More diverse issuer base awaits solar ABS
A larger investor base should help more solar lenders and manufacturers to enter the ABS market
Solar ABS had its biggest ever year of issuance in 2022 while most securitized products asset classes saw volumes shrink, but market participants at the Structured Finance Association's annual conference in Las Vegas this week believe that there is still a lot of room for the sector to grow.
There was $4.3bn total issuance in solar ABS in 2022 across 14 deals. So far this year, there have been two deals, with Solar Mosaic raising $210m and and GoodLeap issuing $272m.
Most of the issuance in the space is still dependent on residential solar loans, yet there is an opportunity for growth in commercial solar deals that could take advantage of the ABS market, according to panelists at SF Vegas’ solar ABS session on Tuesday. And a greater diversity of the issuer base would bring more investors to the market, they said.
“If you can get the box retailers to subscribe, that can be an interesting portion of the market as well,” said John Toohig, a managing director focusing on whole loan trading at Raymond James.
In terms of the investor base, the market might be expanding to credit funds and pension funds, who had not been typical buyers of solar ABS paper before, according to panelist Yezdan Badrakhan, managing director at MUFG.
Many solar loan originators didn’t raise their APRs in the first half of 2022, which made it challenging for ABS structures to make sense as rates started rising rapidly, increasing the cost of borrowing for solar panel providers. However, the lenders now have raised their APRs to reflect market standards, according to panelist Sarah McDonald of Goldman Sachs.
One ABS investor had told GlobalCapital that the slowdown in prepayment rates for solar loans over the past few months is a concern as it could be a sign of the weaker credit quality of borrowers. This might slow down new demand in the sector, he said.
However, one ABS banker disagreed, noting that prepayments are uniquely sensitive to rates. In fact, solar borrowers are generally strong consumers with high FICO scores, he said.