San-Francisco headquartered Cherry Technologies has issued a $250m securitization backed by loans used for elective medical procedures.

Cherry offers treat now pay later (essentially buy now pay later) loans for dental and orthodontics, medical aesthetics, plastic surgery, dermatology and other treatments.

Cherry was established in 2017 and provides treat-now-pay-later loans through 24,000 merchants across the US. The company has lent $1.0bn across 570,000 transactions so far.

The deal was rated by KBRA – the top tranche has a single-A rating. The issuer is Cherry Securitization Trust 2024-1. This is Cherry’s first public securitization.

Securitization is creating a new model for the Buy Now Pay Later sector

Buy now pay later (BNPL) loans providers thrived when rates were at zero – but then faced a hard time as rates increased.

They were able to get very low cost funding during the low rates era – allowing them in many cases to offer their customers interest free financing. The BNPL companies would make their revenue from merchant fees.

BNPL providers are now using securitization to access relatively cheap funding to finance their loans. Companies like Affirm and Zip have been issuing public securitization deals, and others like PayPal, Zilch and Klarna are doing this through asset-backed private credit deals.

Credit risk is still a concern – especially for BNPL loans to non-prime borrowers.