(Bloomberg) — Sixth Street agreed to buy up to $4 billion in consumer installment loans from Affirm Holdings Inc. (AFRM), a pay-now, pay-later lender, marking the financial technology company’s largest capital commitment to date.

Most read by Bloomberg

The deal takes the form of a so-called forward flow agreement, in which a buyer agrees to purchase loans before they are even issued. The deal will give Affirm access to off-balance sheet funds to facilitate more than $20 billion in loans over the next three years, according to a statement seen by Bloomberg News.

Nonbank lenders have been snapping up consumer loans in droves in recent months from buy-now-pay-later lenders including Affirm, as private lending firms take increasing interest in the $5.2 trillion asset-based financing market that includes auto loans and mortgages Includes residential real estate. Earlier this month, Prudential Financial Inc.’s PGIM Fixed Income bought $500 million in loans from Affirm. Fortress Investment Group and Blue Owl Capital Inc. (OWL), among others, have purchased similar debt portfolios.

Sixth Street’s asset-based team, led by partner Michael Dryden, has been active on this front, previously agreeing to buy Goldman Sachs Group Inc.’s GreenSky unit as part of a consortium of investors.

“We look forward to being a key financing partner for Affirm and continuing to expand this relationship to support the company’s growth in the coming years,” Dryden said in the statement. Dryden, a former Credit Suisse Group AG banker, moved to Sixth Street more than two years ago.

Buy now, pay later loans allow borrowers to pay in installments, sometimes with interest-free repayment terms. The concept boomed during the pandemic as consumers were stuck at home and saw more ads for loans on shopping websites. This deal also comes as one of Affirm’s main competitors, Klarna Bank AB, prepares for an initial public offering in New York. Earlier this year, Klarna also completed a 30 billion pound ($39 billion) deal to offload buy-now-pay-later loans it had taken out in the U.K. with a subsidiary of hedge fund Elliott Investment Management.

Affirm has various financing channels in addition to credit sales and forward flow agreements. The fintech is a regular issuer in the asset-backed bond market, where it bundles loans into securities of different risk and size. The company sold its most recent deal in November, according to data compiled by Bloomberg. The Canada Pension Plan Investment Board has also committed up to $1.4 billion to the company, according to an August letter to shareholders.

The story continues