Sunnova Sol III is issuing its first transaction of 2021 with a transaction that has a slightly lower weighted average FICO score, weighted average remaining term, and a seasoned pool of 63 months with nearly 13,000 systems.
A litany of contracts associated with solar lease and power purchase agreements on residential properties secure the single-tranche, $319 million transaction.
Some of the contracts include residential photovoltaic installations, or PV systems, power purchase agreements, and EZ Pay PPAs, hedged solar renewable energy certificate (SREC) contracts, according to Kroll Bond Rating Agency.
The securitized notes collateralize a pool of 20,981 lease contracts. The solar service agreements had an aggregate discounted solar asset (ADSAB) balance of about $415 million, while the hedged solar SREC contracts had an ADSAB of $19.7 million, according to KBRA. As of the cutoff date, the PV systems were distributed across 18 states, Guam, Puerto Rico, and the Northern Mariana Islands.
The handful of minor changes distinguishes the Sunnova Sol III from the Sunnova 2020-2 transaction. The weighted average remaining term is 264 months, compared with 291 months on previous transaction, a slightly lower FICO score of 740, compared with 741, 16 percent of ADSAB systems with batteries, down from 20 percent on the Sunnova 2020-2 deal, and a pool of assets with seasoning of 63 months, on almost 13,000 systems, according to KBRA.
The notes on the deal have several credit boosts. Expected payments under the hedged SREC agreements and TREC payments is pledged to provide overcollateralization to the notes. The trust will be funded with a $1 million supplemental reserve account, which will accumulate additional funds over time to make certain purchases, including options associated with the related Project Company. KBRA also noted that Sunnova Sol II also features excess cash flow, resulting from the difference between the discount rate used to value the expected cash flows and the weighted average interest rate on the notes.
Credit Suisse Securities will be the initial purchaser on the notes, which KBRA expects to rate ‘A-’.
KBRA did sound a couple of note of caution, among others, however. About 21.6 percent of the total ADSAB, and 20 percent of the total PV systems were solar assets located in Puerto Rico. The market is currently working through the implementation of legislation and agreements between the Puerto Rico Electric Power Authority and its creditors concerning net metering. In net metering, roof solar customers can earn credits at a full retail rate for the electricity their units produce. Decisions around this line of revenue, especially with so much exposure to the deal, could weaken the customer value proposition.
