MW Are bonds based on burrito orders next after the Klarna and DoorDash partnership?

By Joseph Adinolfi

Wall Street might be coming for your lunch order

Wall Street is hungry for bonds backed by a welter of unconventional cash flows. Bond desks have already securitized revenue from data centers, student loans and fast-food franchise payments.

Now, your lunch order might be next.

Social-media platforms like X were flooded with memes about "burrito bonds" and "lunch-backed securities" in late March after Klarna Group Plc (KLAR), the Swedish provider of buy-now-pay-later (BNPL) loans, filed paperwork to prepare for a U.S. public offering and also announced a partnership with DoorDash Inc. $(DASH)$ to offer interest-free financing on its platform for purchases of at least $35.

See: Fintech Klarna files for IPO at a weak point for public debuts

The memes, like the one below, suggest it could be only a matter of time before debt generated by the partnership finds its way into a security, given Wall Street's history of turning simple things into something exotic it can sell to investors.

Many of these posts were made in jest. But a handful of experts, with years of experience structuring asset-backed securities at Wall Street banks or buying them for their firms' portfolios, told MarketWatch that bonds backed by BNPL payment flows - including DoorDash orders - could soon become a regular thing. The appetite, they said, is certainly there.

'Burrito bonds'

Representatives from DoorDash declined to comment on the possibility that loans generated by this partnership could wind up in bonds sold by Wall Street firms.

An individual familiar with Klarna's thinking pointed out that a bond backed strictly by payment flows from the DoorDash deal probably wouldn't be feasible, given the loan pool would need to reach critical mass first. In all likelihood, any BNPL-linked securities would likely include payment flows tied to a variety of merchants.

Manish Singh, chief investment officer at Crossbridge Capital Group in London, helped structure ABS products during a stint at UBS Group about 20 years ago. That was before the 2007-08 global financial crisis, which was brought about in part by derivatives and souring subprime mortgage bonds, another type of ABS debt.

Singh told MarketWatch that as BNPL becomes more popular, these firms will need to move some of the loan exposure off their balance sheets to free up capital for investment. That's where Wall Street comes in.

"Can a securitization happen? Yes, as Klarna seeks to drive more payment volume for DoorDash orders," he told MarketWatch. Securitization is the process Wall Street popularized decades ago whereby pools of loans are spun into bond deals.

The first tentative steps toward making BNPL bonds a reality may have already been taken. Over the past couple of years, Klarna and PayPal Holdings Inc. (PYPL) have struck deals with large Wall Street firms to offload some of this exposure. Late last year, Klarna closed on a deal with Elliott Capital Management to offload up to 30 billion pounds $(GBPUSD.FOREX)$ of BNPL loans in the U.K.

Before that, in late 2023, PayPal announced a similar deal with private-equity firm KKR & Co. $(KKR)$ for some of PayPal's European loan portfolio. In January, KKR published a blog post detailing the complicated but potentially lucrative process of securitizing these loans. In the post, the firm said the partnership with PayPal had been "upsized and extended."

Representatives from PayPal, Elliott and KKR all declined to comment for this story.

For a company like PayPal, securitization can free up capital so it can go out and make more loans, spurring growth in its loan book, KKR's Vaibhav Piplapure said in the blog post. "For investors, it provides access to a diversified pool of consumer debt that they couldn't reach otherwise."

Esoteric ABS market booms

Any bonds backed by Klarna-like payment flows would fall under the category of "esoteric" asset-backed securities, experts told MarketWatch.

That's a catchall term for everything other than popular, more established categories of ABS, like credit cards, mortgage bonds and auto loans.

After a couple of lackluster years, issuance in the esoteric space surged to record territory in 2024, according to market data from Finsight.com. So far, issuance has remained strong in 2025, potentially setting the stage for another record year.

             Year            Number of deals  Dollar value of bonds 
                        2021              214         $103.7 billion 
                        2022             184           $91.2 billion 
                        2023              175          $77.3 billion 
                        2024              259         $113.9 billion 
     2025 (through March 25)               63          $30.2 billion 

That's a small sliver of the entire U.S. ABS market. Still, demand for these types of esoteric bonds has been strong lately, evidenced by spreads that have fallen over the past couple of years, said Christopher Kauffman, a senior portfolio manager specializing in securitized products for the Plus Fixed Income team at Allspring Global Investments.

In the bond market, spreads are the difference in yield between a bond and a Treasury security set to mature at around the same time. It's extra compensation designed to help offset potential risks.

"As long as you can model the cash flows and you have some degree of certainty that they are predictable, I think you could securitize anything," Kauffman told MarketWatch.

There already have been deals in the esoteric ABS space backed by unsecured consumer loans similar to those offered by BNPL lenders, Kauffman noted.

No fewer than 17 bond deals tied to consumer and marketplace loans have been issued since the start of 2025, according to Finsight.com. Issuers include Affirm Holdings Inc. $(AFRM)$ and SoFi Technologies Inc. (SOFI) But those loans already have set rates attached to them, making it easier to gauge potential yields on related bond deals.

To be sure, Wall Street firms would need to clear certain hurdles before issuing BNPL-backed bonds. Firms interested in packaging these loans into securities for sale to investors would likely first need to establish a track record to ensure that the bonds would work as advertised.

These bonds also would likely appeal to hedge funds and other asset managers first, Kauffman said. Klarna and its competitors don't charge interest on BNPL loans; instead, they take a cut of the sales. Klarna's average take rate is 2.7%, a representative for the company told MarketWatch.

Because of this, the bonds would likely need to be "overcollateralized," Kauffman said - meaning they would be issued at a discount to par value to offer investors some cushion in the event that defaults unexpectedly spike.

While it doesn't charge interest for most of its popular offerings, Klarna does impose late fees for consumers who miss payments. These cash flows could potentially make the bonds especially valuable for Wall Street investors.

Singh also pointed out that bonds backed by BNPL loans could prove especially risky. The latest data from the New York Federal Reserve showed that delinquency rates on subprime auto loans and credit-card balances remained elevated during the fourth quarter of 2024.

And if consumers are so tapped out that they need to resort to buying their lunch on layaway, that alone should raise questions about their ability to pay, Singh noted.

-Joseph Adinolfi

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March 29, 2025 08:00 ET (12:00 GMT)

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