SolarCity is marketing what may be the first securitization of loans to finance the purchase and installation of solar panels by consumers.
These loans can be riskier than the other forms of financing that that the firm has previously securitized, because the borrower, and not SolarCity, is required to maintain the panels.
For this reason, SolarCity was only able to obtain a ‘BBB’ rating from Kroll Bond Rating Agency, three notches lower than the ‘A’ rating on previous bonds backed by solar power purchase agreements and leases.
The new deal, dubbed SolarCity FTE Series 1, LLC, Series 2015—A, is backed by MyPower loans, which are offered directly by SolarCity for the purchase of solar panels. Solar panels in previous SolarCity deals were financed via tax partnerships known as financing funds.
The payment on the loans is similar to the way customers pay for a solar Power Purchase Agreement and is based on the energy the system produces from the sun; but unlike a PPA, the borrower retains ownership of the solar panels.
Most of the loans finance solar panel purchases in California (80%); 12% are Colorado loans, 4% are Arizona loans and the rest finance panel purchases in the North East. The loans have original terms of 30 years and a weighted average FICO score of 733.
SolarCity FTE Series 1, LLC, Series 2015—A will offer $185 million of notes that are secured on a $250 million pool of loans.
Although the loans are underwritten to borrowers with approximately the same credit ratings as SolarCity’s previous securitization pools, KBRA is requiring slightly greater credit enhancement. It assigned preliminary ‘BBB’ ratings to the class A notes, which benefit from subordination provided by the class B Notes equal to 13.4% and overcollateralization, which will be approximately 25.9% at closing and a liquidity reserve of $4.8 million. The class B notes have a preliminary ‘BB’ rating.
By comparison, the senior notes of the sponsor’s previous deal, SolarCity Series IV, LLC, Series 2015-1, completed in August, were rated three notches higher at ‘A’ based on over collateralization of 32.1%, subordination of Class B Notes equal to approximately 11.0%, and a liquidity reserve of $2.8 million.
There has been $234 million in solar securitization volume so far in 2015. That's been split between two deals—one from SolarCity and another from SunEdison. A third from AES Distributed Energy that was announced in late September appears to still be in the works.