Private Securitization of the Year — Citi, Enpal and M&G
Warehouse for solar loans marks a new frontier for European ABS and could lead to the continent’s first public solar ABS
Enpal (issuer), Citi (senior debt provider) and M&G (mezzanine debt provider) win GlobalCapital’s Private Securitization of the Year award for leading the way on ESG and closing a warehouse facility that suggests a public solar ABS in Europe could be tantalisingly close.
Creating a new asset class in securitization can be a challenging endeavour. There can often be a lack of data to fall back on, an imperfect understanding of how the collateral will be paid back by consumers over time, or regulations that don't quite fit.
As German renewable energy company Enpal looked to finance its proposed residential solar loan product, those familiar challenges were more than just bumps in the road.
“It was a product that they hadn’t originated at all,” says Sebastian Walf, managing director and head of asset backed securities at Citi. “We had no historic data at all. No data on defaults or on prepayments. We had to look at proxy data from Enpal's lease portfolio, which was thankfully, a very similar client base. And we looked at German credit scores to get comfortable."
Eventually, Citi was able to finance a €356m warehouse facility for Enpal's solar loan product, alongside investors M&G who took on a €56m mezzanine debt facility.
Meanwhile, Enpal had to receive regulatory approval to offer a solar loan product which sits somewhere between a mortgage and an unsecured consumer loan. Previously, residential solar buyers in Germany had essentially been forced to either find financing themselves, or use their own cash.
The solar loan is a 20-25 year product, but the debt is relatively small compared to a mortgage. As such, the main risk for investors in a securitization was prepayment, Walf said. A problem made more difficult without historical data to rely on.
Responsibility to get it right
However, solar ABS is nothing new in the US, where Citi is one of the leading underwriters. Bela Schramm, senior investment manager at Enpal, says that the bank’s experience in the US was a key selling point when choosing to work with them.
As the Enpal team works on building the warehouse and looks towards a public securitization, there is also a mixture of excitement and trepidation, says Schramm.
“It’s really crazy, but it speaks to what Enpal is,” he says. “The people that set up this business had no solar installation experience initially, but we're the biggest installation firm in Germany now.
“But it is daunting. We discuss it a lot internally: that we have a responsibility to get this right or we’re hurting the asset class, which hurts the whole industry and — ultimately — hurts our ability to fight climate change.”
GlobalCapital's Private Securitization of the Year award attracts all kinds of weird and wonderful deal pitches every year, and 2022 was no different. Some transactions are brilliant for their highly complex structures and innovative ideas to solve a particular problem. But Enpal's solar loan warehouse is special for its scalability and repeatability. It is a transaction that offers much promise, not just for Enpal, but for European securitization and European renewable energy firms.
GlobalCapital thus awards Private Securitization of the Year to Citi, M&G and Enpal. The race for the first public solar ABS begins now.