After issuing the first solar securitization in November of 2013, SolarCity is now prepping the market’s second deal, according to a presale report by Standard & Poor’s.
The upcoming transaction is currently sized at $70.2 million and — as with the debut transaction — is rated three notches into investment-grade territory: BBB+.’
The collateral backing the deal consists of a portfolio of solar assets that will produce an income stream. These include customer agreements, solar equipments, permits, manufacturer’s warranties, and cash flow associated with the ownership of these assets.
SolarCity sells renewable energy to customers that generally either sign a lease or a power purchase agreement (PPA) with the firm. “Lease customers pay a fixed monthly fee with an electricity production guarantee, and PPA customers pay a rate based on how much the electricity the solar energy system actually produces,” S&P said.
The sole bookrunner for the securitization is Credit Suisse Securities.
S&P said the BBB+’ rating is based on the deal’s credit enhancement — namely, overcollateralization — as well as on the manager’s expertise and the credit strength of the underlying customer base.
The agency reiterated that a low investment-grade rating will be a ceiling for solar deals into the near future due to the sector’s limited track record.
Among the strengths of the transaction is “the relatively low leverage of the initial outstanding notes balance compared with the aggregate discounted solar asset balance,” S&P said.
Averaging a year old, the solar assets are also relatively green, which translates into a fairly long life from the time the securitization is launched.
But the deal has a number of uncertainties. Among them are the competitive position of SolarCity within the industry and potential for legislative change that could hurt the industry’s economic incentives.