John Grayken, the billionaire who made his fortune betting on troubled borrowers, has joined the bidding for Citigroup Inc.'s subprime-lending arm, OneMain Financial Holdings Inc., people familiar with the matter said.

Grayken's Lone Star Funds made an offer for OneMain last month, said the people, who asked not to be identified because the matter isn't public. Other bidders include OneMain's rival Springleaf Holdings Inc., the people said.

Citigroup is seeking at least $4 billion for OneMain, the people said. It is expected to decide in the coming weeks whether to sell OneMain or take it public, one person said. The company filed paperwork for an initial share sale in October.

Springleaf is viewed as the frontrunner for OneMain, the people said, because the potential cost savings it'll achieve in a merger means it can offer a higher price than a buyout fund, they said. Springleaf can also fund OneMain's loans more profitably than a buyout firm, given its access to the debt markets, they said.

Spokesmen for Citigroup, Lone Star and Springleaf declined to comment.

Firms including Carlyle Group LP, Blackstone Group LP and Warburg Pincus considered bidding for OneMain but passed, with some saying the price was too high, several people said.

Citigroup Chief Executive Officer Mike Corbat said in May the New York bank could sell OneMain or take it public by year- end because it no longer fits with its business model. Exploring both options simultaneously, in what's known as a dual-track process, is a way to pressure potential buyers to act before a target becomes public.

Grayken founded Dallas-based Lone Star in 1995, carving out a profitable niche buying distressed loans from troubled banks in Asia, Europe and North America and selling them at a profit. Lone Star closed a $366 million acquisition in June of DFC Global Corp., a payday lender with 1,500 locations in the U.S. and abroad. Payday loans are riskier than the installment loans OneMain and Springleaf make.

OneMain, based in Baltimore, lends to people with less- than-perfect credit from more than 1,100 branches in 43 states, according to its IPO prospectus.

Springleaf, which is controlled by Fortress Investment Group, went public last year. Its shares have gained about 54 percent in 2014, giving the Evansville, Indiana-based company a market value of about $4.5 billion.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.