This past week, our CEO Richard Matsui joined 6,000 structured finance professionals in Las Vegas to discuss the latest trends in asset backed securities. He spoke on a panel entitled “Solar ABS Panel: Understanding Market Potential” that included Danny Abajian (Director of Structured Finance, Sunrun), Andrew Giudici (Senior Director, Kroll Bond Ratings Agency), and Manish Kapoor (Managing Principal, West Wheelock Capital). It was exciting to see a packed, standing room-only session of more than a hundred professionals on what is usually a slow Tuesday afternoon.
3 Observations about how institutional debt investors think about solar bonds
1) They want the data: Winston Chang (S&P), who was involved with rating all 3 of the current securitized SolarCity portfolios, said that they would require a portfolio to have experienced at least 3 years of seasoning to be considered for a rating. They want to be able to apply an actuarial approach to their analysis.
2) They recognize that solar is different: They understand that what makes solar fundamentally different from other consumer asset classes (e.g. credit cards, auto loans), is that solar is actually saving the customer money. This unique customer value proposition is a strong qualitative reason to invest in solar. This also makes solar much more than just a pure consumer credit play; there are strong elements of project finance that must be underwritten and understood by the investment community. We think this will make new investors both cautious and curious, buying into securitizations to learn but scaling their investment in the space slowly.
3) They know there are things they don’t know: In contrast to years past, questions about that customer value proposition are emerging. One investor asked a question about rising utility rates. Another asked a question about technological improvements. Our CEO noted that, while the average energy performance across the kWh Analytics dataset has been generally positive, we also see portfolios that dramatically underperform underwritten expectations.