Klarna agrees to loan portfolio sale deal with Elliott – reports

Investing.com — Payments services operator Klarna is selling most of its UK “buy now, pay later (BNPL)” portfolio to hedge fund Elliott Investment Management in a bid to free up more space for new loans ahead of a much-anticipated US initial public offering, according to media reports.

Citing people familiar with the matter, the reports said the deal will see a subsidiary of Elliott will give Klarna 30 billion pounds worth of fresh capital.

Under the terms of the plan, Klarna will establish a special purpose vehicle that will buy the UK receivables, while the Elliott subsidiary will be the only equity investor in the vehicle, the reports noted. 

In a statement quoted by the reports, Klarna Chief Financial Officer Niclas Neglen said that the move will support its “global growth” and allow it to “deploy shareholder equity more effectively.”

Klarna, which is licensed as a bank in Sweden and is overseen by financial authorities in Germany and the UK, has become known as a key player in BNPL loans, which provide short-term credit that enables customers to spread payments for purchases over a series of no-interest instalments.

The company has been making its own platform that offers outside investors the chance to buy loans on its balance sheet, Bloomberg News said.

The news agency added that one purpose of the process is to transfer away risk, which could in theory lower the chances of sustaining possible losses on a bank’s remaining portfolio. The amount of capital needed to serve as a backstop against such losses also subsequently declines, Bloomberg said.

Klarna has reportedly been refocusing its operations prior to a planned IPO that is tipped to occur sometime in 2025.

Earlier this year, the fintech sold its checkout product to a consortium of investors led BLQ Invest Chief Executive Kamjar Hajabdolahi for $520 million. The Financial Times reported that the deal allows Klarna to stay within its capital requirements even as it increases lending activity.

A sale of Klarna employees’ existing shares ahead of the IPO was also considered but the firm decided not to go through with the plan, the FT added.