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09/05/2025 – 01:52 PM
NEW YORK — In a recent analysis, Kroll Bond Rating Agency (KBRA) has assigned preliminary ratings to four classes of notes issued under the Upstart Securitization Trust 2025-3 (UPST 2025-3) structure. This $320 million consumer loan asset-backed security (ABS) is collateralized by a pool of unsecured consumer loans originated through Upstart’s online platform.
The preliminary ratings reflect varying levels of initial credit enhancement. The Class A notes benefit from 56.45% credit enhancement, while Class B notes have 43.50%, Class C notes 33.30%, and Class D notes 20.50%. This credit enhancement is achieved through a combination of overcollateralization, excess spread, a non-declining cash reserve account, and subordination (except for the Class D notes). These mechanisms are designed to protect noteholders from potential losses in the underlying loan portfolio.
UPST 2025-3 marks the 47th ABS securitization backed by unsecured consumer loans originated via the Upstart platform. Upstart operates as a wholly-owned subsidiary of Upstart Holdings, Inc. (NASDAQ: UPST), a publicly traded fintech company. This securitization represents a continued vote of confidence in Upstart’s lending model, allowing them to access capital markets and expand their lending operations.
KBRA’s rating decision was based on its Consumer Loan ABS Global Rating Methodology, coupled with its Global Structured Finance Counterparty Methodology and ESG Global Rating Methodology. The analysis included a thorough review of the portfolio pool data, underlying collateral pool characteristics, and capital structure of the transaction. KBRA also factored in its operational reviews of Upstart and ongoing dialogue with the company’s management regarding performance and risk management practices. Legal documentation and operative agreements will be scrutinized before the deal closes.
KBRA’s analysis likely considered several key factors impacting the performance of consumer loan ABS, including macroeconomic conditions, borrower credit profiles, and the effectiveness of Upstart’s underwriting algorithms. The performance of previous Upstart securitizations would also be a crucial data point in assessing the risk associated with this new offering.
The ratings assigned by KBRA are an important signal to investors regarding the creditworthiness of these notes. Investment grade ratings typically attract a wider range of institutional investors, lowering the cost of capital for Upstart and enabling them to offer potentially more competitive loan rates to consumers. However, any downgrade in the ratings could have the opposite effect, increasing borrowing costs and potentially restricting Upstart’s access to funding.
It’s worth noting that the Fintech lending space has seen significant disruption in recent years, fueled by advancements in data analytics and machine learning. Platforms like Upstart aim to provide faster and more accurate credit assessments compared to traditional lending institutions. The success of these ventures lies in their ability to effectively manage credit risk and maintain consistent loan performance, particularly during periods of economic uncertainty. This securitization provides a glimpse into the performance of Upstart’s loan portfolio and serves as a test for its underwriting models in the current economic climate.
Methodologies and Disclosures
Further information regarding key credit considerations, sensitivity analyses, and ESG factors can be found in the full rating report. Details on the methodologies used in determining the credit rating are available in the Information Disclosure Forms. Information on rating categories can be found, and additional information regarding KBRA policies, methodologies, rating scales and disclosures can be found at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA) is a full-service Credit Rating Agency (CRA) registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. KBRA is also designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission and recognized by various other regulatory bodies.
Source: Kroll Bond Rating Agency, LLC
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