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June 08, 2018  

Citi Alumni to Finance Consumer Lenders

Former Citigroup bankers Ari Rosenberg and David Mandel are starting a business that would back consumer lenders, with securitization as part of their strategy.

The New York operation, Spot18, is forming as a unit of investment firm Sherman Financial. Rosenberg and Mandel started talking to prospective clients this week.

Sources said the operation would offer warehouse lines to originators of consumer-finance products including personal loans, auto loans and credit-card accounts. It also would buy whole loans from those companies, likely as an initial step, along with stakes in their businesses.

Spot18 additionally would help its clients securitize the contents of their warehouse lines, and could sell bonds backed by the loans it buys.

The strategy in some ways mirrors the one Rosenberg and Mandel employed at Citi. Indeed, their group was among the first to offer warehouse financing to marketplace lenders, and in 2015 set up a landmark securitization vehicle through which the bank securitized loans it had bought from Marlette Funding and Prosper Marketplace.

Rosenberg had worked at Citi since 2002. Mandel, his lieutenant, joined in 2007. Both exited the bank in April.

Spot18’s targeted business appears to dovetail with that of Sherman, which invests mainly in companies that originate, purchase or service consumer or commercial debt products. Sherman and the funds it controls also have bought debt portfolios and equity in various financial companies, including Kroll.

Considering the fact that the strongest and most experienced originators typically receive financing from banks, Spot18 presumably would compete with a large group of nonbank warehouse lenders that have been focusing on facilities with moderate to high levels of risk — and the returns to match.

Those shops, including Atalaya Capital, Comvest Partners, Fortress Investment, Hudson Cove Capital and Waterfall Asset Management, in many cases have been lending at interest rates of 500-1,000 bp over Libor. To that end, one source said Spot18 could get a jumpstart if Sherman is willing to undercut the competition. “If you have a backer that can live with cheaper returns for a while, then you can lend competitively,” he said.

At the same time, there could be opportunities for a new player to pick up business after Capital One and Victory Park Capital recently reduced the amounts of capital they were making available to online lenders. Others aiming to fill that gap include Cross River Bank.

Another source said Rosenberg and Mandel appear to be framing Spot18 as able to deploy capital with more speed and flexibility than competitors. “They probably think they can get to [lenders] quicker and help newer [lenders] get off the ground,” he said.