Sunnova's next solar ABS locks in longer-term funding
Sunnova is obtaining longer-term financing through its second securitization of solar panel leases and power purchase agreements.
The $262.7 million Sunnova 2018-1 has an expected repayment date of 10 years from the first payment date, compared with just six years for its inaugural securitization, completed in April 2017. That’s more in line with the tenor of the collateral; nearly all of which have original terms of 25 years and a weighted average remaining term of just over 22 years.
The senior tranche of the new deal also earned a slightly lower credit rating from Kroll Bond Rating Agency - A-, which is one notch lower than the A on last year’s transaction.
Kroll’s presale report notes a number of differences between both the structure and collateral of the two deals, though it does not explicitly state what led it to assign a lower rating. Both deals allow Sunnova to borrow 85% of the value of the collateral. However, the senior tranche of 2018-1 has a slightly higher advance rate of 64.5%, versus 64% for the prior deal. That means the new senior notes benefit from less credit enhancement in the form of subordination of the other classes of notes, just 19.6%.
Unlike the previous transaction, which issued a tranche of BBB- rated notes, the latest deal has a single tranche of subordinate notes, which is unrated.
In addition to subordination, the senior notes benefit from overcollateralization of 15% resulting from expected payments by the underlying customers of the photovoltaic systems. There is also a liquidity reserve account that will be fully funded at closing to cover six months of interest.
And an inverter replacement reserve account will be established and will begin to accumulate funds over time for future inverter replacement costs starting in July 2024.
Finally, the transaction features “significant” excess cash flow, which results from the difference between the cash flows expected from the customers and the principal and interest distributed on the notes, per Kroll.
Kroll also noted some differences in the collateral for the new deal: exposure to Puerto Rico has decreases to 6.4% from 14.8%. However, all of the solar assets in the portfolio that are located on the island are fully operational and none of the customers are not delinquent on their contractual payments. (Approximately 37% of the assets came in-service after Hurricane Maria struck in 2017; most of the remaining 63% of assets that were in place prior to the hurricane were back in service within a few months of the storm.)
Exposure to Guam, meanwhile, has increased to 7.2% from 3.9%.
The new deal also has 2.2% exposure to Northern Mariana Islands, while the previous deal had none.
The weighted average FICO of the underlying borrowers is 735. The average discounted solar asset balance is $19,168.