Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to four classes of notes issued by Upgrade Receivables Trust 2018-1 (UPGR 2018-1). This is a $286.390 million consumer loan ABS transaction that is expected to close October 30, 2018.
This transaction represents the first ABS securitization collateralized by unsecured consumer loans originated through the online marketplace lending platform operated by Upgrade, Inc. (Upgrade) and the first from the Upgrade Receivables Trust (UPGR) shelf. Upgrade Receivables Trust 2018-1 (UPGR 2018-1 or the Issuer) will issue four classes of notes totaling $286.390 million. The proceeds from the sale of the notes will be used to purchase the loans and related rights from Upgrade Receivables Depositor LLC (the Depositor), who purchased the loans from the unaffiliated transferors, to fund the reserve account and to pay transaction expenses. The Depositor will in turn sell the loans to the Issuer.
Established in May 2016, with the first loan originated in April 2017, Upgrade operates an online marketplace lending platform (www.upgrade.com) (the Platform). Upgrade was co-founded by Renaud Laplanche, co-founder and former CEO of LendingClub Corporation, along with former LendingClub employees. The Platform offers fixed rate, fully amortizing unsecured consumer loans with original balances ranging from $1,000-$50,000 and original terms of 3 years and 5 years. These loans are categorized within three segments based on certain credit-grading criteria: Prime Plus, Prime, and Near Prime. The loans on the Platform are originated by WebBank. Generally, the primary purpose of the loan is debt consolidation. Since inception the Platform has facilitated over $1 billion in loans with over 100,000 borrowers served. Upgrade has raised $142 million in total equity by investors including CreditEase, VY Capital, Union Square Ventures and Sands Capital. Upgrades total Stockholders Equity as of August 2018 was $76 million.
The transaction has initial credit enhancement levels of 39.25% for the Class A Notes, 28.60% for the Class B Notes, 19.30% for the Class C Notes and 6.85% for the Class D Notes. Credit enhancement consists of excess spread, overcollateralization, subordination (in the case of the Class A, Class B, and Class C Notes) and a reserve account funded at closing.
KBRA applied its Global Consumer Loan ABS Rating Methodology as part of its analysis of the transactions underlying collateral pool, the proposed capital structure and Upgrades historical gross loss data. KBRA also conducted an operational assessment of the Platform, as well as a review of the transactions legal structure and transaction documents. KBRA will also review the operative agreements and legal opinions for the transaction prior to closing.
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Preliminary Ratings Assigned: Upgrade Receivables Trust 2018-1
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KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
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