Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Upstart Securitization Trust 2020-3 (“UPST 2020-3”), a $269.5 million consumer loan ABS transaction. The preliminary ratings reflect initial credit enhancement level of 39.75% for the Class A notes, 30.00% for the Class B notes and 14.75% for the Class C notes. Credit enhancement consists of overcollateralization, excess spread, a cash reserve account and subordination (in the case of the Class A and Class B notes).
The loans in the collateral pool are originated by Cross River Bank and FinWise Bank. As of the statistical cutoff date, borrowers in UPST 2020-3 have a weighted average interest rate and weighted average FICO score of 16.27% and 691, respectively. The collateral pool has a weighted average original term of 54 months and a weighted average seasoning of six months.
This transaction represents the thirteenth ABS securitization collateralized by unsecured consumer loans originated through the online platform operated by Upstart Network, Inc. (“Upstart” or the “Company”) and the tenth from the Upstart Securitization Trust (“UPST”) ABS program. Upstart was established in February 2012 and Upstart operates an online platform (www.upstart.com) and a white label technology licensing service that allows financial institutions and other potential partners to leverage Upstart’s online application flow, machine learning credit model, verification process and other technology to originate loans according to their own underwriting standards. From inception through July 31, 2020, the Upstart Program has facilitated the origination of approximately 528,000 loans totaling approximately $6.7 billion.
The financial impact of COVID-19 has resulted in an economic slowdown and high unemployment, which can adversely impact the performance of the transaction and consumer loans in general. In considering this risk, KBRA applied additional stress scenarios by increasing its expected base case gross loss assumptions for this transaction. The assumption increase was derived from KBRA’s analysis of the relationship between the historical unemployment rate and annualized gross loss rates through the 2008-2009 financial crisis for different types of lending products.
KBRA applied its Global Consumer Loan ABS Rating Methodology published on November 28, 2017 and Global Structured Finance Counterparty Methodology published on August 8, 2018 as part of its analysis of the transaction’s underlying collateral pool, the proposed capital structure and Upstart’s historical gross loss data. KBRA also conducted an operational assessment of Upstart , as well as a review of the transaction’s legal structure and transaction documents. KBRA will also review the operative agreements and legal opinions for the transaction prior to closing.
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Related Publications
- Upstart Securitization Trust 2020-3 KCAT
- Global Consumer Loan ABS Rating Methodology
- Global Structured Finance Counterparty Methodology
Disclosures
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
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