SolarCity has returned with a new solar-panel financing securitization after nearly a year’s absence from the asset-backed market.
The transaction is also its first featuring a collateral pool of direct loans for consumers to purchase solar-panel installations since a December 2015 transaction. SolarCity's predominant ABS collateral has been the pooling of solar leases and power-purchase agreements.
SolarCity FTE Series 2 2017-A is a $145 million issue consisting of three classes of bonds backed by more than 9,600 “MyPower” loans originated by SolarCity Finance Co. since the loan program was launched last year. The loan program allows SolarCity customers to purchase, rather than just lease, their panel installations as well as gain the 30% federal investment tax benefit for their purchase.
SolarCity's first FTE securitization was a $151.5 million solar-loan backed series in December 2015.
SolarCity’s other securitizations, all since 2014, collateralized only the leasing and power-purchase agreements.
The deal structure includes a $123 million tranche of Class A notes that received a preliminary ‘A-’ structured finance rating from bond rating agency KBRA, in a report released Monday; $8.75 million Class B notes rated ‘BBB’; and $13.25 million Class C notes rated ‘BB+’.
The notes are supported by the pooling of the 30-year loans with $191.6 million in aggregate discounted balances (from a current loans balance of $239.8 million).
The weighted average weighted average FICO score of customers is 728; the average remaining term of the loans is 352 months. The loans are distributed across 14 states, with 86% in California, Colorado and Arizona. At closing, the overcollaterization is set at 24.3%, including 11.5% subordination for the Class A notes and a liquidity reserve account of $3.8 million.
The transaction is the first for SolarCity since a $57.45 million securitization of solar lease- and power-purchase agreements in February 2016 – the only asset-backed performed by SolarCity in 2016 as it scaled back expansion plans and sought to improve its cash flow. That deal was closed despite actions in three states – California, Nevada and Hawaii – that sharply limited the amount of reimbursement payments consumers receive for selling excess power into the public grid, a practice known as net metering.
Ratings agencies raised concerns the lower reimbursement payments could impact a customer’s ability, or willingness, to continue payments on a solar-panel lease.
The ratings in the new deal are slightly higher from the ratings assigned to SolarCity LMC Series V’s pooling of leases and power purchase agreements (an initial ‘BBB’ from Standard & Poor’s and ‘BBB+’ from Kroll for the senior notes ).
The deal is also its initial offering following last fall’s announced merger with Tesla Motors that formally brought billionaire Elon Musk on to its board of directors as chairman.
The controversial $2.6 billion Tesla-SolarCity merger was described as a “head scratcher” by MIT Technology Review when first proposed in June, as both companies were bleeding cash at the time of the announcement. Little has changed in that regard for SolarCity, which reported a lighter-than-expected loss of $225.3 million. But the firm reported a 76% increase in year-over-year quarterly revenue to $201 million, as it implemented in new loan financing and cash sales programs.
In SolarCity’s new securitization, California residents represent 66.7% of the contracts and 63.8% of obligors on the underlying PV systems.
Defaults are low in SolarCity’s underwriting practice: its portfolio performance of existing deals has been “exceptional,” in KBRA’s view, with delinquencies on leases of more than 60 days only at 0.67%, and just 0.52% for payments 120 days late.
As of Sept. 30, SolarCity had contracts with 300,000 customers to provide solar-panel systems or services.
[CORRECTION: An earlier version of this story incorrectly reported that SolarCity FTE Series 2 2017-A was SolarCity's inaugural solar-loan securitization).