Unsecured consumer loans originated through Upstart Network is securing $75 million in asset-backed securities that the Upstart Pass-Through Trust Series, 2021-ST7 expects to issue to the credit markets.
Upstart Network, Inc., based in San Carlos, Calif., is a familiar presence on the securitization market. After its founding in February 2012, the company has come to market 25 previous times for capital to support its business, according to Kroll Bond Rating Service.
Upstart operates an online application platform using its application flow, machine learning credit model and verification process to originate loans according to the standards of outside banks. Balances normally range between $1,000 and $50,000. The company uses a hybrid-funding model that establishes an alignment of interest between stakeholders – the company itself, originating banks and institutional investors. Primarily, Upstart’s technology facilitated loans from Brooklyn-based Cross River Bank and Sandy, Utah, FinWise Bank.
While online lending tends to be riskier than in-person lending, because of the increased vulnerability to borrower fraud, such as falsification of information. Upstart, however, uses tools to detect fraudulent activities and avert them whenever possible. In some high-risk cases, Upstart verifies education, income and employer, and might even follow up with a verification call.
As of the deal’s cutoff date, March 31, institutional investors had purchased some 81% of the loans in the transaction. Jeffries LLC aggregated the loans going into the Upstart trust, according to Kroll.
Citibank is playing several roles, including certificate paying agent, on a deal where Jeffries is sponsor. Upstart’s capital structure features a sequential pay structure that prioritizes payments to the notes before the certificates, in order to maintain levels of overcollateralization, based on several factors.
The trust will issue just one class of notes, rated ‘BBB-’. Also, DBRS Morningstar is expected to rate the notes ‘BBB’.
