Sunrun Prices Record Setting $886.3 million Senior Securitization of Residential Solar and Battery Systems
Sunrun (Nasdaq: RUN), the top provider of clean energy as a subscription service in the U.S., announced its largest securitization ever, worth $886.3 million. This marks the biggest residential solar securitization industry wide. The transaction includes two pari passu tranches of A+ rated notes and a single class of BB rated notes. The $443.15 million Class A-1 notes were marketed publicly and bear a 6.25% coupon with a 6.385% yield. The Class A notes advance rate stands at 72.6%. The diversified portfolio backing the notes includes 48,628 systems across 19 states, Washington D.C., and Puerto Rico. The transaction is set to close by June 11, 2024, with several prominent financial institutions involved as structuring agents and bookrunners.
- Record setting $886.3 million securitization, the largest in Sunrun's history and the residential solar industry.
- Class A-1 notes priced with an improved spread of 205bps, reflecting a 35bps improvement from September 2023.
- The weighted average customer FICO score of 741 indicates a high-quality customer base.
- The securitization is backed by a diversified portfolio of 48,628 systems across 19 states and other territories.
- Sunrun's proven track record recognized by KBRA, resulting in a higher rating for comparable advance rates.
- Involvement of major financial institutions like J.P. Morgan, Morgan Stanley, and RBC Capital Markets signals strong financial backing.
- The Class A notes bear a relatively high coupon rate of 6.25%, which might increase financing costs.
- The expected weighted average life of 6.8 years and a final maturity date in 2059 could indicate long-term financial commitments.
- The anticipated additional subordinated subsidiary-level non-recourse financing could imply added financial complexity and risk.
- A spread of 205bps, while improved, still represents a significant cost over the benchmark rate.
Insights
Sunrun's recent pricing of $886.3 million in senior securitization represents a significant milestone for the company and the residential solar industry. With two tranches of A+ rated notes and one tranche of BB rated notes, Sunrun continues to demonstrate its capacity to secure competitively priced capital. The higher rating by KBRA for comparable advance rates indicates strong market confidence in Sunrun's financial stability.
The 6.25% coupon on the Class A notes, with an expected weighted average life of 6.8 years, suggests favorable borrowing terms relative to the market. Investors should note the improvement in the spread, down 35bps from the previous year, reflecting enhancing credit terms for Sunrun.
This securitization is particularly noteworthy due to the number of systems involved (48,628) and the diversity of their geographic distribution. This diversification mitigates risk, ensuring that no single geographic area can significantly impact the overall performance of the securitized assets. Additionally, a high weighted average customer FICO score of 741 underscores the reliability of Sunrun's customer base, reducing the likelihood of defaults.
A potential downside for investors is the complexity inherent in such structured financial products. The dual nature of the public and private placements could also introduce additional layers of risk and varying returns.
From a market perspective, Sunrun's record-setting securitization underscores its leadership position in the growing residential solar market. This move is indicative of not just Sunrun's robust market presence but also the increasing demand for clean energy solutions. Investors should pay attention to the improvement in pricing and the spread reduction compared to prior securitizations, which suggest increasing market competitiveness and confidence in Sunrun.
This transaction is also likely to have a ripple effect across the industry, potentially leading other players to follow suit with similar securitizations. It's a clear signal that the market for residential solar financing is maturing, with institutional investors showing greater appetite for such assets.
However, the intricate nature of asset-backed securities (ABS) and the long-term horizon (final maturity date stretching to July 30, 2059) could pose challenges for less sophisticated investors. The involvement of multiple high-profile financial institutions as structuring agents and bookrunners adds credibility to the deal, but it also suggests a level of sophistication and risk management practices that retail investors may not fully grasp.
Legally, the structure of Sunrun's securitization notes is quite interesting. The transaction involves both public and private placements, which may have different regulatory and compliance implications. The fact that the notes are backed by a diversified portfolio across various states and jurisdictions, including Washington D.C. and Puerto Rico, indicates a complex regulatory landscape. This diversification, however, also spreads the legal risk, as adverse regulatory changes in one jurisdiction are less likely to impact the entire portfolio.
The higher rating by KBRA is likely influenced by Sunrun's extensive compliance history and its demonstrated ability to manage and service its assets effectively. Investors should consider the legal robustness of the transaction, especially the non-recourse financing aspects secured by distributions from retained Class B notes. Non-recourse financing means that in the event of a default, creditors can only claim the specified collateral (in this case, distributions from the Class B notes) and not any other assets of Sunrun.
One potential legal risk lies in the complexity of the transaction and the different jurisdictions involved, which may lead to unforeseen legal challenges down the line. However, the involvement of top-tier financial institutions also suggests a high level of due diligence and risk management.
SAN FRANCISCO, June 04, 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 securitization represents the largest in Sunrun’s history and the largest residential solar securitization industry wide.
“Sunrun continues to set industry benchmarks, with our robust performance and ability to attract competitively priced capital,” said Danny Abajian, Sunrun’s Chief Financial Officer. “Not only was this the largest securitization for Sunrun and the industry, our proven track record as an originator and servicer has been recognized by KBRA, assigning a higher rating for comparable advance rates relative to precedent ABS transactions.”
The transaction was structured with two pari passu tranches of A+ rated notes (the “Class A-1” and “Class A-2”, respectively and together the “Class A”) and a single class of BB (“Class B”) rated notes. The
The notes are backed by a diversified portfolio of 48,628 systems distributed across 19 states, and Washington D.C. and Puerto Rico and 79 utility service territories. The weighted average customer FICO score is 741. The transaction is expected to close by June 11, 2024.
ATLAS SP Securities was the sole structuring agent and served as joint bookrunner along with J.P. Morgan Securities, Morgan Stanley & Co., MUFG Securities Americas, and RBC Capital Markets. Citigroup Global Markets and KeyBanc Capital Markets served as co-managers for the securitization.
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
Investor Relations Officer
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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