DBRS Morningstar Finalizes Provisional Rating on Upstart Pass-Through Trust, Series 2021-ST1

DBRS, Inc. (DBRS Morningstar) finalized its provisional rating on the following class of notes (the Notes) issued by Upstart Pass-Through Trust, Series 2021-ST1 (UPSPT 2021-ST1):

-- $84,707,000 Series 2021-ST1 Notes at BBB (low) (sf)

The rating on the Notes is based on DBRS Morningstar’s review of the following considerations:

(1) The transaction’s 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: December Update,” published on December 2, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which have been regularly updated. The scenarios were last updated on December 2, 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 factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.
-- DBRS Morningstar's projected losses include the assessment of the coronavirus’ impact. The DBRS Morningstar cumulative net loss assumption is 22.31% based on the expected Series Cut-Off Date pool composition.
-- DBRS Morningstar incorporated a hardship deferment stress into its analysis as a result of an increase in utilization related to the impact of the coronavirus pandemic 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.
-- Overcollateralization, amounts held in the Reserve Fund, and excess spread create credit enhancement levels that are commensurate with the rating.
-- Transaction cash flows are sufficient to repay investors under all BBB (low) (sf) stress scenarios in accordance with the terms of the UPSPT 2021-ST1 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) System & Services Technologies, Inc.’s ability to perform duties as a Backup Servicer.

(8) The annual percentage rate charged on the loans and CRB’s and FinWise’s status as the true lenders.
-- All loans included in UPSPT 2021-ST1 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%.
-- Loans may exceed individual state usury laws; however, CRB and FinWise as the true lenders are able to export rates that preempt state usury rate caps.
-- Loans originated to borrowers in states with active litigation—Second Circuit (New York, Connecticut, 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 the consistency with 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, 2020), 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.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277