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Upstart consumer lender launches 1st securitization

Upstart, an online consumer lender based in San Carlos, Calif., is making its debut in the securitization market.

Upstart was founded by several former Google employees; founder Dave Girouard, spent eight years at the technology company. The Upstart platform began making personal installment loans to prime and near-prime borrowers in May 2014. As of March 31, it had issued 53,000 loans for over $650 million.

To date, funding has come from several rounds of equity raising and through sales of loans to a mix of institutional and retail investors. Now it’s following in the footsteps of more established marketplace lenders, such as Social Finance and Lending Club, and bundling loans into collateral for $163 million of bonds to be sold to capital markets investors.

Three tranches of notes will be issued in the transaction, Upstart Securitiztion 2017-1: $107.81 million of Class A notes with a preliminary A- rating from Kroll Bond Rating Agency, $27.17 million of Class B notes rated BBB-, and $28.13 million of Class C notes rated BB-. All of the notes have a legal, final maturity date of June 2024.

Initial hard credit enhancement is 44.35% for the Class A notes, 30.20% for the Class B notes and 15.55% for the Class C notes.

The collateral pool includes fixed-rate, fully amortizing loans with terms of 36 months (60%) and 60 months (40%) made to borrowers with FICO scores in the range of 620 to 850. The pool is geographically diverse; the top three states, California, Texas and Florida, representing approximately 32% of the total portfolio, as of May 31. On average, the loans have been seasoned for five months.

The bulk of the collateral ($145.7 million) will be contributed by a third party that previously acquired it from the platform; the remainder ($46.3 million) will be contributed by Upstart itself. In this respect, Upstart is following the lead of other marketplace lenders that have sponsored deals securitizing loans from multiple sellers as a means of providing liquidity to investors that purchase whole loans.

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