Here’s an unusual play on solar power.

Hannon Armstrong Sustainable Infrastructure Capital, a publicly traded firm that provides debt and equity financing to the energy efficiency and renewable energy markets, is securitizing the ground leases on utility scale solar and wind projects.

To date, solar securitizations, at least the publicly rated ones, have been backed primarily by leases and power purchase agreements between a solar company and the homeowners using its solar panels.

According to Kroll Bond Rating Agency, ground lease payments could be even safer collateral, because they are considered to be an operating expense of a solar or wind project that is typically paid prior to the senior debt.

The initial collateral pool is comprised of the contractual right to scheduled and variable payments on 80 ground leases for utility scale solar and wind projects. The projects were either originated by the company or by American Wind Capital Co., which it acquired in May 2014.

The trust will issue approximately $111.9 million class A bonds and approximately $14.0 million class B bonds.

Hannon Armstrong Capital will service the portfolio of ground leases; The Bank of New York Mellon is the backup servicer.

The weighted average (“WA”) original tenor of each lease agreement pledged to the securitization is approximately 29 years and the WA remaining term is approximately 24.8 years. Solar projects represent 71.6% of the portfolio and wind projects comprise 28.4 %.

KBRA believes it is unlikely that a project’s ground lease would have uncured payment defaults due to the significant expenses required for the relocation of a project, obtaining new permits and interconnection agreements along with the significant public policy implications of allowing disruptions of power generation to consumers. KBRA also believes there are significant incentives in place for a project lender to ensure there are no interruptions of project cash flows that may occur upon a default of a ground lease.

The portfolio is comprised of lease payments due on 80 ground leases, 27 of which (approximately 33.8% by number) are located in California, equating to approximately 73.6% of the portfolio asset value. This risk is mitigated by the strong, experienced project sponsors and the creditworthiness of the off-takers.

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