Dividend Finance has gone to some lengths to earn an AA rating from Kroll Bond Rating Agency on its second solar loan securitization.
The new, $104 million deal is structured to reduce the risk to holders of a relatively small tranche of senior notes, which account for just 28% of the capital stack. Holders of Class A notes get paid before holders of the Class B, C, and D notes, resulting in 72% subordination. Add in 5% initial overcollateralization and a reserve account equal to 1% of the collateral balance, and total credit support adds up to a whopping 78%.
Credit Suisse Securities is the sole structuring advisor and sole lead bookrunner.
By comparison, the senior tranche of Dividend’s initial securitization, completed in October 2017, benefited from just 16% credit enhancement and was rated a notch lower, at A.
Likewise, Mosaic, another firm that finances installation of solar panel systems, has achieved an A rating on all three of its securitizations to date.
The credit quality of the collateral for Dividend’s latest deal appears to be broadly similar to that of Mosaic: The weighted average current balance is $27,368 (Mosaic’s ranged from $26,994 to and $28,168) and the weighted average FICO score is 747 ( vs 738-746) and the weighted average seasoning is four months (vs. five-six). However, Dividend’s borrowers have longer-term loans, a weighted average 240 months (vs. 205-222) and have a higher weighted average coupon of 6.09% (vs. 4.35% to 4.53%).
So the primary reason for the higher rating on Dividend’s new deal would appear to be the added credit enhancement, not the collateral quality.
Another possible consideration is the fact that, Dividend, which is controlled by private equity firm LLCP I Fig Tree AIV and has yet to turn a profit, outsourced servicing of loans and collections to Turnstile Capital Management, a subsidiary of Goal Structured Solutions, in March. Kroll does not cite this as either a positive or negative in its presale report, however.
