NEW YORK, Jan 30 (IFR) - 'Solar ABS' may yet see the light
The green technology which harnesses the heat and energy of
the sun to generate power has been around since the 1960s. But
the solar industry's attempts to tap the securitization market
for funding have not yet come to fruition, despite tremendous
That may be about to change, according to a panel of
securitization experts speaking at an "Emerging ABS Sector
Review" session at the American Securitization Forum's annual
conference in Las Vegas.
"This is a good asset for investors with a strong bid for
long-duration paper," said Leo Burrell, managing director at
Credit Agricole Securities. "We like it."
Chris Murphy, director of structured finance at Oakland,
California-based Sungevity, a company which leases out
roof-mounted residential photovoltaic solar panels to homeowners
who are hoping to pay less for electricity, agreed.
Sungevity and other residential and commercial solar-panel
installers, have been working hard to get a securitization
backed by solar-panel lease revenues off the ground.
In a proposed offering, bond investors would be paid by the
lease-payment cashflows of Sungevity's customers. The leases
would have a 20-year term, and the company targets consumers who
have FICO scores of mostly 700 or better.
Sungevity pitches itself by promising homeowners that their
electricity bills will shrink. It offers a "zero dollars down"
plan and a performance guarantee -- that is, a promise that the
solar-panel system will produce enough power over time.
"Eighty percent of (solar-panel) customers save money from
Day One," Murphy said. Even though the technology is not new, he
said the cost curve has come down over the years versus paying
for power from a utility.
TESTING NEW GROUND
Despite that progress, the product has still struggled to
get off the ground, in part due to apprehension on the part of
credit rating agencies to rate the deals.
The agencies have been spooked by the relative newness of
the asset class and its lack of history, the panel heard.
"The question is whether the advance rates you get based on
ratings will be conservative at the outset," said panelist Cory
Wishengrad, managing director and co-head of securitized
products at Barclays.
'Advance rate' refers to the maximum amount of loan a
company such as Sungevity could receive based on a percentage of
the value of some of its collateral -- in this case, customer
receivables from paying homeowners.
A lower investment-grade rating on a solar ABS means that
lenders would advance less to the company - not exactly an ideal
"Also, will (securitization) be competitive with other
funding sources in the sector?", Wishengrad said. "Can you get
optimal execution in the securitization market?"
Some solar companies have explored other avenues, such as
venture capital investments, for example.
The sole rating agency analyst on the panel, Eric Williamson
of Kroll, said that advance rates would indeed be conservative,
with ratings in the low investment-grade spectrum.
But Williamson believes the product is the "right material"
for securitization, saying that "the hard asset itself brings
strength to the table."
As with all untested asset classes, there are risks to
consider. Besides the obvious risk of a customer defaulting, the
much more likely one is what Murphy calls a "homeowner event",
moving or death.
He cited a recent survey from the National Association of
Homebuilders that found the average homeowner stays in his home
for 13 years before relocation.
But there are other risks for ABS investors, including lease
rates that may fail to keep up with inflation, the need for a
backup servicer in case a company such as Sungevity is no longer
able to service the leases, foreclosures, defaults and tax
Regarding the latter, there are a number of federal tax
credits associated with the "renewable energy" industry and the
relationship between solar-panel ABS and tax equity vehicles or
other possible asset claims can become quite complicated, said
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