Upstart Securitization Trust is working to bring a $238 million securitization deal to market, which will be secured by a pool of unsecured consumer loans.
The deal has a quick amortization schedule, as the notes have a final legal 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 unretained interest percentage of the initial pool balance.
In addition, the Notes benefit from an initial overcollateralization protection of 17.5%, as well as a target overcollateralization which represents 17.5% of the non-retained interest percentage with a floor overcollateralization amount of 2.0 % of non-retained interest percentage of the transaction on the initial balance of the pool, says Moody’s.
In addition to the OC, the notes will benefit from a reserve account, excess spread and subordination. Moody’s also views the participation of Wilmington Trust, National Association as a back-up servicer as a positive credit.
Moody’s plans to assign “A3” ratings to the $166.6 million Class A Notes, while the $29.7 million Class B Notes are expected to be assigned “Baa2” ratings. One OC coin is $41.6 million. Class A, B and C Notes represent 70.0%, 12.5% and 17.5% of the unretained block balance, respectively.
Goldman Sachs is the original purchaser of the Notes in the transaction and one of its entities, 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. During this time, Goldman Sachs will fulfill the risk retention requirement of the agreement, retaining a 5% vertical stake for the required retention period. Combined, these factors mean that Upstart does not maintain the credit risk exposure of the loans underlying the transaction to the same extent as other asset-backed securities programs.
If the underlying loans default, the economic disadvantage for Upstart is a loss of future servicing costs. Loan underperformance is more likely to negatively impact investor confidence, the rating agency said.
In another potential credit problem, secured loans are unsecured in nature. Typically aimed at highly indebted borrowers, and for the purpose of consolidating other debt, they perform weaker during times of economic stress than strong credit profiles would otherwise suggest, according to Moody’s.