Sunrun Prices $230 million Senior Securitization of Residential Solar & Battery Systems
- Sunrun's securitization of leases and power purchase agreements demonstrates strong performance and access to capital.
- The latest ABS transaction achieved a credit spread of 195 basis points, a notable improvement from previous securitizations.
- The securitization issued A rated notes by Kroll, amounting to $230 million with a weighted average life of 7 years.
- The portfolio consists of 27,094 solar rooftop systems distributed across 19 states and Washington D.C.
- The transaction is expected to close by April 17, 2024.
- None.
Insights
The securitization of leases and power purchase agreements by Sunrun marks a significant event in the company's financial strategy. This move to securitize assets that are predominantly past the tax equity 'flip point' indicates a mature portfolio with stable cash flow prospects. The improvement in credit spread by 37.5 basis points since February and 45 basis points since September 2023 suggests increased investor confidence in Sunrun's creditworthiness and operational stability.
The 'A' rating by Kroll and the absence of an Anticipated Repayment Date reflect the robustness of the underlying assets and the expected reliability of the income stream. The pricing of the notes at a 6.27% coupon, which translates to a 6.328% yield, is competitive and could be attractive to fixed-income investors looking for yield with relatively low risk in the renewable energy sector. The increase in the advance rate by 7 percentage points compared to the senior tranche in the prior securitization signals a more aggressive capital raising approach, potentially reflecting Sunrun's growth ambitions or a strategic shift in its capital structure.
The securitization by Sunrun underscores the growing trend in the renewable energy sector towards asset-backed financing. The company's ability to achieve the lowest spread for similarly rated transactions since 2021 demonstrates the sector's resilience and investor appetite for environmentally sustainable investments. The diversified portfolio of 27,094 solar rooftop systems spread across multiple states and utility territories enhances the risk distribution and adds to the appeal of the offering.
Furthermore, the joint ownership of the portfolio with National Grid and the allocation of the majority of cash flows to NG through 2042 provides an interesting dynamic. It suggests a strategic partnership that not only diversifies Sunrun's revenue sources but also potentially stabilizes the cash flows due to NG's involvement. This could be an indicator of the renewable energy sector's move towards consolidation and collaboration with established utility players to ensure financial stability and operational efficiency.
From a credit risk perspective, the weighted average customer FICO score of 739 for the portfolio indicates a high credit quality of the underlying lessees. This is a positive sign for investors as it implies a lower risk of default on the lease payments, which back the securitized notes. The fixed interest rate and full amortization over the contractual life without an ARD provide a clear repayment trajectory, which is beneficial for risk assessment and investment planning.
The long final maturity of 2055, however, introduces duration risk, especially in an environment where interest rates may fluctuate. Investors will need to weigh the long-term stability of the solar lease cash flows against the potential for rising rates, which could impact the attractiveness of these notes in the future. The involvement of Bank of America as the sole structuring agent and the partnership with Truist and KeyBanc in bookrunning also indicates a strong underwriting process, likely contributing to the favorable terms achieved in the securitization.
SAN FRANCISCO, April 10, 2024 (GLOBE NEWSWIRE) -- Sunrun (Nasdaq: RUN), the nation’s leading provider of clean energy as a subscription service, today announced it has priced a securitization of leases and power purchase agreements. The securitized leases and power purchase agreements have been in service for an average of 6.75 years, and thus the vast majority of the portfolio is after the ‘flip point’ in tax equity structures.
“Sunrun’s industry-leading performance as an originator and servicer of residential solar assets continues to provide deep access to attractively priced capital,” said Danny Abajian, Sunrun’s Chief Financial Officer. “The latest ABS transaction was priced at a credit spread of 195 basis points, a 37.5 basis point improvement from Sunrun’s most recent privately placed senior securitization in February and 45 basis points lower than Sunrun’s securitization in September 2023. The latest execution represents the lowest spread achieved for similarly rated transactions across the sector since 2021, a testament to Sunrun’s strong track record.”
The securitization was issued with a single class of notes that are A rated by Kroll with a principal amount of
The notes are backed by a diversified portfolio of 27,094 solar rooftop systems distributed across 19 states and Washington D.C. and 65 utility service territories. The weighted average customer FICO score is 739. The transaction is expected to close by April 17, 2024. The portfolio is jointly owned by National Grid (NG) and Sunrun, with NG receiving the majority of cash flows through 2042.
Bank of America was the sole structuring agent and served as joint bookrunner along with Truist and KeyBanc.
This press release does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
Investor & Analyst Contact:
Patrick Jobin
Senior Vice President, Finance & IR
investors@sunrun.com
Media Contact:
Wyatt Semanek
Director, Corporate Communications
press@sunrun.com
About Sunrun
Sunrun Inc. (Nasdaq: RUN) revolutionized the solar industry in 2007 by removing financial barriers and democratizing access to locally-generated, renewable energy. Today, Sunrun is the nation’s leading provider of clean energy as a subscription service, offering residential solar and storage with no upfront costs. Sunrun’s innovative products and solutions can connect homes to the cleanest energy on earth, providing them with energy security, predictability, and peace of mind. Sunrun also manages energy services that benefit communities, utilities, and the electric grid while enhancing customer value. Discover more at www.sunrun.com.
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