DBRS Morningstar Finalizes Provisional Rating on Upstart Pass-Through Trust, Series 2021-ST8

DBRS, Inc. (DBRS Morningstar) finalized its provisional rating on the following class of notes (the Notes) issued by Upstart Pass-Through Trust, Series 2021-ST8 (UPSPT 2021-ST8):

-- $80,398,000 Series 2021-ST8 Notes at BBB (low) (sf)

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

(1) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios For Rated Sovereigns, published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that, although COVID-19 remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks, but remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to COVID-19 may nonetheless bring other risks to the forefront in coming months and years.

(2) The assumptions consider the baseline macroeconomic scenario outlined in the commentary. The DBRS Morningstar cumulative net loss assumption is 18.63% based on the Series Cutoff 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 a credit enhancement level that is 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-ST8 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 and FinWise’s status as the true lenders.
-- All loans included in UPSPT 2021-ST8 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 recent litigation or administrative proceedings (Second Circuit (New York, Connecticut, and Vermont), Maryland, District of Columbia, and West Virginia) are either excluded from the pool or limited to the usury cap in each respective state.
-- Loans originated to borrowers in Colorado are in compliance with the Assurance of Discontinuance (AOD)'s safe harbor terms and Applicable Law.
-- Loans originated to borrowers who were residents of Illinois at the time of origination, have an “all-in” interest rate of less than 36%.
-- Under the Representation and Indemnity Agreement, Upstart must repurchase any loan if (i) any loan was created as a result of identity theft or identity fraud or (ii) any representation made by Upstart under such agreement with respect to a loan was untrue as of such loan’s purchase date.

(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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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.

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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