Mosaic Solar Loan Trust returns to ABS market for $208.5 million

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Mosaic Solar Loan Trust 2019-2 is bringing to market $208 million in asset-backed securities that are secured by residential solar consumer loans.

The deal is the seventh from Mosaic Solar Loan Trust, which began issuing ABS in 2017. Solar Mosaic Inc., which originated the loans, is sponsoring the deal and serves as administrator and servicer. (The trust inverts the name of the lender.)

Solar Mosaic, is an Oakland, Calif.-based finance company that lends specializes in residential solar energy systems. It began operating in June 2014 and as a result, it was able to provide data reaching back only up to 59 months. The loans underlying this issuance have 25-year terms, a mismatch that ratings agency Kroll Bond Rating Agency (KBRA) pointed to as a potential risk on the deal.

KBRA noted that performance data shows increased loss levels after the vintages are seasoned beyond an 18-month threshold when customers are expected to apply for the Investment Tax Credit to repay the loan and maintain an interest-rate-of-choice monthly payment.

Mosaic commissioned a credit bureau to conduct a proprietary study of home-related consumer loans and unsecured consumer loans closely resembling residential solar project loans. Mosaic then combined its own performance data with the proxy gross default data, and compared KBRA’s results with consumer loan defaults for other products of similar credit quality.

The deal has other negative rating factors, including solar panel installers or performance guarantors failing to honor their commitments, changing technology, according to KBRA.

While acknowledging the risks, KBRA also noted that this deal has several forms of credit enhancements, including overcollateralization, excess spread and a junior-senior note subordination structure. KBRA also cited an experienced management team at Solar Mosaic.

Following the trust’s priority of payments, Class A and Class B notes will receive principal on a sequential basis until the so-called Trigger Credit Enhancement Percentage builds from a rate of 15.9% at closing to the target level of 19%.

The deal also has a capitalized interest account, which will receive a $600,000 deposit at closing. Every month after that, on the payment date, an amount equal to interest accrued on the remaining balance in the deal’s prefunding account will be withdrawn and deposited to the distribution account as available funds,

Mosaic Solar Loan also has a reserve account that will be funded with one percent of the initial pool balance upon closing. The required amount in the Reserve Account will equal the greater of 1% of the outstanding pool balance, or 0.5% of the Initial Pool Balance.

KBRA gave classes A and B preliminary ratings of "AA-" and "A-," respectively. Classes C and D received preliminary ratings of "BB-" and "B," respectively.

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