 2025 and 2024 (in thousands):
| Balance as of December 31, 2023 | $ | 624,073 | |||
| Transfer from level 2 | 10,469 | ||||
| Additions | 607,398 | ||||
| Cash received | (180,567) | ||||
| Gain on sale of investments in loans and securities | 7,920 | ||||
| Change in accrued interest on investments | 12,921 | ||||
| (13,858) | |||||
| Credit-related impairment loss | (410,060) | ||||
| Balance as of December 31, 2024 | $ | 658,296 | |||
| Transfer from level 2 | 42,577 | ||||
| Additions | 550,154 | ||||
| Cash received | (294,467) | ||||
| Gain on sale of investments in loans and securities | 12,417 | ||||
| Loss on sale of investments in loans and securities | (26,836) | ||||
| Change in accrued interest on investments | 40,083 | ||||
| (9,746) | |||||
| Credit-related impairment loss | (94,924) | ||||
| Balance as of December 31, 2025 | $ | 877,554 | |||
Significant unobservable inputs used for our Level 3 fair value measurement of the securities are the discount rate, net credit loss rate, prepayment rate and consideration of any optional redemption features in our investment securities. The discount rate reflects management’s estimate of the market-required return for similar financial instruments, to convert estimated future cash flows to a present value. The net credit loss rate is management’s estimate of potential loans losses, net of recoveries, from borrower defaults. The prepayment rate estimate is the proportion of principal received in advance of the contractual terms of the loan, which can impact the future interest cash flows of the investments and the investments expected duration. Because these inputs represent increased risk or accelerated capital return, they maintain an inverse relationship with valuation; accordingly, an increase in the discount, credit risk, or prepayment rates, in isolation, would result in a lower fair value measurement.The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the securities as of December 31, 2025 and 2024:
December 31, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| Unobservable Input | Minimum | Maximum | Weighted Average | Minimum | Maximum | Weighted Average | ||||||||||||||||||||||||||||||||
| Discount rate | 5.0 | % | 15.0 | % | 15.0 | % | 5.0 | % | 15.0 | % | 15.0 | % | ||||||||||||||||||||||||||
| Loss rate | 4.9 | % | 33.1 | % | 17.0 | % | 5.8 | % | 34.1 | % | 19.5 | % | ||||||||||||||||||||||||||
| Prepayment rate | 0.0 | % | 40.0 | % | 14.2 | % | — | % | 40.0 | % | 9.4 | % | ||||||||||||||||||||||||||
Financial Assets and Liabilities Not Recorded at Fair Value
The Company believes that the carrying amount of cash, cash equivalents and restricted cash, fees receivables, accounts payables and other current liabilities approximate their fair value due to the short-term maturities of these instruments.
The below tables contain information about assets that are not measured at fair value on a recurring basis as of December 31, 2025 and 2024 (in thousands):
December 31, 2025 | |||||||||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents, and restricted cash and cash equivalents | $ | 288,349 | $ | 288,349 | $ | — | $ | — | $ | 288,349 | |||||||||||||||||||
| Fees receivables | 153,250 | — | 69,864 | 83,386 | 153,250 | ||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Secured borrowings | $ | 193,892 | $ | — | $ | — | $ | 191,983 | $ | 191,983 | |||||||||||||||||||
| Exchangeable notes | 148,782 | — | 292,445 | — | 292,445 | ||||||||||||||||||||||||
| Long-term debt | 481,598 | — | 430,616 | — | 430,616 | ||||||||||||||||||||||||
December 31, 2024 | |||||||||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents, and restricted cash and cash equivalents | $ | 226,518 | $ | 226,518 | $ | — | $ | — | $ | 226,518 | |||||||||||||||||||
| Fees receivables (1) | 127,114 | — | 63,143 | 63,971 | 127,114 | ||||||||||||||||||||||||
| Investments in loans and securities (Loans) | 4,893 | — | — | 4,893 | 4,893 | ||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Secured borrowings | $ | 176,089 | $ | — | $ | — | $ | 177,554 | $ | 177,554 | |||||||||||||||||||
| Exchangeable notes | 146,342 | — | 163,360 | — | 163,360 | ||||||||||||||||||||||||
| Long-term debt | 321,317 | — | — | 366,396 | 366,396 | ||||||||||||||||||||||||
(1) Accrued interest receivable of $14.3 million, previously reported within “Fee receivables” as of December 31, 2024, has been reclassified to “Investment in loans and securities” to conform to the current period’s presentation.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Apr 25, 2024 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.