Solar panel provider SunRun is tapping the securitization market for the first time in three years. The $378.5 million transaction is more highly leveraged than the prior deal, and it is also rated one notch lower by Kroll Bond Rating Agency.
SunRun initially obtains funding with the help of investors that want to take advantage of the tax credit for these systems. It creates project companies, selling shares to investors and using proceeds to construct and install systems. These investors are then allowed to use the tax credit for a specified period of time.
SunRun Athena Issuer 2018-1 is secured by SunRun’s equity interests in project companies that own a portfolio of 34,493 customer agreements associated with residential solar photovoltaic installations. The total aggregate discounted solar asset balance, consisting of the discounted payments of the leases, generation power purchase agreements and Balanced PPA is approximately $547.2 million. The securitization share of this is approximately $445.4 million.
The portfolio consists of 53% balanced power purchase agreements, 35.5% lease agreements, and 12.1% generation power purchase agreements.The weighted average original tenor of the lease agreements is 239 months and the weighted average remaining term of the agreements is 222 months. The weighted average FICO of the underlying customers of the photovoltaic systems is 734.
Two tranches of notes will be issued in the transaction; a $322 million tranche of senior notes is provisionally rated A- ; that’s one notch lower than the senior tranche of a solar lease securitization SunRun completed in 2015. Kroll is not rating the $56.5 million subordinate tranche.
The senior tranche of the new deal borrowers more heavily against the collateral of the deal than the senior tranche of the previous deal; it has an advance rate of 72.3% compared with 68.3% for the prior deal.
That’s also the highest advance rate of all but one of the comparable solar lease securitizations that Kroll has rated over the past three years. The senior tranche of a deal from SunStrong, a SunRun competitor, has an advance rate of 75.1% and is rated one notch higher, at A.
At closing the overcollateralization relative to the securitization share of the aggregate discounted solar balance is 15%. The Class A Notes will also benefit from subordination from the Class B Notes equal to approximately 12.7% of the ADSAB.
In addition, at closing a liquidity reserve account will be funded in an amount equal to $8,050,000.
Unlike most solar ABS transactions, the transaction structure does not assume that SunRun will exercise any of the options to purchase the equity interests of project companies from tax equity investors. Therefore, the required balanced in a supplemental reserve account does not include the purchase price for these interests and this reserve account provides relatively lower credit enhancement to the transaction compared to others.
And since the tax equity investors will continue to receive distributions throughout the term, the total cash flow available for debt service. The transaction was sized taking this into consideration.
