DBRS Morningstar Finalizes Provisional Ratings on Upstart Securitization Trust 2022-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes (the Notes) issued by Upstart Securitization Trust 2022-1 (UPST 2022-1):

-- $320,628,000 Class A Notes at A (sf)
-- $55,159,000 Class B Notes at BBB (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 - March 2022 Update, published on March 24, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020. Despite several new or increasing risks including Russian invasion of Ukraine, rising inflation and new COVID-19 variants, the overall outlook for growth and employment in the United States remains relatively positive.

(2) 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 (sf) stress scenarios in accordance with the terms of the UPST 2022-1 transaction documents.

(3) 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.

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

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

(6) 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.

(7) The annual percentage rate (APR) charged on the loans and CRB and FinWise’s status as the true lender.
-- All loans included in UPST 2022-1 are originated by CRB and FinWise, New Jersey 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 FinWise are all within the Utah state usury limit of 36.00%.
-- The weighted-average APR of the loans in the pool is 22.15%.
-- Loans may be in excess of individual state usury laws; however, as the true lenders, CRB 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.

(8) 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 (April 4, 2022), 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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