Klarna Bank struck a deal to offload buy-now, pay-later loans that it originates in the U.K. as it looks for ways to free up capital ahead of its public debut.
The deal with a subsidiary of the hedge fund Elliott Investment Management will give Klarna £30 billion ($39 billion) of fresh firepower over the coming years as it looks to grow its business around the world. Klarna will continue to service the loans included in the agreement.
"By efficiently managing our assets, we can deploy shareholder equity more effectively," Klarna Chief Financial Officer Niclas Neglen said in a statement. "This is a unique deal, designed to support Klarna's global growth."
Klarna, which has a banking license in its home country of Sweden, has been building a platform that allows it to offload loans on its balance sheet to investors around the world. The moves free up capital and mean the financial technology behemoth can more easily make new loans to customers.
Several of Europe's largest banks — including Deutsche Bank, Nordea Bank and Banco Santander — have also used such moves as part of their significant risk transfers programs. SRTs are designed to free up regulatory capital by transferring credit default risks to investors.
The process, known as synthetic securitization, substantially reduces the likelihood that the bank will sustain losses on the remaining part of the portfolio. That in turn decreases the amount of capital they are required to hold as a safety cushion.
For Klarna's deal, the company set up a special-purpose vehicle that will purchase the U.K. receivables, according to people familiar with the matter. A subsidiary of Elliott is the sole equity investor in that vehicle, the people said, asking not to be identified discussing non-public information.
The deal will begin in October with the Elliott-backed vehicle making purchases on a monthly basis from there. A spokesperson for Elliott declined to comment. The Financial Times earlier reported on the deal.
The transaction echoes a similar arrangement that KKR & Co. struck with PayPal Holdings last year to purchase as much as €40 billion ($43 billion) of buy-now-pay-later loan receivables that the technology firm originated in France, Germany, Italy, Spain and the U.K.
IPO Prep
For Klarna, the deal is the latest sign that the company is looking to refocus itself ahead of its planned IPO, which is expected to take place sometime next year.
As part of that, the Stockholm-based company in recent months agreed to divest its Checkout payments business and it also snapped up Laybuy, a provider of buy-now, pay-later services in New Zealand.
Usage of the Swedish fintech has soared recently. In the last year, more than 10 million U.K. consumers have used its services and the number of retailers offering Klarna in the country increased by 33% to more than 40,000.
