A pool of residential solar loans will secure the $210 million issuance of asset-backed notes from the Mosaic Solar Loan Trust, 2023-1.
Mosaic has come to market with term securitizations 14 previous times, but this transaction includes a number of changes. For one, the yield supplement overcollateralization rate is 6.65%, a decrease from 7.70%, according to a pre-sale report from Kroll Bond Rating Agency (KBRA). Also, the effective collateral interest rate has decreased by 1.05 basis points, the rating agency said.
Original loan terms on the underlying collateral are shorter, too. The sponsor company, Solar Mosaic, offers solar loans with tenors of five to 25 years, a decrease of 10 to 30 years under previous loan offerings, according to Fitch Ratings. Some 6,748 loans are in the collateral pool, which has balances ranging from $8,000 to $175,000. Also, the loans have a principal balance of $45,247, according to Fitch. They are fully amortizing and pay a weighted average (WA) fixed coupon of 2.3%, and a maximum fixed coupon of 8.5%, according to the rating agency.
All of the notes are fixed rate and have a legal final maturity of June 2053, according to Fitch.
A number of banks have teamed up as initial note purchasers on the deal, including SG Americas Securities, MUFG Securities Americas, Deutsche Bank Securities and Santander Investment Securities, according to KBRA. The capital structure will issue notes through four classes.
Several mechanisms—overcollateralization for all notes, a reserve fund, a discounting mechanism that provides credit enhancement to the notes, called yield supplement overcollateralization and limited excess spread, according to the rating agencies.
Borrowers exhibit prime characteristics, such as a WA FICO score of 757. But the loans have another important benefit—federal backing. Solar panel systems and batteries currently benefit from the U.S. solar Investment Tax Credit, which was expanded in 2022 through the Inflation Reduction Act. Financing for the solar systems and batteries are typically structured under the assumption that homeowners would claim the tax credit and repay the solar loan for the corresponding amount, according to Fitch Ratings.
Some 29.6% of the portfolio benefits from an ITC rate of 30%, according to Fitch.
Fitch expects to assign 'AA-' to the class A notes; 'A-' to the class B notes; and 'BBB' and 'BB' on the C and D notes, respectively.
For its part, KBRA expects to assign ratings of 'A'; 'BBB-' and 'BB-' to the classes B, C and D notes.
