The solar industry’s sixth securitisation to date, due for launch by Colorado-based AES Distributed Energy, will be worth US$100 million, backed against the company’s portfolio of solar generation assets.
The offering follows four securitisations to date by SolarCity and one for Sunrun in what is becoming an emerging trend for the PV industry as solar becomes a more attractive proposition for the mainstream investment community.
The statistical rating organisation Kroll Bond Rating Agency (KBRA) put the US$100 million tag on the sale of a mixture of Class A and Class B notes. It will be split into US$92.5 million in Class A notes and the remaining US$7.5 million in Class B notes. The analysis is executed on the filing which AES made last week. KBRA rated the Class A tranche at BBB and the Class B tranche at B.
AES platform Aurora Master Funding is issuing the notes, with Morgan Stanley acting as structuring advisor, sole bookrunner and initial purchaser. AES DE is also partnered with a Morgan Stanley subsidiary, MS Solar Solutions Corp, for developing solar assets and with further divisions of Morgan Stanley for ownership and operation of assets.
AES is backing the deal through 15 of its distributed energy companies, classified as “project companies”. This consists of 12 commercial and industrial, municipal and small utility (CIMU) project companies, and a further 3 residential project companies.
The commercial and industrial segment breaks down to 1,548 assets across six US states and the US Virgin Islands, on 97 project sites, with assets earning revenues through PPAs, as well as through performance-based incentives (PBIs) and Solar Renewable Energy Certificates (SRECs), which are applicable in states with renewable portfolio standards (RPS) legislation. In the residential segment meanwhile, AES DE has 1,451 lease agreements with homeowners which pay out fixed fees.
In other words, while the company’s assets are weighted 93.7% to 6.3% in favour of residential systems versus commercial and industrial in terms of numbers, the total assets in terms of the value of aggregate discounted solar asset balance (“ADSAB”), made up of leases, revenues and PPAs, are instead weighted 70.5% to 29.5% in favour of CIMU assets. The total ADSAB is worth US$128 million, for the company’s total portfolio of 42.8MW.
KBRA described AES DE as an “experienced and capable asset manager” in both segments, for its track record of developing, financing, owning and operating projects in North America since 2009. Energy production has averaged at 102% above expectations for CIMU and residential project companies. Technical due diligence was carried out by engineering firm Black & Veatch.
“KBRA believes the portfolio’s strong performance is a reflection of the Company’s operational strategy and technical expertise,” the report said.
In addition, AES DE enters into contracts with customers rated “prime” for their credit rating scores, classed as above 700 on the US FICO index. The average FICO score is 768 for AES DE customers, and in particular gave CIMU contracted customers at the company an average weighted A+ rating in terms of the ADSAB.
However, the agency wrote that while the assets have performed above expectations, AES DE has grown significantly in a short space of time, leading to a risk of overstretching resources and expenses. KBRA also said that as solar is relatively new as an asset class, historical performance data is collated only over a short time and led to the agency modelling financial projections from its credit rating models in forecasting the possibility of residential default payments. It therefore also used credit analysis of counterparties in the CIMU to analysis the overall proposition of that segment.
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