Sole lead bookrunner Credit Suisse issued guidance of 200bp-215bp over interpolated swaps for the $265m senior ‘A’ class, while the yield on the $75m ‘B’ tranche is being guided at 7.75%-8%. The ‘A’ and ‘B’ notes have weighted average lives of 9.83 years and seven years, respectively.
Those spreads are wide of where the last solar securitization, from Mosaic, was priced. The Tesla deal is backed by leases and power purchase agreements tied to residential solar systems, whereas Mosaic's was backed by loans, which investors say are easier to underwrite and understand. Mosaic priced its offering at 185bp over swaps for the senior class.
“Traditionally investors have been paid more [for lease and PPA deals]," said a solar energy finance adviser speaking about the Tesla transaction. "A big pool of loans is just easier to understand.”
Tesla's deal is expected to be priced on Thursday.
The preference investors express for solar loans when bidding has been reflected in the kinds of deals offered in the solar securitization market this year. Of the six solar ABS transactions to be priced in 2017, the Tesla deal this week is only the second to be backed by leases and PPAs. Sunnova priced the last lease and PPA offering in April, selling the senior bonds at a 4.95% yield.
Another solar industry observer highlighted the size of the Tesla deal — $340m — compared to other deals. At $265m, the ‘A’ tranche alone is larger than the whole Sunnova offering.
“It speaks to the size and scale of the SolarCity program,” said a buyside source. “The bookrunners are confident that there is demand there despite the slowdown in solar ABS origination.”
The source added, though, that some solar capital markets participants are concerned that Tesla will not prioritize the SolarCity business as it looks to catch up in the development of its Model 3 sedan, which is behind schedule in production. The company announced a wave of layoffs, from within both the Telsa and SolarCity units, in September, letting go of 205 SolarCity workers from its Roseville, California office. In total, as many as 1,200 Tesla and SolarCity employees have been laid off, according to published reports. Tesla acquired SolarCity in November 2016.