{"url_path":"/sec/pgyww/10-k/2026/item-7a","section_key":"item-7a","section_title":"Item 7A Quantitative and Qualitative Disclosures about Market Risk","topic":"sec","document":{"doc_type":"10-K/A","doc_date":"2026-06-01","source_url":"https://www.sec.gov/Archives/edgar/data/1883085/0001883085-26-000036-index.html","accession_number":"0001883085-26-000036","cik":"0001883085","ticker":"PGY","issuer_name":"Pagaya Technologies Ltd.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1883085/0001883085-26-000036-index.html","primary_entity_key":"0001883085","primary_entity_name":"Pagaya Technologies Ltd."},"word_count":985,"has_tables":true,"body_markdown":"Item 7A. Quantitative and Qualitative Disclosures about Market Risk\n\nWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in market prices. Our market risk exposure primarily relates to fluctuations in credit\n\n83\n\n[Table of](#iab92c5b483164dd6bfa8efca5afa979f_7)[Contents](#iab92c5b483164dd6bfa8efca5afa979f_7)\n\nrisk. We are exposed to market risk directly through investments in loans and securities held on our consolidated balance sheets and access to the securitization markets.\n\nCredit Risk\n\nCredit risk refers to the risk of loss arising from individual borrower default due to inability or unwillingness to meet their financial obligations. The performance of certain financial instruments, including investments in loans, securitization notes and residual certificates on our consolidated balance sheets, is dependent on the credit performance. To manage this risk, we monitor borrower payment performance and utilize our proprietary, AI-powered technology to evaluate individual loans in a manner that we believe is reflective of the credit risk.\n\nThe fair values of these loans, securitization notes, and residual certificates are estimated based on a discounted cash flow model which involves the use of significant unobservable inputs and assumptions, the most significant of which is expected credit losses. Accordingly, these instruments are sensitive to changes in credit risk. As of December 31, 2025 and 2024, we were exposed to credit risk on $945 million and $764 million, respectively, of investments in loans and securities held on our consolidated balance sheets, with $871 million and $659 million, respectively, representing net exposure exclusive of non-controlling interests. We have a portfolio risk monitoring process that includes internal monitoring as well as competitor / market assessments, macro-economic trends, and associated stress testing. Loans and related risk retention securities are monitored throughout the entire lifecycle. This risk monitoring framework provides timely and actionable feedback on managing credit risk exposures.\n\nThe following table summarizes the potential effect that changes in estimates would have on the fair value of our investments in loans and securities as of December 31, 2025 given a hypothetical change in significant unobservable inputs (in millions):\n\nChange in Fair Value\n\nBasis point change scenarioDecember 31, 2025\n\nCredit loss rate increase of 100 basis point$(112.8)\n\nCredit loss rate decrease of 100 basis point\n$131.3 \n\nThese scenarios illustrate a hypothetical, instantaneous shift in the value of our investments in loans and securities and do not represent management's performance expectations. As of December 31, 2025, our portfolio is comprised of 43% notes and 56% certificates. Of the current portfolio, 42% was originated in 2025, 39% in 2024 and 19% in 2023 and prior. We would normally expect more seasoned vintages and more senior investments to be less impacted by changes in credit loss rates. To manage this risk, management integrates these sensitivities into our continuous portfolio monitoring and stress-testing framework, ensuring our operations and capital structure remains resilient to such fluctuations.\n\nWe are also exposed to credit risk in the event of non-performance by the financial institutions holding our cash or providing access to our credit line. We maintain our cash deposits in highly-rated financial institutions. In the United States, the majority of our cash deposits are held at federally insured accounts. We manage this risk by maintaining our cash deposits at well-established, well-capitalized financial institutions and diversifying our counterparties.\n\nDiscount Rate Risk\n\nThe discount rate risk refers to the risk of loss of future earnings, values or future cash flows that may results from change in market discount rates. The fair values of loans, securitization notes, and residual certificates are estimated based on a discounted cash flow model, where the discount rate represents an estimate of the required rate of return by market participants. The changes in the discount rates reflect the expected returns of similar financial instruments available in the market and can be caused by changes in the interest rates.\n\nThe following table summarizes the potential effect that changes in estimates would have on the fair value of our investments in loans and securities as of December 31, 2025 given a hypothetical change in significant unobservable inputs (in millions):\n\nChange in Fair Value\n\nBasis point change scenarioDecember 31, 2025\n\nDiscount rate increase of 100 basis point$(7.2)\n\nDiscount rate decrease of 100 basis point\n$5.2 \n\n84\n\n[Table of](#iab92c5b483164dd6bfa8efca5afa979f_7)[Contents](#iab92c5b483164dd6bfa8efca5afa979f_7)\n\nThese scenarios illustrate potential market shifts rather than internal forecasts. While changes in market discount rates—reflecting the required rate of return for market participants—can influence the estimated fair value of our loans and securitization notes and certificates, management incorporates these hypothetical fluctuations into our proactive capital allocation and deal execution strategies. This modeling ensures we maintain operational stability and consistent access to funding across varying market conditions.\n\nInterest Rate Risk\n\nThe interest rates charged on the loans originated by Partners are subject to change by the platform sellers, originators, and/or servicers. Higher interest rates could negatively impact collections on the underlying loans, leading to increased delinquencies, defaults, and our borrower bankruptcies, all of which could have a substantial adverse effect on our business. This would also impact future loans and securitizations.\n\nAdditionally, we maintain certain financing sources with varying degrees of interest rate sensitivities, including floating-rate interest payments on Pagaya’s credit facilities. Accordingly, trends in the prevailing interest rate environment can influence interest expense/payments and harm the results of our operations. For additional information, see “Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”\n\nWe also rely on securitization transactions, with notes of those transactions typically bearing a fixed coupon. For future securitization issuances, higher interest rates could effect overall deal economics as well as the returns we would generate on our related risk retention investments.\n\nForeign Exchange Risk\n\nForeign currency exchange rates do not pose a material market risk exposure. However, given the compensation and non-compensation expenses denominated in Israeli Shekel, our inability or failure to manage foreign exchange risk could harm our business, financial condition, or results of operations."}