Mosaic Solar Loan Trust is preparing a $322.1 million securitization of residential solar loans, and for the first time Mosaic will contain loans whose payments are deferred for up to six months, according to analysts.
The deferral loans represent 7.5% of the portfolio as of the April 30 closing date, and have a remaining deferral window of six months, according to FitchRatings. While that sounds like a scant amount and the assets were originated under more stringent criteria, the industry still has limited default data and other performance history to judge them by.
Overall Fitch finds an almost evenly balanced number of negative and positive factors to the deal, known as Mosaic 2023-3. Solar loans already have strong recovery rates compared to their industry peers, for one, but Fitch expects solar loans' recovery potential to be well above that of unsecured loans. The recovery rate is driven by savings in utility costs, and because the lender can disconnect the system anytime remotely on accounts that are severely behind on payments.
Other strong characteristics include prime obligors, who are homeowners with weighted average (WA) FICO scores of 759, which is slightly higher than WA scores found in the Mosaic 2023-2, Fitch said.
Fitch has set a lifetime default expectation of 8.3% on the notes, as well as a base case recovery rate of 30%. Broken down by rating tiers in the deal, it expects rating default rates of 33.5%, 24.9%, 17.8% and 12.6% on the 'AA', 'A', 'BBB' and 'BB', respectively.
There is one more area of caution, credit wise, which is that the subordinate classes have some built in repayment sensitivity. Mosaic Solar has an overcollateralization trigger that prevents payments to any tranche below class B for the deal's first 16 months. After that, Fitch recognized that repayment to those classes could start in two years. It could also start as late as the deal's second decade, Fitch notes, so that heightens some timeline risk to the junior notes.
Overall, Fitch says the notes benefit from an array of credit enhancement tools, including a reserve fund, yield supplement overcollateralization, and limited excess spread.
Fitch expects to assign ratings of 'AA-' to the class A notes; 'A-' to the class B notes; 'BBB-' to the class C notes and 'BB-' to the class D notes.
