In an industry where the ability to access low-cost capital is a decisive factor, financial innovation can be a key edge for companies. Securitization, or the pooling of distributed solar assets which are marketed as securities, has been heralded as one of the more significant developments in allowing the solar industry to access cheaper capital – and the model is slowly spreading to more companies. That group now includes Sunnova.
Earlier this week Kroll Bond Rating agency announced that it had provided ratings for $255 million in asset-backed securities that represent third-party solar provider Sunnova’s first foray into securitization. Sunnova’s two classes of bonds will be backed by a pool of nearly 14,000 solar leases and power purchase agreements, as well as solar renewable energy credits (SCRECs), all associated with residential PV the company has deployed.
This provides an aggregate discounted solar asset balance of $300 million, and Kroll notes that the transaction benefits from overcollateralization. The residential PV arrays which back the notes are located in 14 states, Puerto Rico and Guam, with 71% of the value in California, New Jersey and Puerto Rico.
To further back the deal, Sunnova is including a liquidity reserve account and an account to fund the replacement of any inverters that go bad.
SolarCity pioneered the securitization of distributed solar assets, launching the sector’s first transaction in November 2013. But while the company had launched four securitizations by the end of 2015, it took until the mid-2015 for the second third-party distributed solar provider, Sunrun, to launch a securitization transaction. Additionally, a number of Property Assessed Clean Energy (PACE) providers have also launched securitization transactions.