Upstart Securitization Trust is working toward bringing a $238 million securitization deal to market, which will be secured by a pool of unsecured consumer loans.
The deal has a fast amortization schedule, as the notes have a legal final maturity date of June 20, 2032, according to Moody’s Investors Service.
Issued through three classes, the notes will benefit from credit enhancement in the form of a cash reserve funded at 0.50% of the non-retained interest percentage of the initial pool balance.
Further the notes receive protection from initial overcollateralization of 17.5%, as well as target OC that represents 17.5% of the non-retained interest percentage with a floor OC amount of 2.0% of the deal’s non-retained interest percentage of the initial pool balance, Moody’s said.
Aside from OC, the notes will benefit from a reserve account, excess spread and subordination. Moody’s also counts as a credit positive the participation of Wilmington Trust, National Association as the backup servicer.
Moody’s expects to assign ratings of ‘A3’ to the $166.6 million, class A notes, while the $29.7 million, class B notes are expected to receive ratings of ‘Baa2’. An OC piece amounts to $41.6 million. The classes A, B and C notes represent 70.0%, 12.5% and 17.5% of the non-retained pool balance, respectively.
Goldman Sachs is the initial note purchaser on the deal, and one its entities, the Goldman Sachs Asset-Backed Securities Corp., is the depositor.
Upstart buys loans from originators such as FinWise and Cross River Bank, typically three days after origination, according to Moody’s. Meanwhile Goldman Sachs will fulfill the deal’s risk retention requirement, retaining a 5% vertical interest for the required retention period. Combined, these factors mean that Upstart does not maintain exposure to the credit risk of the transaction’s underlying loans to the same extent as other asset-backed securities programs.
If underlying loans default, the economic drawback for Upstart is a loss of future servicing fees. Loan underperformance is more likely to negatively influence investor confidence, the rating agency said.
In another potential credit drawback, the collateral loans are unsecured in nature. Typically made to highly levered borrowers, and for the purpose of consolidating other debt, they perform more weakly in periods of economic stress than strong credit profiles would otherwise suggest, according to Moody’s.
