A Comprehensive Update from Upright

We will continue to update this page as we learn more and make progress toward unlocking transactions and investments.

End of Month Update

July 26th - 4:30 PM ET

Dear Investors,
We are pleased to report that Upright has made significant strides since the mid-May disruption. Recent key achievements include:

• Completed Sale of 292 Performing BDNs: These were sold to institutional loan buyers to ensure loan performance remains unaffected by the impact of our banking partner's collapse.
• Investment Dashboard Reconfiguration: We have reconfigured the investment dashboard to include loans sold to a third-party institution with delayed sales proceeds as active. These loans are now found under the Active tab of the dashboard and are included in each investor's "Active Invested" balance.
• Distribution Process Enhancements: We have refined and streamlined our distribution process to ensure timely income and principal payments to investors.
• Third-Party Servicing: All retail loans have been boarded to a third-party servicer to provide borrowers with a uniform experience and streamline servicing and loan sale processes.
• Restoration of Investment Functions: Much of the functionality required to facilitate new investments has been reestablished through trusted vendors. We hope to have additional news on this front in the coming weeks.
  
  

As we approach August, we are committed to an enhanced focus on loan-level investor communications. This includes providing updates on:

• Loans with 8/1 Payment Waived: The number of loans with their monthly payment waived has been reduced from 326 on June 1st to just 39 expected for the August 1st payment.
• Loans Sold with Delayed Sales Proceeds: We have recently begun receiving proceeds from the institutional buyer on a small number of loans and expect this to increase through August.
• Non-Performing Loans: Updates on loans in the process of loss mitigation and foreclosure efforts.
  
  

PFNF Allocation and Status Update

July 19th - 4:30 PM ET

We are committed to providing you with transparent and timely updates regarding the Pre-Funding Note Fund (PFNF). Below, we outline the current status and deployment of PFNF capital.

Summary of PFNF Allocation:

1. As of 5/31/2024, the total balance of notes was $70,254,000.
2. We have distributed two principal amounts totaling $22M ($13M and $9M), reducing the note balance to $48,254,000. This remaining balance is currently allocated between cash and active loan deployment.
3. Current cash and receivables: $16.42M
• Funds held in PFNF bank balance undergoing reconciliation: $2.5M
• Capital returned from loans sold to loan buyer (distribution pending diligence and final settlement): $9.3M
• Receivable - Capital to be returned from loan sale upon completion of diligence: $2.3M
• Receivable - Draws advanced on loans as servicing advances: $2.32M
4. PFNF funds deployed into loans: $31.8M, broken down as follows:
• Performing loans unaffected by banking partner collapse: $4.7M
• Performing Loans awaiting purchase by institutional buyers: $2.5M
• Performing loans affected by the partner collapse but without a pending sale to an institutional buyer and with draws continuing via PFNF servicing advances: $1.1M
• Performing Loans under review for sale or refinance: $4.6M
• Non-performing loans undergoing loss mitigation and disposition: $18.9M

FAQs

Q: Is the cash balance earning interest and if so what is being done with the interest income?
A: Yes, currently cash balances are earning ~4%. This is being captured at the PFNF bank account and included in the amount available for distributions. 

Q: For the performing loans held by PFNF, what is happening with the interest earned from PFNF’s positions on those loans?
A: These cash flows are also being captured at the PFNF bank account and being included in the amount available for distributions. 

Q: How did PFNF end up with non-performing loans?
A: PFNF capital is used to pre-fund a loan prior to it being syndicated on the platform or sold to a whole-loan buyer. For any number of reasons, a loan may either not be fully funded via syndication or be sold. To the extent this happens, PFNF may retain some percentage of the loan which may then become a non-performing loan. In order to manage risk for this possibility, we have been building a loss reserve in PFNF from the positive economics created by this product. As of today, there is a reserve amount of $1.22M, which is cash held in a PFNF titled account in addition to the amount of cash outlined previously. To the extent that there are any principal losses on underlying loans in which PFNF holds a position, this reserve will be drawn down. Said another way, if there is loss of principal on any of the underlying PFNF loans, there is a funded reserve of $1.22M to offset up to this amount of principal loss. 

Q: What does PFNF having non-performing loans mean for my total recovery?
A: To the extent that there is any short pay or principal loss on the underlying mortgages where PFNF retains a position, PFNF and investors would experience a proportionate loss based on PFNF’s percent allocation in the underlying loan and an individual’s pro rata investment in PFNF respectively. As outlined above, there is a funded loss reserve of $1.22M which will absorb up to this amount of principal loss before any PFNF note holder will experience a loss.  

Q: When will the next distribution be made?
A: We intend to make another PFNF distribution prior to the end of the month. As we continue to reconcile inbound payments received from loan sales and payoffs we will continue to make timely distributions. 

Updating the Progress Made on Several Key Initiatives

July 10th, 2024 - 4:00 PM ET

Hello All,
We are pleased to share this week’s progress on our initiatives and thank you for your continued patience and understanding during this period. We acknowledge there are areas we need to improve, and we are actively working on them. The following captures much of what we know needs improvement and our plan to address these issues as well as some explanation for areas of frustration:

Resolution of Distribution Limitations 
We are enacting a solution to address the partial distribution limitations. This will allow all eligible BDN distributions to be processed and enable an RBNF distribution to occur within the next week or so. We understand the frustration that our distribution system’s limitations have had on investors, as it has caused some delayed remittance of payments. We are working diligently to resolve these delays and expect to have it solved by the end of next week.

Continued PFNF Distributions 
We expect to make another meaningful PFNF distribution next week as we wrap up our reconciliation of the funds recovered from the Synapse ecosystem. We will continue to make distributions of principal as PFNF positions are repaid, aligned with our commitment to provide timely distributions and manage your investments effectively.

Affected Retail Loan Resolution
We have successfully found a solution for all but 66 retail loans affected by the payment processor collapse. A large majority of these continue towards sale to a third party institution and are expected to settle in the coming days. Until we can complete this sale or find another permanent solution, for the reasons previously outlined, these 66 loans will continue to have their monthly payments waived. We are dedicated to resolving this issue promptly and ensuring minimal disruption to your investments. We acknowledge that the continuation of waived interest payments on affected loans is a challenge, and we are prioritizing this resolution. We have posted updates to these affected loans to keep you informed.

Transition to Third-Party Servicer 
We have transitioned the servicing of all retail loans to a third-party servicer. This will expedite future loan sales and streamline internal operations and the borrower experience. However, this has and may continue to cause delays in payment and payoff distributions as we assist borrowers in understanding the new payment procedures and await remittance from the servicer. We appreciate your patience during this transition.

Enhanced Project Visibility 
We have implemented a solution to allow visibility into the project/deal detail page when a loan has been sold to a third party. This ensures investors remain informed of progress through post-closing diligence and payoff application details. 

Full Accounting of PFNF Positions 
We plan to share a comprehensive accounting of all outstanding PFNF positions in the next week as reconciliation efforts related to the Synapse/AMG National Trust Bank capital and loan sales conclude.  This will allow us to provide clarity and transparency regarding the status and performance of your investments. From that point, we will keep investors informed as we progress toward liquidity.

Restoring Investments
We have expanded our relationship with an active vendor, Parallel Markets, to assist with all required investor onboarding and monitoring services. This is a key component to allowing new investment. From here, our focus turns toward building robust ledger systems and partnering directly with our bank to allow investment activity to resume.

We will continue to update this page as we learn more and make progress on our initiatives. Thank you for your patience as we work through these changes to improve our platform and services.

The Upright Team

Progress on Upright's Current Initiatives

June 28th, 2024 - 1:00 PM ET

Hello All,

We had another solid week of advancing our core initiatives on our path to restoring normal business operations. Below we’ve outlined relevant updates on progress made over the last week. We provided FAQs relevant to each initiative we’re working through in the respective section for better context. Please refer to last week’s update if you haven’t read that yet for additional context behind the what and why of these. 

Borrower Servicing + Borrower Dependent Note Investments: 
We have provisionally sold 161 of the 253 loans scheduled for sale to the institutional buyer as outlined in last week’s update. We expect the remainder to close at the end of this week or early part of next week. The first group of loans sold have begun the servicing onboarding process, which is an important step to receive the full trade proceeds. 

Q: What does this mean if I was a BDN investor in one of these loans?
A: Your loan will move from “Active” to “Repaid” on your dashboard and your “Active Invested” balance will decrease correspondingly. As outlined last week, we will be holding these funds in a segregated account until the loan clears final due diligence, is onboarded with the servicer and first payment is made. After which, we will be making final distributions on these loans. 

Q: How do I know which of my BDN loans have been sold?
A: For now, you can see this by going to the Repaid tab on your dashboard and sorting on “Repaid Date”. Sold loans will have a “NA” in the Repaid column. If you hover over the “Last Update” date, you will see commentary stating the loan has been sold. If you click on the Total Earned amount for a loan, you can see the payment history for that loan. As we process principal distributions later on, we will update commentary and you will see your return of principal here. We are working on some additional functionality on the platform to help make these loans easier to identify.  Note that not all loans that have been sold are subject to this post-closing review. The update posted to the loan will explain whether the loan was sold with this structure.

Q: When can I expect to receive my principal on these loans?
A: Final distributions will be made after the loan clears DD, is boarded to the servicer and borrower makes their first payment. For some loans, this could be as early as mid-July. For others, the borrower's first payment may not be due until August. We will be processing these as quickly as possible as each underlying loan clears these milestones. While this means your capital will not be earning a return during this period, please refer to last week’s update on why we believe this a prudent tradeoff relative to the alternative. 

Q: What’s the plan for loans that are not being sold?
A: Now that we have the population of affected loans much smaller, we will be restoring normal servicing operations for the majority of the remaining loans that are not being sold. This means we will be using PFNF to advance additional credit needs for loans as these projects continue to progress and perform. These advances from PFNF will be classified as “protective servicing advances” per the terms of the agreements. This means that these funds will be “first out” as the underlying loans repay. We believe this a good compromise to protect PFNF investors while also mitigating any potential incremental risk to BDN holders. We will also continue to market these loans for sale and/or work with borrowers on refinances as may be most appropriate. 

Restoring Platform Functionality
We’ve made good progress on restoring nearly all of the outbound distribution functionality. This week we completed the automation work, which will allow our teams to process outbound distributions much more quickly and efficiently as proceeds are received from underlying loans. We’re also starting to solve for being able to make partial distributions for when there is an investor in an offering that doesn’t have valid payment information. This has been holding up certain distributions, which we now expect to have resolved in the coming weeks.  

Q: I noticed a banner this week on the website that asked me to reverify my bank account information. What was this all about?
A: As we were connecting things to the new automation workflows, we needed to re-verify some accounts. This created some accounts showing up as unverified for a few hours while we were running them through a new automated verification process. We should have disabled the notifications during this transition but overlooked it as part of the rollout. Apologies for any concern or confusion this may have caused. 

Q: I received an email saying my bank account had been verified. What was this all about?
A: Similar to above, when we were connecting things to the new automation workflows, some accounts went from verified, to unverified and then shortly thereafter back to verified. We should have disabled the automatic email notifications, but overlooked this. Again, apologies for any concern or confusion. Please know all is as expected and this was simply an oversight on disabling the communication mechanism for a backend software “job” to enable the automation. 

Pre-Funding Note Fund (PFNF)
We have begun sending pro-rata PFNF principal distributions this week per our plan outlined last week to PFNF investors. The total amount for this first distribution is $13M (18.5042% of total PFNF balance). Pro-rata principal distributions were initiated on June 26th for Series Notes with a May or June maturity date.  We have been subsequently initiating distributions for the remaining Series Notes and will continue this over the coming business days. Payments should be received in your bank account within 1-3 business days thereafter. You can see these payments processing on your Dashboard under Payment Activity. 

Q: How much will I be receiving back for this first distribution?
A: You will be receiving 18.5042% of principal for each Series Note you have. For example, if you have 3 Series notes as follows, here’s what you can expect to receive:
June Maturity, $10,000 Invested = $1,850.42 returned
July Maturity, $5,000 Invested = $925.21 returned
October Maturity, 15,000 Invested = $2,775.64 returned
Total = $5,551.27 (~18.5% of your $30,000 total PFNF investment)

Q: How will this show up on my dashboard?
A: We will be making corresponding adjustments to your Series Note principal balances on your dashboard. So using the example above, your June Maturity series note will go from a $10,000 balance to a $8,149.58 balance, and similarly for any additional PFNF Series Notes. The principal distribution will also be reflected in the Payment Activity tab.

Q: What’s the approximate dollar value of the PFNF funds included in the loans being acquired by the institutional investor?
A: We expect to receive $6.961M from the traded population and an additional $7.113M from loans pending sale, for a total of ~$14M once these loans clear all required DD. These funds will become available for distribution on a similar timeline as the BDN funds. This means the underlying loans must clear final DD, be boarded to the servicer and make their first interest payment. We expect the majority of these funds to become available for distribution in August. 

Q: When can we expect the next PFNF distribution and for how much will it be?
A: We are planning on making 1-2 PFNF distributions per month as liquidity is created via loan sales or payoffs. We are also finalizing the reconciliation of the funds received back from AMG National Trust Bank and the respective PFNF capital will be distributed in the next distribution in July. 

Q: How will liquidity that’s created either via loan sales or payoffs be tied to individual PFNF notes? 
A: Individual Series Notes are not tied to specific underlying loans. All Series Notes are ratably allocated to all current positions in underlying loans via the credit line PFNF has with FTF Lending. Therefore, our plan is to equally distribute liquidity to all PFNF holders on a pro rata basis as it becomes available. 

Q: Is all of my capital invested in PFNF fully supported by the combination of available cash and the face value of underlying loans that are either originated, partially syndicated on the platform, or being sold to Institutional Buyers?
A: Yes, PFNF capital is only used for advancing credit to borrowers secured by underlying mortgages. Any capital not advanced to an underlying loan is kept in a segregated PFNF bank account.  

As outlined in previous updates, the value of the underlying mortgages do carry the risk of loss. To the extent that there is any short pay or principal loss on the underlying mortgages where PFNF retains a position, PFNF and investors would experience a proportionate loss based on PFNF’s percent allocation in the underlying loan and an individual’s pro rata investment in PFNF respectively. 

Thanks,
Matt Rodak (Founder & CEO)

An Update on Upright's Current Initiatives

June 21st, 2024 - 4:00 PM ET

Hello All,

While we are still working to restore full operations of the Company, we have made some good progress on a few key initiatives prioritized when the payment provider shut down. Below I’ve outlined the reasons why we prioritized these items and the progress that has been made over the last week. We provided FAQs relevant to each initiative we’re working through in the respective section for better context. 

Borrower Servicing + Borrower Dependent Note Investments: 
When the payment provider shut down we lost our ability to raise additional capital for loans that may need additional credit advances as the project progresses. Most of these loans pay interest on just outstanding principal. This means we raise additional capital on the platform in a just-in-time manner, augmented by PFNF. Without the ability to raise additional capital as it may be needed via our Borrower Dependent Note offerings (BDNs), we’ve made it a top priority to find an alternative capital source for these loans and their future credit advance needs. The solution we are finalizing is to sell these loans to an institutional buyer. This will allow us to repay BDN holders currently invested in the loan with the buyer being responsible for funding any future credit needs for the project. 

Initially, 326 outstanding loans were affected by this disruption. We have since secured buyers for 253 of these loans at full-par value. We are collaborating with the buyer on their loan-level due diligence and have begun selling groups of these loans as they complete their preliminary reviews. We anticipate finalizing the sale of all affected loans in the coming weeks.

Q: Why is this such a high priority?
A: If borrowers cannot access additional loan proceeds to advance their projects for an extended period, it may create additional risk to the project. They may also become less inclined to continue making monthly interest payments, potentially reducing the mortgage's value and increasing the risk of principal loss. The longer this situation persists, the greater the risk. Restoring these loans to normal servicing operations promptly benefits both the borrowers and you as the lender. Selling these loans to a reputable institutional buyer who can act quickly, we believe, is the most effective solution for all parties involved.

Q: What are the terms of the loan sale?
A: The loan buyer fully appreciates that time is of the essence with this matter. They have agreed to forgo their complete loan level due diligence (DD) process in order to restore full servicing of these loans sooner rather than later. In exchange for this, they will be funding 80% of the loan’s unpaid principal balance (UPB) upon closing and will release the remaining 20% once the loan completes DD, is boarded to their servicer and the borrower makes their first interest payment. We felt this was a fair compromise in order to reduce risk on these loans quickly while immediately receiving 80% of the loan UPB for current investors. (There are 28 loans that had more urgent needs and were therefore closed more quickly with an initial advance of 70%.) 

Q: When will I receive my principal back if one of the loans I invested in is sold?
A: We will be holding all proceeds from these loan sales in a segregated bank account at First Citizens Bank. As loans clear due diligence, are boarded with the servicer, and make their first payment, we will begin sending out distributions to investors in those individual loans. We’ll be working hard to ensure this happens in July, which is when the next interest payment for these loans will be due. 

Q: What happens if one of these loans doesn’t pass DD?
A: There are a couple of possible outcomes:

1. Kickouts: The buyer may choose to pass on certain loans as they complete their DD. If we haven’t yet sold the loan, we will simply remove it from the sale process and everything will remain as it is. If the loan was already sold, we will buy the loan back and it will be as it was before the sale. This is the main reason why we need to hold the initial 80% proceeds until the loan clears the DD process.
2. Credit Reserve: It's possible that upon completing DD the buyer agrees to still purchase a loan but subject to a credit reserve. This means that they will hold some percentage of the loan sale proceeds back in reserve that will be used to offset any losses the loan may experience. If the loan fully performs and repays as expected, the reserve will be released at payoff. If there are any losses on the loan, the buyer will use the funds from the reserve to offset their losses. While this is less ideal than getting the full UPB upfront, this may still be the best option. It allows the loan to return to full servicing and you, as the lender, are in a similar position as you would have been otherwise, receiving your full principal when the loan fully repays. In these circumstances, we expect to disburse the proceeds we receive, less any credit reserve, to investors. We will then make the final distributions upon repayment of the underlying loan.
3. Repricing: Right now the buyer has indicated that they intend to pay full price (called a par bid) on the loans they have selected. It's possible that they need to reprice their bid on some loans from par to something below par as they complete DD. As an example, they may bid a loan at 97% which means if we are selling a $100k loan, they will buy it for $97k. In this example, investors in this loan would effectively take a 3% loss on principal if we choose to sell the loan below par. To the extent they reprice any loans below par, we will analyze and review each loan to determine if this may be the best option. If not, we retain the right to repurchase the loan at the price we sold it and seek an alternative buyer or another path to maximize principal recovery for lenders.

Q: Why wouldn’t these loans pass DD or need either a Credit Reserve or be Repriced?
A: There are many different reasons for this. Some of these loans originated months ago and may be priced such that the buyer needs a lower purchase price to meet their cost of capital requirements. They finance these loans with banks and/or securitizations and each of those counterparties requires different sets of data, documentation, and/or underwriting guidelines. We underwrite loans to our guidelines (as do most lenders), which may not line up one-for-one with this buyer’s guidelines. They are also managing geographic, project type, maturity term, and other portfolio-level metrics. Some loans may get kicked simply as a function of the buyer already having too much exposure in a particular State, for example. Just because a loan doesn’t pass their DD doesn’t necessarily mean it's a bad loan. It likely means there is some aspect or set of aspects that push it outside of this particular buyer’s credit box. Since we started selling loans as part of our normal course of business, we have had loans that fit one buyer's box but not others. There are many considerations made and weighted differently, some of which may result in either a kick-out, credit reserve, or repricing. We’ll handle each on a loan-by-loan basis and make what we think is the best decision for returning the most principal most certainly. 

Q: Will I be paid interest on my funds during this time?
A: The sale price of the loans does include accrued interest through the sale date. To the extent this interest is collected from the borrower, it will be disbursed to you as we make distributions. Your principal will not be accruing interest from the sale date through the time we make the distribution. We realize this is less than ideal but believe selling these loans to this buyer with this structure creates the most certainty around preserving the most value for you. 

Q: How will I know if a loan I invested in has been sold?
A: As loans are sold, we will be posting an update on that individual deal page. You can see this on your dashboard or will receive an email notification based on your notification settings. These loans will also move to a Repaid status. 

Q: I noticed my Active Investment balance went down but I don’t see any pending payments. What’s going on with this?
A: When we sell one of these loans, our system moves it into a new status so we can track it appropriately. Per the above on holding the funds we receive for these loan sales until they clear full DD, there will be a period of time where the loan shows up as “Repaid” on your dashboard before the corresponding Distribution is made. Our system wasn’t built with this use case in mind and are investigating what enhancements we can add to make this easier for you to track. 

Q: What will you be doing with the loans that either don’t have a buyer or are kicked back from this buyer?
A: We will continue to market these loans for sale to other buyers. Now that the population of these loans is more manageable, we will also be considering alternative ways to restore normal operations for certain loans. To the extent neither of the above are viable options we will be working closely with the borrower to accommodate a refinance of their loan if that may be the best path forward.  

Q: Why did you choose this particular buyer?
A: We’ve engaged multiple counterparties over the past few weeks as we’ve been working on optimizing a solution. This particular buyer stood out for the following reasons:
They are reputable in the space, having transacted several billion dollars of loan purchases. 
They offered par bids on a high percentage of the loans we offered for sale. 
They are able to offer loan-by-loan credit reserve adjustments to the extent needed, which we think will give us flexibility as we move through full DD.
They committed to moving quickly and structuring something that is reasonable given time being of the essence. 

Q: Why didn’t/don’t you use PFNF to keep normal servicing operations while you get the platform restored? 
A: As outlined in previous updates, this is something we considered but didn’t think it was a prudent decision given how PFNF is marketed to investors and the uncertainty of when we’d be able to restore full functionality to the platform. We also had a limited amount of PFNF liquidity, so while this may have provided some relief, that capital would have eventually been depleted bringing us back to where we are today. We felt it better to put all of our effort into finding these loans a permanent solution that also optimizes the outcome for BDN and PFNF investors alike. As we get closer to restoring platform functionality and the size of affected loans reduces via these loan sales, we may revisit this as an option. 

Synapse/AMG National Trust Bank Stuck Capital
When the payment provider shut down there was $13.7M of collective Upright capital within their ecosystem that became inaccessible. $8.6M of this was capital that had been raised in various offerings on our platform with the remaining $5.1M of capital held for individual lenders in Upright wallet accounts.  We identified our capital to be deposited with AMG National Trust Bank Bank and began working with them to reconcile balances. The good news is that our records matched theirs to the penny. We were preparing to have the funds disbursed several weeks ago when the trustee overseeing the Synapse Bankruptcy proceeding asked all of the involved banks to pause any outgoing distributions. As of last week, that order to halt distributions was lifted and AMG National Trust Bank proceeded with sending money back out to us and lenders with wallet balances on Monday of this week. Here’s what to know about this.  

Upright Wallets / Accounts: If you had a balance in your Upright Account and an external bank account linked, you should have received a deposit directly into your connected bank account on or around Monday, June 17th for the same amount. In the coming week, we will be making adjustments to your investor dashboard to reflect this payment by zeroing out your wallet balance and showing the transaction in the Transaction Account Activity table. 

Non-Wallet Capital: The vast majority of this capital was into individual BDN offerings. This means that this is capital available to return to PFNF. As we finish reconciling these inbound funds, we will be including this capital in our PFNF distribution plan outlined previously this week to PFNF investors. 

Restoring Platform Functionality
Our first priority as it relates to restoring the technology functionality has been to enable normal operations for making distributions. While we were able to restore a good majority of this functionality relatively quickly, it requires a fair amount of manual effort by our team. The result of this is slower turnaround times for interest and principal payments to be distributed once they are received. 

We are nearly complete with the automation work that will remove most of the manual effort that is presently required of our team. This will allow us to send principal and interest more timely. Here is the latest on each of the offerings as it relates to distribution statuses.

Borrower Dependent Notes: Interest and principal have been distributed on 98% of projects where a distribution is available. The remaining 2% is being worked through and expect to have additional resolutions soon. 

Pre-Funding Note Fund: We finalized our plan to begin making distributions for this product and communications were sent to PFNF investors on June 17th. We plan to start making distributions according to the outlined plan starting the week of June 24th. We decided to wait until next week for two primary reasons. 
We received additional PFNF liquidity via the return of capital from AMG National Trust Bank that we outlined previously. We are reconciling this capital inflow and as a result, should be able to make a larger first distribution next week.
The distributions for PFNF will result in thousands of individual investor payments. We expect to have the automation functionality completed next week which will enable us to initiate these payments much faster and more efficiently.  

Residential Bridge Note Fund: We still have two investors who have yet to provide external account information. We are working to resolve this promptly to continue principal distributions.

Horizon: A more detailed status report was sent to Horizon investors on June 20th. We aren’t currently expecting there to be any payment-related issues that would impact our ability to disburse available capital for the Q2 distribution. 

Upright’s Future
I realize there have been a lot of questions, comments, concerns, and speculation about Upright’s future, and rightfully so. While there remains a fair amount of work to be done, I believe we’ve made a considerable amount of progress in the past five weeks. In my first post, I mentioned that we are committed to finding solutions that are optimal for both borrowers and lenders given the circumstances. I warned that accomplishing this goal would take a bit more time and frankly be a bit more difficult. We could have made some faster, easier decisions but would have likely compromised the outcome for one side or the other. This hard work and these tough decisions were made to ensure we gave ourselves the best chance of returning to the market as both a lender and alternative investment platform. 

It's not lost on me that we will have our work cut out for us to regain your trust, and I respect that. I accept the challenge. There’s no doubt our business now looks different and we’ll have to make some fundamental changes to how we operate and go to market. Some of these changes may very well be overdue.  

For now, we remain committed and focused on resolving the outstanding issues resulting from this event. I’m counting on the outcomes we produce for you being the foundation upon which we rebuild your trust.  We have also started to look ahead and begin planning for how we move forward. The details are still emerging but I am confident there is a viable path forward for us.  I’ll share more in the coming weeks as we refine our plan. 

Thank you for your continued understanding and patience (and for reading this long post). We remain resolved to right the ship.
Thanks,
Matt Rodak (Founder & CEO)

June 14th, 2024 - 4:00 PM ET
The trustee has lifted their freeze on the release of funds held within the banking partner ecosystem. AMG National Trust Bank is the custodian of all Upright Wallet balances and will distribute all funds under their custody in the coming days. This includes the disbursement of all Upright wallet balances for investors who have provided external bank account details, as well as a portion of Pre-Funding Note Fund (PFNF) capital.

For PFNF, we are expediting liquidity efforts and finalizing our principal distribution plans, which will be communicated shortly. Upon receiving capital via AMG National Trust Bank distribution and as liquidity improves, we will continue timely distributions according to the forthcoming plan.

For Residential Bridge Note Fund (RBNF) investors, two investors have yet to provide external account information. We are working to resolve this promptly to continue distributions.

For Horizon Fund investors, the performance of underlying loans remains unaffected by recent disruptions. Expect detailed communication by mid-next week.

Regarding Borrower Dependent Note (BDN) income and principal distributions, 86% have been completed. The remaining 14% are delayed due to the need to address some payment method issues and reconcile transactions from the 1-3 days preceding the banking partner disruption. The latter has caused some inconsistencies and delays in accuracy within your investment dashboards.

We are working through these challenges and appreciate your patience. We look forward to sharing significant updates with you next week.

Thanks,
The Upright Team

An Update to Answer Some of Your Questions

June 12th, 2024 - 4:00 PM ET
As promised last week, below are the latest updates and answers to questions related to our efforts to work through the situation associated with the failure of our payment provider. If you missed last week’s post, please click here, as many of the Questions and Answers below build upon the information shared last week. This remains a fluid situation and we’ll continue to provide updates in as real time as possible. 

Q: Has the company reduced staff size?
A: As mentioned earlier, this event interrupted the free flow of capital, which our business relies on, particularly regarding funding new credit origination. A majority of our revenue is produced via this new credit origination. As a result, our topline has been impacted. We therefore made the difficult decision to size the company accordingly. 

As of this update, we have 43 full-time employees. We prioritized roles in our servicing, asset management, finance, accounting, and technology teams to enable our ability to continue to service the loan portfolio at a high level. We’ve also maintained a core forward origination team to source new credit origination capabilities as we work through restoring the free flow of capital that is so important for our business. 

Q: I’ve heard that the Company was sold or parts of the Company were sold. Is this true?
A: We have not sold the company nor any of the Company’s assets (other than loans which is a normal part of our business). However, once we realized that it was likely we were going to have to downsize the team, we did reach an agreement with another market participant to arrange job offers for several folks we likely would have had to let go of otherwise. Part of this agreement includes a revenue sharing mechanism that this transitioned team produces for some amount of time in the future.  We felt this was a good result for some of our team and the Company as it creates a new and potentially immediate revenue stream that we would not have had should we have just reduced the team size. We intend to continue operating going forward while also recognizing that we’ll have some rebuilding to do. 

Q: Should I expect any amount of principal loss on my PFNF investment?
A: There are two primary assets in the PFNF entity. The first is cash, which is liquid and available to be distributed to investors. As stated in the last update, our intent is to begin making distributions of this cash once we finalize an equitable plan for all PFNF investors. We’re working with counsel to ensure we’re fully considering the terms of the agreements and will be communicating our plan to PFNF investors shortly. 

The second asset is a line of credit to FTF Lending which is used to fund first-position mortgage loans on investment properties. This is an illiquid asset in the sense that the cash has been exchanged for all or a portion of first-position mortgages. As these mortgages provide liquidity either via loan sale, syndication on the platform, or payoff, the illiquid mortgage is converted to liquid cash which is returned to PFNF. As cash is returned to PFNF via repayment of the underlying mortgage, we intend to distribute the cash in a similarly equitable manner we’re working towards as outlined above. 

To the extent that there is any short pay or principal loss on the underlying mortgages where PFNF retains a position, PFNF and investors should expect a proportionate loss based on PFNF’s percent allocation in the underlying loan and an individual’s pro rata investment in PFNF respectively. We are actively working towards creating liquidity in these underlying mortgages while maximizing full principal recovery.

To summarize, the amount of PFNF capital that is not currently held as cash is invested in first-position mortgages that may lose value, in which case PFNF and investors will experience their pro rata share of the loss. 

Q: What is to be done with the income that continues to be generated by PFNF investments deployed into active loans?
A: Interest income is accruing and being collected into the PFNF operating account to the extent the underlying loans are performing. We intend to disburse this income to investors in a similarly equitable manner and per the terms of the agreements that we are working to finalize with counsel as outlined above. 

Q: What is the expected timeline for starting to make distributions on PFNF investments?
A: Our counsel is working on finalizing their review of the documents in the context of this situation. Our goal is to have a fully considered plan for making PFNF distributions this week with distributions beginning next week. More detailed communications will be provided to PFNF investors later this week as we finalize that plan. 

Q: What’s the latest update with the release of funds that were held in Upright accounts/wallets?
A: The Trustee overseeing the Synapse bankruptcy has continued to ask the banks to hold off on making any distributions. We received notice on June 11th from AMG National Trust Bank (the bank where the large majority of our platform funds are being held) that this hold may soon be lifted. We are in contact with the bank to expedite a plan for the return of funds to you as well as impacted Upright accounts that hold PFNF and other entity funds. We are also working with our counsel to draft demand letters to the banks for the release of funds should this hold not be lifted soon.

Q: What should we expect as it relates to the performance of the underlying loans as a result of this event?  
A: As mentioned in the previous update, the disruption caused by this payment provider has had an impact on our ability to serve our borrower customers as well. As a result, we made the decision last week to waive May accrued interest payments for a subset of impacted loans/borrowers as an accommodation while we work towards getting their loans back to normal operations. This means there won’t be an interest payment collected on this subset of loans this month. The reason we believe this is a prudent thing to do for you as the lender is that it helps ensure that these loans stay in good standing, which will increase the probability of recovering the highest percentage of principal either via a loan sale or borrower refinance. While this may be less than ideal for you as an investor in the short term, we hope you consider that this situation is also not ideal for the borrower. We felt this was a reasonable compromise that will help both parties work towards the best possible outcome together.  

We appreciate your patience as we continue toward the best possible outcome for both borrowers and lenders impacted by this event. We’ll continue to post regular updates as they occur and more detailed weekly updates going forward.

Thank you.

June 5th, 2024 - 5:00 PM ET
As most of you are aware, we recently experienced a service outage from a critical vendor that enables money movement across our investment platform. This has had wide-ranging implications for our business that we have been working around the clock to manage and solve. The following is meant to provide you with some clarity as to what we’ve been working on and the “why” behind some of our decisions. 

The team and I are committed to continuing to work every solution we can to get you the best possible outcome. If that’s not enough, know that I personally have $455,000 invested across all of our different products. I’m in this with you and will be doing all I can to preserve your hard-earned capital.  

For most of you, this service disruption has resulted in delayed distributions for both monthly income and return of principal across many of our investment products. We sincerely appreciate your patience as the team has been working to restore functionality so we can continue to process timely distributions as payments are received from borrowers. We have most of the outbound functionality rebuilt and are working on a few remaining system limitations to complete this effort as further explained below. 

What may be less known to you is that this disruption has also created considerable challenges for the origination side of our business, impacting borrower customers. Without the ability to take in new investments on the platform to fund origination demand, we are presently unable to meet these customers’ needs the way we’d like as well. 

Our business model (for better or worse) relies on the free flow of capital that, until a few weeks ago, worked for the better part of 9 years. Our founding thesis was to connect folks who need capital for their real estate projects (borrowers) directly with those who have investable capital but may lack access to this asset class (you, the lender). When this free flow of capital was disrupted by the shuttering of this vendor, it created a series of challenges for both borrowers and lenders that we’ve been working to resolve tirelessly. 

The interdependency between borrowers and lenders that is joined by the free flow of capital creates certain challenges that require thoughtful and considerate decision-making. This unfortunately means longer-time-to-solve challenges. While there may be a good solution for one, this may put the other in a less favorable position. We’re committed to working towards a solution that results in the best possible outcome for both customers that we serve. I’ve provided more details below on some of the considerations we’re making as it relates to this dependency to help you understand how we’re trying to maximize the outcome for everyone. 

I apologize for taking so long to put out this message. I hope you can appreciate that I have been spending every waking moment working on solutions and have prioritized finding a solution over individual or group communication. If you’ve reached out and I or a member of our team hasn’t responded, please know we’re not avoiding you. We’re simply using every bit of time/energy we have to get us all to the best possible outcome. 

The team and I have put together the following FAQs which we hope will provide you with some additional details on what we’re working towards. This remains a fluid situation, so understand that our approach could change as we navigate this with our Board and stakeholders. Please know our entire team is working around the clock on your behalf. We’re committed to continuing to do so until we get this to the best possible outcome. 
- Matt Rodak 

Q: Why did this have such a big impact on the borrower side of your business?
A: We pre-fund new credit requests with our PFNF product. We market this product to you, our lenders, as capital that will go into this new credit for a short period and be returned as each loan is sold or syndicated on the platform. Without the ability to syndicate this new credit on the platform, we decided to stop using PFNF capital until/unless we had a clear ability to have that capital returned timely as intended. This was an incredibly difficult decision to make because we knew it would have an impact on borrowers and the business at large, but we believe it is the correct decision given how we’ve positioned this product to you, our lenders. 

Q: You mentioned finding a solution that works for both borrowers and lenders. What would that look like?
A: Making sure borrowers have access to new credit requests as they need them is of utmost importance for both borrower and lender customers. We also want to make sure that by extending new credit, we don’t create any unreasonable risk to you, our lenders. Our current strategy to accomplish this is to find a new capital source for loans that have or can be expected to have new credit requests. This would allow us to return capital to you while ensuring that borrowers have access to the credit they need going forward. We have been working several different angles on this over the past several weeks and have some solid options emerging. While we believe that this is the best path for both borrowers and lenders, it unfortunately is not a “quick” solution. 

Q: Why have distributions been so slow? I’ve received some of my payments but not all that I would have expected, what’s the holdup? 
A: In any given month we create and distribute roughly 20,000 individual payments for interest, fees, fund income, and principal. Our previous system had all of this automated with controls to ensure everyone received the right amount in the correct account. When the system went down we had to rebuild a good amount of this system in a matter of weeks. In the pursuit of getting to a solution quickly, we decided to deprioritize building a lot of the automation. This means our team is doing a lot of this work manually, which requires an extra layer of quality assurance. We are also missing valid bank accounts for 100 or so lenders, which is impacting ~30% of distributions. If one of these investors is invested in one of your deals, we don’t yet have a good way to process and reconcile a partial distribution. We’re working on getting payment methods from these 100 or so investors (it was over 700 when we started) as well as building in the automation needed to make this process streamlined and controlled.  

Q: Why did you halt all distributions, redemptions, and rollovers of PFNF?
A: As mentioned earlier, PFNF is a critical component of how our business works and how we fund new credit. As a function of losing our syndication capabilities on the platform, PFNF has a portfolio of credit that originated prior to this event. When we originated this credit we intended to syndicate/sell it per normal but are presently unable to do so given the shutdown of this vendor. Our current thinking is that it is in the best interest of all PFNF investors to pause any capital in or out until we have additional clarity on the best path forward for everyone. 

Q: Will my PFNF investment continue to accrue interest while payments are on hold?
A: PFNF earns interest by extending credit to loans originated by FTF Lending. As explained previously, we halted new issuances of credit by PFNF while there is uncertainty related to syndicating/selling this credit per usual. As a result, some amount of the PFNF capital is not earning interest as it would otherwise. As a result, there is less income being generated at PFNF which is what is used to pay monthly interest payments to note holders. We believe it a more prudent business decision to halt new credit origination and reduce corresponding income relative to the alternative of issuing new credit to earn income but create a scenario where that invested capital may not be able to be returned in the timeframe expected for this product. 

Q: What is the amount of PFNF funds being held by your payment processor member bank or banks? Are funds under the custody of a bank specifically titled PFNF?
A: PFNF funds are currently held at two banks. PFNF’s operating account is kept at First Citizens Bank under the PFNF entity. As of this writing the balance of PFNF capital held at First Citizens is $11,969,000. We leverage the bank's “sweep” program to ensure we maximize FDIC coverage for this balance.  The bank used to custody funds while in transit from the investment platform back to our operating account was AMG National Trust Bank. The balance of PFNF funds held there is $7,371,000. The trustee overseeing the Synapse bankruptcy filing has asked the bank to pause any withdrawals related to the case. We have made our demand to release these funds and will continue to monitor and advocate for their release. Our understanding is that these funds are titled/custody at the bank in the appropriate Upright/Fund That Flip entity names. 

Q: Can you provide information regarding the actual subscribed value of outstanding PFNF Series funds?
A: As of this writing, the total amount of all outstanding PFNF notes is $70,254,000. As outlined above, $11,969,000 is currently in accessible cash, $7,371,000 is sitting with AMG National Trust Bank and the remaining balance is distributed into loans through the line of credit between PFNF and FTF Lending. 

Q: Who is the designated Trustee for PFNF and what actions is the Trustee taking to protect investors?
A: Our indenture trust agreement is with Delaware Trust Company. The Trustee gets involved only in circumstances where an event of default has occurred under the indenture. We have begun a dialogue with the legal firm that created these investment documents to help determine whether an event of default has occurred, and if so, will engage with the Trustee accordingly from there. 

Q: If you have so much cash in the PFNF accounts, why aren’t you distributing this back to investors?
A: We intend to begin making distributions of this cash to PFNF noteholders as soon as we have a considerate and thoughtful plan that contemplates all PFNF noteholders in the context of the terms of the Note, Investor Agreement, PPM, and Indenture. We are working expeditiously with counsel to develop this plan and will be proceeding as soon as it has the appropriate sign-off, which may include the Trustee. It remains our mission to do what is right and fair for all parties involved. In this particular circumstance, taking time to fully understand all options and their implications is critical. We also continue to solve the limitations of our current distribution process outlined above.

Q: What is the status of the funds that were in my Upright “wallet”?
A: We have received a report from the payment provider of the ledger balances for all of our affected accounts, and have been informed that the investor wallet balances are being held at AMG National Trust Bank. We have reconciled their holdings with our records and, to our knowledge, believe the data to be accurate. Unfortunately, we began the process of having these funds returned to you when the Trustee involved in the payment provider bankruptcy requested the bank to halt any distributions. We remain in communication with the holding bank and are awaiting the results of their scheduled call with the Trustee tomorrow in addition to the results of a hearing on Friday. 

Q: Why have communications been so slow?
A: We have 1600+ active investors and as you might imagine many of you have questions and want to speak with someone. We’ve been doing our best to get back to everyone in a timely manner while also working towards finding solutions. We’ve prioritized working on solutions so that we can provide more concrete and productive answers to your questions. Going forward, we will continue to do our best to respond individually to specific questions and will be leaning into broader communications like this to ensure everyone is getting the same information in as real-time as possible. 

Q: How will you be communicating with us going forward?
A:  We will be posting real-time updates on this incident report page as progress is made on restoring functionality to the site. I will also be writing a weekly update similar to this with other updates and developments as things continue to progress. We are focusing most of our investor relations resources towards working on solutions and will therefore be somewhat limited in our ability to respond to every individual inquiry in a timeframe that you may have grown accustomed to. We apologize for this in advance but hope you can appreciate that our time is best spent on solutioning things. We’ll be looking to restore this timeliness of response to you as we continue to stabilize things. 

Previous Updates

June 3, 2024 - 9:45 ET
All Horizon Fund Distributions have now been sent, and 70% of all eligible May distributions have been sent. We are continuing to solve for the limitation preventing the remainder of eligible distributions.

Regarding withdrawals from your Upright wallet, despite a reconciliation between the holding bank, AMG National Trust Bank, and Upright that confirmed their holdings matched our recorded balances,  the trustee appointed to Synapse's Chapter 11 bankruptcy has asked that the bank hold off on sending any distributions.  The bank is expecting an update Monday afternoon. As soon as AMG National Trust Bank is cleared to proceed by the trustee, the funds will be sent to the external account on record for each wallet holder. Those that do not have an external account set as their preferred payment method must reach out to our Investor Relations team to switch to their preferred account. 

May 29, 2024 - 9:45 ET
We are continuing to process distributions of principal and interest on your investments. Our current solution is manual, resulting in a slower pace than you're accustomed to. To expedite these distributions, we are prioritizing investments where all investors have provided their preferred external bank account. We will soon begin partial distributions and are actively working to speed up this process overall.

We have received the necessary information from Synapse and its partner banks, and we have accounted for 100% of your wallet funds. You will receive an email shortly confirming your balance. We have informed the banking partner of your preferred external account, and they will initiate the transfer of funds as soon as possible.

Thank you for your continued patience and understanding as we navigate this challenging situation. We will keep you updated as new developments arise.

May 22, 2024 - 10:00 ET
We have received a detailed report of the underlying bank holding the balance within each Upright account/wallet, and the process by which they can be withdrawn to each investor's external account. We are reconciling the total balance against our own ledgers to confirm the data, at which time we will send all account holders the details of their funds, which financial institution is currently holding them, and a confirmation that we have initiated a withdrawal for all account holders that have supplied us with their preferred external account.

May 17, 2024 - 2:15 ET
We have successfully started the distribution process for select users. Those getting distributions should see payments reflected in the Upright platform. We are continuing to work through distributions.

May 15, 2024 - 5:25 ET
We are finalizing the migration of payment information into our trusted ACH provider on the loan origination side for enabling distributions. As this is a new process, we are taking extra steps of diligence to ensure accurate data and distributions. We will update when all distributions have been initiated.

May 14, 2024 - 2:30 ET
We are pleased to confirm that our alternative payment distribution method is passing all quality control checks. We anticipate regular distributions to go out as scheduled on Wednesday, May 15 to any entity with an external bank account set as their payment destination. Our Investor Relations Team is reaching out to any investor who still needs to take action to adjust their default payment destination.

May 13, 2024 - 4:00 PM ET
We are continuing to work towards a solution to get distributions to investors on schedule. To accomplish this within the traditional timeline, we are leveraging an existing partner on the lending side to establish payment flows for investors. If your wallet is set as your default payment method our Investor Relations team will be reaching out to you to confirm your preferred external destination for disbursements.

May 10, 2024 - 5:18 PM ET
In order to ensure investor funds are directed as expected, we have temporarily removed the ability for investors to create an entity or deploy new funds into any offerings.

Synapse Impact on Investor Platform

We wanted to let you know that due to unfortunate circumstances with one of our payment processing partners, Synapse, our ACH processing capabilities are currently down. We expect this may cause delays to distributions and an inability to withdraw funds from Upright Accounts (wallet). Until we have more information and clarity of service level, we have proactively made the decision to temporarily halt any new investments into our offerings.

Our first priority is setting up a way to promptly get distributions directly to our investors as close to or on schedule as expected. Regardless of the status of Synapse, we maintain our own independent record keeping to manage investor funds. In addition, we are working to unlock access to moving account funds off of the platform. 

If your wallet is set as your default payment method we will be following up to confirm a new preferred destination.

In September of last year we became aware of concerns regarding our transaction partner, Synapse. We began a thorough investigation into our partnership and ultimately decided to pursue a redundant relationship with another partner to ensure uninterrupted high-quality service to our investors. Moving to a new partner is a long process of technology integration and compliance work, and even though we have been progressing diligently we are not fully ready to launch with our new partner.

In January we had the first impact to customers when our partner experienced ACH delays. Based on this, we accelerated our efforts. We have signed a contract and are diligently proceeding with technology integration and compliance alignment.

Even as we have explored a new partner, we have been in constant discussions with Synapse and their potential buyer, TabaPay. We remained hopeful for a quick resolution with no impact to our investors; however, we are now hearing that they have not been able to come to terms and are now expecting Synapse’s bankruptcy proceedings will begin to have service impacts. We now expect ramifications to the speed of redemptions and disbursements of investments, as well as limit access to funds in your Upright wallet. 

To clarify, Synapse functions as the transaction partner for Upright wallets and distributions, functioning as an intermediary in transactions, as well as the custodian of investor wallets. Invested dollars, if not currently deployed, are held by a separate bank. Therefore existing investments (and the underlying loans) will not be affected by any disruptions. We will continue to be able to rollover funds and ledger individual earnings and distributions; however, the flow of those distributions may be impacted in the short term.

Upright will continue to manage your funds and work to find both an immediate solution to granting you access to your funds and a long-term solution to the banking needs of our platform. 

It is our priority to earn and keep your confidence. As stated above, be assured that Upright will continue to manage your funds, ledger any and all earnings to our investors, and as possible process and initiate distributions to our valued investors.

Key Takeaways:
- Existing invested dollars are not affected, and earnings will continue to be calculated, ledgered, and assigned to investors.
- We have no reason to believe that your wallet funds are affected. We do anticipate delays in transfers and withdrawals.
- Until we have an alternate pass-through receiver, no new investment funds can be deployed.