Upstart Network is sponsoring a deal to issue $435.4 million in asset-backed securities, which would be secured by a pool of loans packaged loans from several third party lenders.
Goldman Sachs is sponsoring the Upstart Securitization Trust (“UPST”) ABS program, which is the platform for this transaction, UPST 2022-1, according to a pre-sale report from Kroll Bond Rating Agency. The current transaction is the sixteenth from the UPST program.
The deal’s capital structure will issue the notes through three classes, and repay noteholders sequentially, where the senior notes will receive principal payments before the more junior notes, KBRA said.
As for credit enhancement, UPST makes use of overcollateralization (OC), a cash reserve account, excess spread and an amortization trigger. Initially, OC is 9% of the non-retained interest amount, and the trust will maintain the amount as a percentage of the outstanding pool for following collection periods, KBRA said. A non-declining cash reserve account amounting to 0.5% of the cutoff loan balance will be put in place at closing, and excess spread is available at approximately 13.8%.
KBRA also noted that the transaction has an amortization trigger. If breached, all remaining available funds—after applying fees, interest and replenishing the reserve account—will be applied to the principal distribution allocation.
KBRA acknowledged several potentially negative credit considerations. One factor is uncertainty surrounding the degree to which consumers can maintain positive credit performance going ahead. This is a concern considering that the borrower relief programs that helped consumers meet debt obligations and maintain good credit is slated to end in 2022. Those programs also contributed to consumers’ higher personal savings rates.
UPST 2022-1 is one of the smallest transactions yet from the platform, with a pool balance of $503 million at its cutoff date, compared with recent balances of $603 million on the UPST 2021-5, and $556 million on the 2021-2 deals.
Some 65,724 loans underpin the collateral pool, KBRA said. The pool has an average pool balance of $7,664.
On a weighted average (WA) basis, the collateral has a coupon of 18.7%, a FICO score of 654 and original term of 56 months.
In terms of geographic diversity, California has the highest concentration in the pool, representing 13.1% of the balance, followed by Texas and New York with 11.2% and 6.4%, respectively.
