(Bloomberg) -- Fortress Investment Group is providing £750 million ($954 million) to Tabeo Ltd., which specializes in consumer healthcare financing, to approve and manage loans for dental work. 

Tabeo will receive a fee for managing the debt, mostly interest-free loans, and monitoring that borrowers pay on time. Fortress plans to hold the loans in a special purpose vehicle, according to Ola Eriksson, managing director for the New York-based direct lender. 

The loans will have an average life of 18 months that will allow consumers to finance dental treatment in the UK. Tabeo has three years to make the loans, which are expected to be about £2,700 and number some 300,000 loans. 

The deal is structured as a so-called forward-flow agreement, meaning the funder provides the financial backing for the maker of the loans in advance. A key feature is that the debt isn’t kept on the balance sheet of the firm that originates the loans. Forward-flow agreements “take time to put together because you need to do thorough underwriting,” said Eriksson. 

Specialty finance, or asset-backed lending, is one of the hottest segments in the $1.7 trillion private credit sector. As banks pull back from providing consumer loans, direct lenders such as Ares Management, BC Partners, KKR & Co., and Medalist Partners have all raised funds to lend to consumer financing companies. Debt backed by assets such as real estate or automobiles, or in this case, dental work, are seen as providing greater security to lenders. 

Tabeo’s Chief Executive Officer Paul Ebert said the deal was managed by the firm’s chief financial officer and general counsel, and without banking advisers. “There’s a lot of competition between finance providers on smaller deals in specialist lending, but given how big this ticket is, there are only a handful of players in the market,” he said.

Tabeo underwrites the dentists providing the financing and the individual consumers who are taking out the loan. 

“We underwrite each loan separately, assessing credit worthiness as well as affordability, in line with UK regulation,” Ebert said in an interview. “It’s a different model compared to buy-now-pay-later or credit cards.”

--With assistance from Irene García Pérez.

©2024 Bloomberg L.P.