DBRS Morningstar Finalizes Provisional Ratings on Upstart Securitization Trust 2020-3

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes (the Notes) issued by Upstart Securitization Trust 2020-3 (UPST 2020-3):

-- $190,958,000 Class A Notes at A (sf)
-- $30,648,000 Class B Notes at BBB (low) (sf)

The ratings on the Notes are based on DBRS Morningstar’s review of the following considerations:

(1) The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, and have been regularly updated. The scenarios were last updated on September 10, 2020, and are reflected in DBRS Morningstar’s rating analysis.

(2) The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario remains predicated on a more rapid return of confidence and a steady recovery heading into 2021.
-- DBRS Morningstar's projected losses include the assessment of the impact of the coronavirus. The DBRS Morningstar cumulative net loss assumption is 18.11% based on the expected Cutoff Date pool composition.
-- DBRS Morningstar incorporated in its analysis a hardship deferment stress as a result of an increase in utilization related to the impact of the coronavirus on borrowers. DBRS Morningstar stressed hardship deferments to test liquidity risk early in the life of the transaction’s cash flows.

(3) The transaction’s form and sufficiency of available credit enhancement.
-- Subordination, overcollateralization, amounts held in the Reserve Account, and excess spread create credit enhancement levels that are commensurate with the proposed ratings.
-- Transaction cash flows are sufficient to repay investors under all A (sf) and BBB (low) (sf) stress scenarios in accordance with the terms of the UPST 2020-3 transaction documents.

(4) Structural features of the transaction that require the Notes to enter into full turbo principal amortization if certain triggers are breached or if credit enhancement deteriorates.

(5) The experience, sourcing, and servicing capabilities of Upstart Network, Inc. (Upstart).

(6) The experience, underwriting, and origination capabilities of Cross River Bank (CRB) and FinWise Bank (FinWise).

(7) Wilmington Trust National Association’s (rated AA (low) with a Negative trend by DBRS Morningstar) ability to perform duties as a Backup Servicer and System & Services Technologies, Inc.’s ability to perform duties as a designated subagent.

(8) The annual percentage rate (APR) charged on the loans and CRB and FinWise’s status as the true lender.
-- All loans included in UPST 2020-3 are originated by CRB and FinWise, New Jersey and Utah state-chartered Federal Deposit Insurance Corporation-insured banks, respectively.
-- Loans originated by CRB are within the New Jersey state usury limit of 30.00%.
-- Loans originated by FinWise are all within the Utah state usury limit of 36.00%.
-- The weighted-average APR of the loans in the pool is 19.48%.
-- Loans may exceed individual state usury laws; however, CRB and FinWise as the true lenders are able to export rates that pre-empt state usury rate caps.
-- Loans originated to borrowers in states with active litigation—Second Circuit (New York, Connecticut, and Vermont), Colorado, Maryland, and West Virginia—are either excluded from the pool or limited to the usury cap in each respective state.
-- Under the Loan Sale Agreement, Upstart must repurchase any loan if there is a breach of a representation and warranty that materially and adversely affects the interests of the purchaser.

(9) The legal structure and legal opinions that address the true sale of the personal loans, the nonconsolidation of the trust, that the trust has a valid perfected security interest in the assets, and consistency with the DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Structured Finance Transactions (November 6, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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