Upstart Holdings (UPST) Sinks as Wedbush Cuts Target After Analyzing Pending Securitization

Shares of Upstart Holdings (NASDAQ: UPST) are down 10% in early trading following cautious comments from Wedbush analyst David Chiaverini, who cut the price target to $15 from $20, after the analyst's takeaways from a new $649 million pending securitization of Upstart loans.

Chiaverini highlighted that Upstart began using a new underwriting model on March 11, 2022 "to account for higher delinquencies and defaults."

Further, KBRA's base case loss expectation of 18.7% in this deal is materially higher than its base case loss expectation of 15.5% in deal that closed on 4/4.

Also, the gross excess spread to residual interest holders contracted 100 bp to 12.8% in this deal from 13.8% in the prior deal owing to a higher coupon rate being paid to senior noteholders.

Lastly, the Kroll didn't provide issuer ratings on the class B and class C notes for this deal, which is a divergence from its regular practice of rating each class of notes. "... we could infer that there may not have been enough credit enhancement to support an investment grade rating on the class B notes," the analyst commented.

Bottom line, Chiaverini notes "most deal metrics indicate the ABS market is getting more difficult... "Our Underperform rating on UPST is based on weakening delinquency/loss trends on recent 2021 vintage securitizations that appear to be deteriorating worse than Kroll's base case scenarios and at a faster pace than its 2018, 2019, and 2020 vintages."

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