Lesson 5 of 7 · All lessons in this module
- Covered bonds: dual recourse and a dynamic pool
- Credit enhancement: OC, excess spread and tranchingVideo lesson
- Integrated cases: who is paid, and when, in a tranched ABS
- Amortizing vs non-amortizing collateral: credit card ABS
- Solar ABS
- CDOs: managed pools and leveraged equity
- CLOs: capital structure, tests and the manager
Lesson 5 of 7 · 11 min
Solar ABS
Solar ABS securitize the payments homeowners make on solar loans or leases; prime borrowers, payments that replace an energy bill and layers of credit enhancement keep default risk low, and the green use of proceeds attracts ESG investors.
In short
- Solar loans let homeowners borrow to buy a system from an installer; solar leases rent the equipment from a solar company.
- The ABS is backed by the loans or lease payments; the loans may also be secured by a lien on the installed system, on the property, or both. Structured as home improvement loans, they amount to a junior (subordinated) mortgage.
- Borrowers are typically prime homeowners with good payment records, and the payments largely replace their former energy bill, which supports low losses.
- Credit enhancement: overcollateralization, subordination, excess spread, often plus reserve accounts.
- Many deals have a pre-funding period to add eligible assets after closing. Proceeds finance green projects, so solar ABS can qualify as green bonds and appeal to ESG investors.
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