Upstart consumer lender launches 1st securitization

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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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