While homeowners are increasingly financing the installation of solar panels through loans, Sunnova Energy Corp. of Houston still gives its customers the option of leasing photovoltaic systems or entering into power purchase agreements.
The provider is now tapping the securitization market for the first time. On Monday, it launched an offering of $245.75 million of notes backed by leases and PPAs. Three classes of notes will be issued in the transaction, dubbed Helios Issuer LLC 2017-1.
Sunnova Energy Corp. is structuring three classes of notes through Helios Issuer LLC 2017-1: Kroll Bond Rating Agency expects to assign an A rating to $191.75 million of class A notes and a BBB rating to $18 million of class B notes. A $45 million tranche of class C notes is unrated.
Credit enhancement at launch for the Class A notes includes 15% overcollateralization, 21% subordination, and a $7.1 million liquidity reserve account. Also providing credit support is what Kroll expects to be a “significant” excess cash flow level (not stated in the report), although that level could be reduced in years that minimum performance guarantees force Sunnova to issue refunds to customers.
The notes are backed by $299.6 million in receivables, which include both loans and leases as well as hedged contracts for solar renewable energy credits (SRECs).
The diversified pool of 13,838 leases and PPAs has a discounted collateral balance of $276.1 million. Also being collateralized are $23.5 million in the hedged SRECs. (SRECs certify energy was produced by a solar panel system; the certificates are often sold by homeowners or corporates to local utilities looking to compile credits to meet certain renewable energy production requirements.)
Sunnova, which was formed in 2013, originated and services the agreements. It has a limited portfolio performance history but has had “exceptional” repayment rates, according to Kroll. The portfolio’s delinquency rates are just 0.5% for receivables 60 days past due, and 0.3% for those overdue at least 120 days.
The solar panel installations are in 14 states; over 71% of the systems and 71.4% of the pool balance are for leases and PPAs originated in California, New Jersey and Puerto Rico.
The leases and PPAs are underwritten to prime borrowers, with a weighted average FICO of 737 in the pool. Nearly all have 25-year terms, with most homeowners opting for the “EZ Pay” PPA program (accounting for 44.5% of the pool’s receivables balance). Through EZ Pay, customers purchase solar energy output at a fixed per kilowatt-hour rate, but can average the bills out to equal sums over the course of a year to minimize volatile month-to-month billings.
Sunnova is also well capitalized, with over $1 billion in funding to date. Last month, the company announced it had received $80 million in tax equity funding from U.S. Bank’s community development subsidiary to help fund $200 million in new installations.
Sunnova’s equity investors include Energy Capital Partners, Elk Mountain, FS Investments (sub-advised by GSO Capital Partners) and Brock Capital Group.