DBRS Morningstar Finalizes Provisional Ratings on Upstart Securitization Trust 2021-5

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes (the Notes) to be issued by Upstart Securitization Trust 2021-5 (UPST 2021-5):

-- $398,562,000 Class A Notes at A (sf)
-- $66,779,000 Class B Notes at BBB (low) (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical 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 the coming months and years.

(2) The assumptions consider the baseline macroeconomic scenario outlined in the commentary. The DBRS Morningstar cumulative net loss assumption is 15.58% based on the 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 are commensurate with the 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 2021-5 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), Customers Bank, and FinWise Bank (FinWise).

(7) Wilmington Trust National Association’s (rated AA (low) with a Stable 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 sub-agent.

(8) The annual percentage rate (APR) charged on the loans and CRB, Customers Bank, and FinWise’s status as the true lender.
-- All loans included in UPST 2021-5 are originated by CRB, Customers Bank, and FinWise, New Jersey, Pennsylvania, and Utah, respectively, state-chartered FDIC-insured banks.
-- Loans originated by CRB are within the New Jersey state usury limit of 30.00%.
-- Loans originated by Customers Bank are all within the Pennsylvania state usury limit of 35.00%.
-- 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 21.48%.
-- Loans may be in excess of individual state usury laws; however, as the true lenders, CRB, Customers Bank, and FinWise 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, 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 are residents of Illinois at the time of origination, have an “all-in” interest rate of less than 36%.
-- Under the Loan Sale Agreement, Upstart is obligated to repurchase any loan if there is (i) a loan that was not an Eligible Loan as of the Cutoff Date or (ii) a breach of any of the Seller’s representations and warranties related to the loans deemed to be made by the Seller to and for the benefit of the Purchaser pursuant to the terms of the Loan Sale Agreement, which such breach goes uncured for a period of 10 business days.

(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 (October 20, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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