Sunnova returns to solar ABS market with third lease/PPA deal
Sunnova Energy Corp. is marketing $313.5 million in bonds secured by receivables of a pool of residential solar-panel leases and power-purchase agreements (PPAs).
The Sunnova Sol Issuer LLC Series 2020-1 transaction is Sunnova’s third asset-backed transaction since 2017 will primarily involve 17,804 leases and PPAs with average original terms of 25 years. The contracts financed residential photo-voltaic solar-panel systems in 20 states and three U.S. territories.
All of the contracts are owned by third-party project companies that financed the tax-equity partnerships making them eligible for tax credits involved with the leases and agreements, as well as nearly all the income now being assigned to the trust.
Sunnova will sell $256.2 million in Class A notes with preliminary A- ratings from Kroll Bond Rating Agency, as well as $57.3 million in Class B notes with early BB- ratings.
The Class A notes benefit from 7% overcollateralization and 17% subordination of the Class B notes.
The agreements making up the collateral pool have an aggregate discounted solar asset balance of $348.2 million, according to a presale report from Kroll.
The loans are issued and underwritten to primarily prime customers with weighted average FICO scores of 740; 73% of borrowers for the photo-voltaic systems had FICOs in excess of 700.
While Sunnova has been offering leases and PPAs since 2013, it “has experienced significant growth over a short period of time, which could negatively impact its business by straining resources and increasing expenses as it attempts to manage a growing number of systems.”
A majority of the contracts are based in California, Connecticut and New Jersey, making up 55% of the systems and 52.8% of the contract balances. Kroll cautions that about 9.7% of the balance (and 12.1% of the PV systems) are located in Puerto Rico, which still experiences intermittent problems with its electrical grid that is necessary to operate PV systems not paired with energy storage systems.
While 2017 hurricane damage affected “several” of Sunnova’s PV systems, “all the solar assets located in Puerto Rico in the portfolio are fully operational and the related host customers are not delinquent on their contractual payments.”