Sunrun is preparing to refinance an 88 MW portfolio of "seasoned" residential solar assets with its latest securitization, a $204 million deal backed by leases and power purchase agreements.

The deal, dubbed Sunrun Xanadu 2019-1, securitizes $254.1 million in discounted cash flows from contracts with 14,377 customers, according to a presale report from Kroll Bond Rating Agency.

Credit Suisse is sole structuring agent and sole bookrunner and KeyBanc Capital Markets is co-manager, says a person close to the deal. 

The company will use the proceeds of the 35-year bond offering to repay existing debt under a warehouse facility.

Ed Fenster, Sunrun's executive chairman and co-founder, telegraphed the transaction in an earnings call in February (PFR, 3/1).

"Looking forward, we still see the opportunity for higher advance rates and lower capital cost when refinancing seasoned assets," he said. "We expect to execute such a transaction by midyear."

Kroll has assigned the notes a preliminary rating of A-, noting the portfolio's relative lack of geographic diversity as a credit negative. About two-thirds of the portfolio, accounting for 73.36% of its revenues, is located in California.

The weighted average original tenor of the agreements backing Xanadu is 250 months and the weighted average remaining term of the contracts is 176 months. The customers have a weighted average FICO score of 761.

The deal comes at a time when the solar ABS pipeline has slowed. The last transaction was completed on March 26 by Connecticut Green Bank, which issued a small-scale solar home renewable energy credit deal. Loanpal also announced a $272.2 million offering in March (PFR, 3/8).

"I think to date, there's definitely been somewhat of a slowdown at the start of the year," says a solar ABS banker. "There's a lot of other sources of capital that solar providers can access." However, the market should see the sector get back in line with where it was last year in terms of issuance in the next few months, he added.

Sunrun's last ABS foray was its $378.5 million Athena offering at the end of last year (PFR, 12/13/18). The $322 million 'A' tranche carried the same A- credit score from Kroll as Xanadu. Bookrunners Credit Suisse, Deutsche Bank and Key priced the senior tranche at 265 basis points over interpolated swaps.

Unlike the collateral for the Athena deal, the older assets to be securitized in Xanadu are not encumbered with tax equity. The deal is expected to be priced by the end of this week.

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