ALL THAT ENERGY AND STILL ONLY ONE ISSUER?

The first bonds in the U.S. backed entirely by commercial solar assets could come as early as Q3.

Boutique shop T-Rex is working on two securitizations in this nascent asset class, the first one for $75 million in the third quarter; the second one, for $150 million, has a scheduled launch in Q4, according to Benjamin Cohen, the firm’s CEO.

While the first deal would be all commercial collateral, such as panels on an office building, the second would also include “small utility” assets, each with a capacity of no more than 6 megawatts.

Investors in the deals would get their payments primarily from the power purchase agreements (PPAs) with developers for buying electricity generated by solar panels. PPA customers typically pay a rate based on how much power the panels generate.

Cohen said one of the deals would also include SRECs [solar renewable credits]. An SREC is created when solar electricity is generated in states with a renewable portfolio standard (RPS), which requires electric suppliers to buy a share of their power from solar generators. SRECs are stripped out from the electricity itself and be sold to suppliers that need to meet their requirement. Not only do prices of SRECS fluctuate as they would in any market, they can also differ markedly between states.

The commercial and residential solar business is fragmented, with scores of developers. Industry players have said that aggregating assets into a single deal could help generate more transactions, which have been scant, particularly in light of the enthusiasm surrounding this sector.

Cohen said that the fastest way to achieve scale and consistency in issuance would be to establish facilities to warehouse multi-seller and/or single-seller commercial solar assets. This would allow them “to aggregate critical mass once their assets are post-COD [commercial operation date].”

T-Rex’s transactions would be a mix of investment-grade and sub-investment-grade notes, with the latter in the double-B range. The assets wouldn’t include tax equity — an area that many have argued has slowed down the securitization of these assets in part because investors in the equity wouldn’t take kindly to their potential subordination to others in an asset backed. The tax equity comes from a 30% investment tax credit from investing in solar energy. The credit is now being phased out partially in the commercial side and fully on the residential side

SolarCity is the only issuer to have done public securitization of solar assets in the U.S.

Debuting in late 2013, the developer has bundled both commercial and residential assets in its deals, with the latter taking the lion’s share. SolarCity’s most recent deal — its third — came out in July 2014 for $201.5 million. Residential accounted for 86% of the pool. The deal had ‘BBB+’ and ‘BBB’ –rated tranches from Standard & Poor’s.

The underlying assets were a mix of PPAs and leases, in which customers pay a fixed monthly fee with a guarantee of electricity production.

While the U.S. hasn’t seen a wholly — or even primarily — commercial solar deal, a $232-million project-finance transaction that came out of Canada last year provides a “good” precedent for T-Rex’s transaction, even though it’s not an asset backed, Cohen said.

The deal, issued by a subsidiary of Northland Power in early October 2014, is guaranteed by six operating solar power project sites with a contracted capacity of 10 megawatts each. DBRS rated the bond ‘BBB (high).’ The legal final maturity is June 2032.

In a release, Northland Power said it was the first project bond issued by one of its units that was guaranteed by renewable power. The facilities are located across Ontario.

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