NEW YORK, July 29 (IFR) - SolarCity may have created a
securitization blueprint for the future last week with a new
trade that sidesteps worries about repaying tax credits if the
underlying collateral goes bust.
The company embedded a master lease provision in the trade
to avoid triggering the repayment of those credits on any
project in the deal that ends up in foreclosure.
Fears about such repayments have long stymied securitization
in the solar sector, and indeed SolarCity is thus far the only
entity that has sold a trade based on solar panel leases.
But its third-ever trade, the US$201.5m deal last Thursday,
was seen as a breakthrough.
Instead of having the securitization vehicle buy the leases
on the individual solar projects used as collateral, it only
leases them - meaning the tax credits would not have to be
repaid if a project goes bankrupt.
Even in a situation where a new owner swoops in to buy the
business at bankruptcy, it would continue to run the project
under the original master lease structure - thus avoiding a sale
and keeping the tax credits undisturbed.
"The ABS industry thought that could not be possible," one
market observer told IFR. "But [this deal] combined tax equity
and ABS notes at the same time."
Tax equity is the "elephant in the room" when it comes to
securitizing solar assets, said Ronald Borod, partner at DLA
Piper, who specializes in renewable energy ABS but was not
involved in the SolarCity transaction.
"If you already have tax equity in place and say 'I'd like
to securitize now, are you okay with that?', chances are [your
tax equity partners] would say no," he said.
Other solar companies could follow suit.
SunRun, Clean Power Finance, SunEdison, NRG and SunPower are
some of the other major US solar competitors that will likely
now look to securitization, as well as other facilities that
offer low cost financing, said Haresh Patel, CEO of Mercatus
Inc, which tracks data in the renewable energy sector.
"Access to low cost capital is a hot topic, and a lot of
players are hitting SolarCity-type of volume," he said.
"It's sort of like a popcorn machine. You hear one pop and
then start hearing others."
Investment tax credits (ITCs) have pumped billions of
dollars of money into the solar industry, accounting for an
estimated 40% of the sector in the United States.
It's unknown what percentage those subsidies play in the
business of SolarCity, which is the number one installer of
solar panels in US homes.
But investors clearly had confidence in the new trade from
the company, whose chairman is Tesla Motors founder Elon Musk.
One source close to the trade said it was multiple times
oversubscribed, which helped the borrower print its least
expensive ABS financing thus far.
SolarCity ended up paying a 4.3% weighted-average coupon for
two classes of bonds.
The BBB+ rated US$160m A class priced at interpolated swaps
plus 180bp, tightened from guidance of 195-200bp, and offered a
4.02% coupon, while the pre-placed BB rated US$41.5m offered a
The company's previous deal in April had just one BBB+ rated
US$70.2m class, which offered a 230bp spread and 4.59% coupon,
while its debut US$54.4m offering in November 2013 priced at a
265bp spread and 4.8% coupon.
Credit Suisse was the sole bookrunner on the deal, which is
backed by leases on 16,000 solar panel systems mostly on
residential homes, according to a Standard & Poor's pre-sale
A call and email requesting comment was not immediately
(Reporting by Joy Wiltermuth; Editing by Natalie Harrison and