SolarCity priced its $54.42 million offering solar asset backed notes on Wednesday, a person familiar with the deal said.
The private placement, called Solar Asset Backed Notes, Series 2013-1, was assigned a preliminary BBB+’ rating from Standard & Poor's. The notes have a weighted average life of 7.05-years and priced at 265 basis points over the interpolated swaps curve. They have an interest rate coupon of 4.80%.
The notes are backed by the cash flow generated by a pool of 5,033 photovoltaic systems and related leases and power purchase agreements and ancillary rights and agreements. Residential solar customers with a weighted average FICO of 762 make up 71% of the pool and 28.9% of the pool is made up of commercial and government customers.
The deal is underwritten by Credit Suisse. It has a scheduled maturity of December 2026. The sale of the notes is expected to close on November 21, 2013.
Securitization has long been eyed as a financing alternative that could lower the costs of solar energy products for customers. Despite a dramatic decline in prices as the result of competition from Chinese manufactuers, rooftop systems are still so expensive that both residential and commercial property owners tend to finance them by entering into leases or power purchase agreements.
These lease produce a long-term stream of revenue that is predictable, but is nevertheless not ideally suited as collateral for a securtization. There's no standardization of power purchase agreements, leases, and other documents relevant to residential and commercial solar assets, and not much historical performance data.
The long term of residential solar contracts -- typically 20 years -- pose another problem. That's longer than the term of a typical securitization, and it's also longer than the average homeowners stay in a homes. That creates a risk to cashflows to a transaction.
However, SolarCity has data that speaks to the risk of renegotiation of customer assets before a contract ends, accordnig to S&P's presale report. Since 2008, the firm has been given permission to operate approximately 39,000 financed systems; of these systems, roughly 900, or 2.4% of the total, have completed contract reassignments, of which the overwhelming majority have experienced full recoveries. Of these 900, approximately 82% were reassigned as the result of the normal sale of a customer’s home (and not because of foreclosure, short sale, death or divorce). The remaining cases were because of various other reasons. In 91% of the contract reassignments, there was a full recovery and the remainder resulted in a weighted average recover of 78%.