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Upstart slashes cost of funds with latest securitization

By Sasha Padbidri
15 Nov 2017

Online consumer lender Upstart achieved new tights on a securitization that was priced on Wednesday, with spreads ratcheting tighter by 35bp-110bp across the capital stack.

Sole lead Goldman Sachspriced the $175m transaction on Wednesday, with the $91.5m ‘A’ notes pricing at 90bp over eurodollar spot forwards, approximately 35bp tighter than the ‘A’ notes on its debut deal in June. The $40.6m ‘B’ notes were priced at 190bp over swaps  35bp tighter than the previous deal  while the $42.8m ‘C’ notes were priced at 365bp over swaps, 110bp tighter than the ‘C’ notes of the June transaction.

According to a presale report from Kroll Bond Rating Agency, 61.75% of the Upstart deal is backed by 60 month loans, compared with 39.91% on its June deal. The portion of 36-month loans declined to 38.25% versus 60.09%, while the weighted average FICO stayed the same at 687. The deal did not include loans from federally declared disaster areas, the presale noted.

The deal performance reflects the ongoing “bullish” investor attitude towards marketplace loan securitizations, driven by favorable market conditions and spread tightening over the last year. JP Morgan stated in a research note last week that new deals are being met with “heavy oversubscription levels even as pricing spreads move inside of initial guidance”.

“Across asset classes, ABS sponsors [are] able to price at about the tightest spreads for their programme in recent years,” wrote the analysts.

Some deal watchers, however, were surprised at how the lender could swiftly push out two transactions within the span of five months.

“I’m surprised they managed to do two deals that quickly given how small they are compared to the other players. What’s really driving liquidity in the market right now are the multi-seller offerings from bigger players, and I think that buyers prefer it when an issuer is able offer a conduit-style transaction,” said an ABS investor, referring to the deal structure adopted by larger players such as Marlette Funding, SoFi, Lending Club and Prosper.

Upstart is the sole new entrant to marketplace loan ABS in 2017. A handful of issuers, including third party loan buyers, brought maiden offerings in 2015 and 2016, though some of them, such as Prospect Capital’s Lending Club offering and BlackRock’s Prosper loan deal, eventually turned out to be one-off securitizations.

Upstart made a push at the SFIG conference in Las Vegas earlier this year to pitch investors on the June offering, which attracted 15 buyers. The company intends to become a programmatic issuer of deals, said CEO Dave Girouard in June.

About 55%-65% of Upstart’s loans are sold to institutions, with 15%-25% retained by Upstart Loan Trust. Between 5% and 10% are sold to fractional retail investors, while up to 10% is retained by Cross River Bank, according to a Kroll presale report. 

A spokesperson for Upstart declined to comment.

By Sasha Padbidri
15 Nov 2017