(Bloomberg) -- Neuberger Berman Group is buying as much as $1 billion of loans from consumer lender ClarityPay over the course of the next few years, marking the largest purchase agreement for the financial technology startup, according to a statement seen by Bloomberg News.
The asset manager will purchase retail and medical point-of-sale loans made by ClarityPay to consumers. The partnership between the pair is structured as a forward-flow agreement, which gives Neuberger Berman the option to buy a certain amount of ClarityPay-created loans over time.
"The agreement will take place over the next couple of years while ClarityPay generates assets," said Peter Sterling, the head of Neuberger Berman's specialty finance team. "We can upsize the facility and typically like to go deeper with our partners over time if we can."
The deal allows ClarityPay, which focuses on medical, retail, travel and home improvement loans, to speed up the pace and volume of loan originations without relying on its own balance sheet to fund the debt. Though lending to consumer finance companies was once a space dominated by regional banks, interest rate hikes led to a pullback, leaving an opening for private credit firms to enter the market.
Both forward-flow agreements and the larger asset-backed securitization market are becoming more popular, as consumer debt is growing. Outstanding consumer credit has jumped almost 20% since pre-pandemic levels, according to Federal Reserve data. Issuance volumes of asset-backed securities rose nearly 50% last year compared to 2023, data compiled by Bloomberg News shows.
ClarityPay Chief Executive Officer Houman Motaharian said the firm is expecting to securitize pools of loans by the end of this year, adding the investment should help the firm "hit profitability" by the second half of this year.
Investment firms like Sixth Street Partners, Blue Owl Capital Inc. and Castlelake inked billion-dollar consumer finance deals in 2024, and similar deals are already surfacing this year. Last month, 26North Partners agreed to buy as much as $250 million of Stream Innovation's home improvement loans through a forward-flow structure.
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