T REX Group is working on what could be the first commercial solar power securitization in the U.S.
Chief executive Benjamin Cohen said the deal would be backed by a diverse mix of solar assets that have offtake agreements with investment grade utilities. He did not identify the sponsor or indicate how soon the deal might come to market.
TREX has had “significant” conversations about the asset class with the five major U.S. credit rating agencies, Cohen said at the ABS Vegas conference sponsored by IMN and the Structured Finance Industry Group.
So far there have been only three securitizations in of U.S. solar assets, all of them residential and by SolarCity, between November 2013 and July 2014.
Why has it taken so long for a commercial deal?
Ron Borod, counsel at DLA Piper, said that, unlike residential solar assets, which tend to be geographically concentrated, commercial and industrial assets are dispersed. “What’s needed badly is a warehouse facility” to aggregate loans to solar developers until a critical mass is reached, he said. “I’m working on one proposal involve with a particularly powerful form of credit enhancement.”
The first deal, completed in November 2013, consisted of a single tranche with an average life of seven years; it was rated BBB+’ by Standard & Poor’s and priced at 265 basis points over Treasury curve (62 advance rate); the third one, which priced eight months later, was slightly bigger and had a higher advance rate across two tranches (73 according to Borod); it priced at 180 basis point over Treasurys.
One of the investors in the initial deal sold its holdings in the secondary market, cashing in on the 85 basis points differential. “This speaks to the market’s increased comfort with solar,” Cohen said.
So far the only commercial solar securitization has been in the Canadian market. In November 2014, Utility Northland Power completed a $232 million deal backed by six ground mounted solar projects across Ontario. It was rated BBB+’ by DBRS.