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March 30, 2020
Dave Girouard
Chief Executive Officer
Upstart Holdings, Inc.
2950 S. Delaware Street, Suite 300
San Mateo, CA 94403
Re: Upstart Holdings, Inc.
Draft Registration Statement on Form S-1
Submitted March 4, 2020
CIK No. 0001647639
Dear Mr. Girouard:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1
Prospectus Summary
Overview, page 1
1. Please revise your discussion of revenue on page 2 to clarify that
referral fees are charged
to banks when loans are originated and not when consumers apply for a
loan.
2. We note your disclosure on page 1 that "[s]ince inception, [y]our bank
partners have
originated almost 450,000 personal loans that have generated more than
5.5 million
repayment events." Please provide quantitative disclosure regarding the
number of
deliquency events and loan defaults, if such amount is material.
Similarly, we note your
disclosure on page 2 that none of your loan servicing fees are
contingent on credit
performance. Please balance this disclosure by clarifying that, although
you charge loan
Dave Girouard
FirstName LastNameDave Girouard
Upstart Holdings, Inc.
Comapany2020
March 30, NameUpstart Holdings, Inc.
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holders a fixed percentage servicing fee based on the outstanding
balance of the loans
serviced, if you subcontract the collection of the loan to a loan
collection agency, which
you disclose that you do for all loans more than 30 days past due, the
costs incurred could
exceed the servicing fee charged. In addition, clarify here that if
you are unable to collect
the amount owed, it could lead to a charge-off of the debt, which
could decrease the fees
payable to you. In this regard, we note your disclosure on pages 34
and 35.
3. Please disclose the number of "bank partners" here, and provide a
brief summary of the
material terms of your agreements with your bank partners, including
the duration of the
agreements and whether your bank partners have an obligation to issue
a certain
amount of loans via your platform or AI services. Also, revise
elsewhere in your
prospectus, such as in your business section, to describe in greater
detail the material
terms and conditions of these agreements, including the material
obligations of the parties,
the duration of the agreements and the termination provisions. In
addition, please describe
your "network of institutional investors" here and in your business
section, including any
agreements you have with such investors.
4. Please disclose here quantitative information regarding the portion of
loans originated by
Cross River Bank on your platform in 2019 and the percentage of
revenues that you
received from Cross River Bank in 2019.
5. We note your disclosure in the prospectus summary stating that your AI
lending platform
expands access to affordable credit. Please disclose the type of
credit your platform
currently offers by disclosing here that your platform offers
unsecured personal loans
ranging from $1,000 to $50,000 in size and at APRs typically ranging
from approximately
6.5% to 35.99%.
6. In the fourth full paragraph on page 2, please clarify that in
addition to loans being
retained by the issuing banks or purchased by you for immediate resale
to institutional
investors, you may purchase and hold loans. Please provide
quantitative disclosure here
for the aggregate percentage or dollar value of loans in each of these
three categories.
7. We note your disclosure on page 2 that, for pools of securitized
loans, your realized loss
rates were approximately half of those predicted by Kroll. Please
provide quantitative
disclosure regarding the realized loss rate.
8. Please describe in the summary the roles of your warehouse trust
special purpose entities
and your warehouse credit facilities, including outstanding balance
information.
Our Ecosystem, page 6
9. We note your disclosure on page 7 regarding the Net Promoter Scores
for your bank
partners' lending programs. Please disclose whether the 80 rate is the
average of all your
bank partners, and clarify, if true, that the scores of the published
benchmarks of
other banks may not be comparable to the Net Promoter Scores you
disclose because the
other banks did not use the same rating system that your bank partners
used. In this
Dave Girouard
FirstName LastNameDave Girouard
Upstart Holdings, Inc.
Comapany2020
March 30, NameUpstart Holdings, Inc.
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regard, we note that you "used a third-party service to administer
surveys to loan
applicants immediately following an applicant's acceptance of a loan
on Upstart's
platform." Also, please describe how you determined "the hypothetical
loss rates and
approval rates of your funded borrower base to determine that your
model could enable
banks to lower loss rates by almost 75%."
Value Proposition to Consumers, page 6
10. We note your disclosure that in the fourth quarter of 2019,
approximately 70% of Upstart-
powered loans were instantly approved with no document upload or phone
call required,
an increase from 0% in late 2016. Please revise to explain the
underlying reasons for the
increase.
Our Competitive Strengths, page 7
11. We note your disclosure on page 8 that, in September 2017, you
received a no-action
letter from CFPB. Please explain the significance of the letter in the
context of your
offering. In doing so, please briefly summarize the issue you raised
in your letter to CFPB
and the issue that CFPB stated that it would not recommend for
supervisory or
enforcement action as well as the date the no-action letter will
expire. In addition, please
balance this disclosure by disclosing here that in February 2020, you
received a letter from
members of the U.S. Senate asking questions in connection with claims
of discriminatory
lending made by an advocacy group.
Risk Factors
Risks Related to Our Business and Industry
In connection with our loan funding programs, we make representations, page 35
12. We note your disclosure that, in connection with your loan funding
program, you may be
required to repurchase the underlying loans if your representations
and warranties were
not accurate when made and that "[s]uch repurchases could be limited
in scope, relating to
small pools of loans, or significant in scope, across multiple pools
of loans." Please revise
to disclose quantitative information regarding these potential
repurchases so that investors
understand the scale of the risk disclosed in this risk factor.
We are exposed to geographic concentration risk, page 38
13. We note your disclosure that "the geographic concentration of loans
originated by
[y]our bank partners through [y]our platform may expose [you] to an
increased risk of loss
due to risks associated with certain regions." Please identify these
regions.
Selected Consolidated Financial and Other Data
Contribution Profit, page 85
14. We note your disclosure quantifying borrower acquisition costs as well
as borrower
verification and servicing costs. Please enhance your disclosure to
describe the
Dave Girouard
FirstName LastNameDave Girouard
Upstart Holdings, Inc.
Comapany2020
March 30, NameUpstart Holdings, Inc.
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underlying reasons for the increase in these costs and discuss any
trends. In addition, for
each period presented, please revise to disclose your average borrower
acquisition cost per
loan along with a discussion and analysis of trends.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview, page 86
15. We note your discussion of "higher approval rates" throughout the
filing. Please revise to
disclose the approval rate for your unsecured personal loans for each
period presented.
Provide accompanying disclosure explaining the underlying reasons for
any significant
fluctuations or trends.
16. Please expand your disclosure describing your unsecured personal loans
to include the
terms (maturities) of these loans as well as the typical payment terms
and conditions. In
addition, please disclose the weighted average term, weighted average
APR, weighted
average referral and platform fee received per loan and contribution
margin per loan. In
connection with these disclosures, please also provide appropriate
discussion and analysis
of any significant changes or trends.
17. We note your disclosure on page 87 of the percentage of loans in the
fourth quarter of
2019 retained by your bank partners, the percentage purchased by
institutional investors
through your loan funding programs and the percentage funded through
your balance
sheet. Please revise to disclose this information in a tabular format
for each period
presented and discuss any trends.
Our Economic Model, page 87
18. Please revise your disclosure to clarify, if true, that you do not
charge borrowers any
transaction fees for the loan matching services through the platform.
Components of Results of Operations
Platform and Referral Fees, Net, page 91
19. We note your disclosure on page 90 that referral fees are charged on a
per borrower basis
upon origination of a loan, net of any fees charged by the originating
bank back to Upstart
for services provided related to the origination process. We also note
your disclosure on
page F-20 that the Company pays fees on the loans that it buys to
compensate the bank
partners for originating the loans and that these fees are included as
a reduction to
platform and referral fees. Please revise your disclosure to quantify
and describe the
different fees charged by the originating banks back to Upstart that
are included in referral
fees, net. In addition, please clarify whether both disclosures noted
above are referring to
the same costs.
Liquidity and Capital Resources, page 99
20. We note your disclosure on page 24 regarding the risk that worse than
expected
Dave Girouard
Upstart Holdings, Inc.
March 30, 2020
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performance of certain pools of loans underpinning your asset-backed
securitizations or
other debt facilities could reduce or terminate your access to funding
from institutional
investors. Please revise to provide quantitative information to allow
an investor in your
offering to understand the performance of the loans underlying your
funding programs.
Business, page 111
21. Please revise your business section to disclose the material terms of
your agreements with
Cross River Bank and Credit Karma.
22. We note your disclosure regarding your variable interest entities.
Please provide detailed
disclosure describing your agreements with such entities so that
investors understand your
obligations to such entities and the risks associated with such
entities. In addition, please
file the agreements with such entities as exhibits to your
registration statement or tell us
why you believe this is not necessary.
Consumer Marketing, page 123
23. Please revise to quantify, in tabular format, the source of consumers
for each period
presented and discuss any trends.
24. Please revise to disclose, in tabular format, the percentage of
consumers derived from
Credit Karma and any other individually significant source for each
period presented and
discuss any trends.
Institutional Investors, page 124
25. Please revise to quantify, in tabular format, the source of
significant amounts of volume to
your funding programs for each period presented and discuss and
trends.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Loss, page F-5
26. Please revise your income statement presentation to present interest
income, interest
expense and net fair value adjustments separately on the face of the
income statement.
Notes to Consolidated Financial Statements
Note 1. Description of Business and Signficant Accounting Policies
Noncontrolling Interests, page F-10
27. We note $4.6 million of net losses were attributed to non-controlling
interests in 2019.
FirstName LastNameDave Girouard
Please revise to disclose the attribution of income or loss to each
specific VIE that has a
Comapany NameUpstart Holdings, Inc. an investor to more clearly understand the
entities and
non-controlling interest to allow
March activities Pagehave resulted in the losses.
30, 2020 that 5
FirstName LastName
Dave Girouard
FirstName LastNameDave Girouard
Upstart Holdings, Inc.
Comapany2020
March 30, NameUpstart Holdings, Inc.
Page 6
March 30, 2020 Page 6
FirstName LastName
Net Loss Per Share Attributable to Common Stockholders of Upstart Holdings,
Inc.
Stockholders, page F-16
28. We note you use the two-class method to compute net loss per common
share when shares
are issued that meet the definition of participating securities.
Please revise the notes to
your audited financial statements to include the information required
in ASC 260-10-50-1,
as applicable. Alternatively, tell us why these disclosures are not
required.
Recently Issued Accounting Pronouncments, page F-19
29. Please revise to clearly disclose the date you plan to adopt each
recently issued or revised
accounting standard.
Note 2. Revenue
Interest Income and Fair Value Adjustments, Net, page F-22
30. Please revise to separately disclose the amount of interest income and
fair value
adjustments, net that related to consolidated securitization trusts
for each period presented.
Note 3. Securitizations and Variable Interest Entities, page F-23
31. We note your disclosure that 2017-1 and 2017-2 were deconsolidated in
December 2019
due to the expiration of the risk retention requirements. Please
revise to disclose the
specific risk retention requirements that expired. Additionally,
please revise MD&A to
include information regarding the potential for similar
reconsideration events that could
lead to the deconsolidation of entities in the future.
32. We note your disclosure on page F-25 that the fractional loan program
was formally
discontinued in 2019 leading to the deconsolidation of the Upstart
Network Trust. Please
tell us in detail and revise your disclosure to include an enhanced
discussion explaining
how this event resulted in the company no longer expecting to absorb
more than an
insignificant amount of UNTs expected losses or returns and the
ultimate deconsolidation
of the Trust. Please tell us the specific authoritative literature to
support your conclusions.
33. We note your disclosure on page F-24 that for securitization
transactions 2017-1, 2017-2
and 2018-1 the Company determined that it was the primary beneficiary
of these entities
and consolidated the MOAs and associated trusts. We also note your
disclosure that for
securitizations 2018-2, 2019-1 and 2019-2, while the company
determined it was the
primary beneficiary, and consolidated the MOAs associated with these
securitizations,
they determined they were not the primary beneficiary of the
associated trust that holds
the loans and therefore did not consolidate it. Please tell us in
detail and revise your
disclosure to explain the key differences in these securitization
structures that resulted in
different consolidation conclusions with respect to the trust that
holds the loans. Please
tell us the specific authoritative literature to support your
conclusions.
34. Please revise to your table on page F-25 presenting financial assets
and liabilities
Dave Girouard
Upstart Holdings, Inc.
March 30, 2020
Page 7
associated with consolidated VIEs to present the assets and
liabilities related to MOAs
separately from the assets and liabilities related to trusts which
hold the loans associated
with the securitization transactions.
Note 5. Loans at Fair Value, page F-39
35. We note your disclosure that loans that have reached a delinquency of
over 120 days are
charged-off and assigned a non-accrual status. Please revise to
separately disclose your
non-accrual and charge-off policies and to clarify whether 120 days is
a trigger for the
loan to be placed on non-accrual status or charged-off.
You may contact Ben Phippen at 202-551-3697 or Michael Volley at
202-551-3437 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Sonia Bednarowski at 202-551-3666 or Dietrich King at 202-551-8071 with
any other
questions.
FirstName LastNameDave Girouard Sincerely,
Comapany NameUpstart Holdings, Inc.
Division of
Corporation Finance
March 30, 2020 Page 7 Office of
Finance
FirstName LastName