Asset-Backed Alert - IMN

April 12, 2013
Asset-Backed
5
ALERT
S&P Gets Look at ‘Mock’ Solar Deal
A government-sanctioned organization is constructing a
prototype securitization of leases on solar-power equipment,
with the aim of determining whether such issues could earn
high-enough ratings to be feasible.
The undertaking is the product of Solar Access to Public
Capital, a group of about 40 companies brought together by the
U.S. Department of Energy’s National Renewable Energy Laboratory
with the aim of creating a market for solar-equipment
securities. SolarCity is playing the role of issuer on the model
deal, with Credit Suisse as the underwriter — mirroring a relationship
that the shops already have in place for an actual offering
that’s in the works.
The theoretical transaction would total $50 million and would
be based on a portfolio of leases on residential installations. The
plan is to submit the sample to S&P prior to the July 8 start of the
“Intersolar North America” conference in San Francisco.
A second model securitization involving installations on
commercial buildings will also be presented to S&P, with Credit
Suisse again acting as underwriter. However, no issuer has been
assigned for that side of the project.
The goal in both cases is to determine whether S&P will
grade the securities double-A or higher, which is the level that
prospective issuers see as necessary to move forward with their
inaugural offerings.
Why assemble a model securitization? Ever since companies
like SolarCity began expressing an eagerness to securitize
more than two years ago, rating agencies have hesitated over
the complexities and unfamiliar nature of the targeted assets.
The view is that an informal mark from S&P, which has yet to
officially sign on to grade the sample deal, could help issuers
tweak their offerings to ensure broad appeal from the start —
rather than floating potentially lower-rated transactions that
could dampen enthusiasm for the asset class.
S&P’s concerns about solar-equipment deals have included
a lack of historical lease-payment data. The Department of
Energy and the Solar Access group are answering by drafting
standard power-purchase and lease contracts and by creating a
database of lease performance.
That said, it’s unclear why the focus is on how S&P alone
would rate the deals. Credit Suisse, which already has supplied
financing to SolarCity and prospective issuer SunRun, was in
talks with Moody’s last year about possibly grading deals of
$500 million from each company. And while Moody’s is not a
member of the Solar Access group, it has been talking to the
Department of Energy about its approach to the market.
S&P is a member. So are Kroll, Credit Suisse, SolarCity, Sun-
Run and most other solar-equipment solar installation and
leasing companies interested in securitization.
Budget Cuts Leave Brazos in Limbo
The U.S. Department of Education is withholding a servicing
contract that it was poised to award to Brazos Higher Education,
pushing the education lender’s securitization plans onto
the backburner.
The Department of Education had been looking at mid-
June to add Brazos to a list of not-for-profit servicers assigned
to handle collections on government-originated Direct Loans.
But on April 1, the agency said it would halt such assignments
at least until the end of its current fiscal year on Sept. 30.
That decision, brought on by the federal spending cuts
known as sequestration, came as a shock to Brazos. In fact, the
Waco, Texas, lender already had spent $2 million and hired 20
people in anticipation that it would receive the contract.
So what does that have to do with Brazos’ presence in the
asset-backed bond market? The company, once an active
issuer, had been eyeing the assignment as a key source of fee
income at a time when many of its other lines of business dried
up — with the idea that it could use the revenues to launch or
expand other lending projects that it eventually would fund via
a renewed securitization program.
In the three years since the Obama Administration blocked
private-sector lenders from writing fresh loans via the Department
of Education’s Federal Family Education Loan Program,
those shops have been pursuing Direct Loan servicing contracts
as a revenue lifeline. In the meantime, many have seen
their lending volume founder.
Brazos wrote only $300,000 of non-government private
loans in 2012, giving it little in the way of fresh assets to securitize.
The company was negotiating for a $10 million warehouse
line from a regional bank, with the goal of using the capital
to write and eventually securitize loans to students of trade
schools and specialized training programs. But that deal never
materialized.
Brazos has sought alternative sources of revenue in the meantime,
including its December purchase of online job-interview
service InterviewStream. But any securitization plans — seen as
a driver of ongoing lending growth — now are on hold until the
company learns of its future as a Direct Loan servicer.
The Department of Education’s intentions on that front
are unclear. In the meantime, Brazos will lay off the workers
it hired. It also will submit a letter to the agency next week
explaining the importance of the contract and urging for a
quick resolution.
Brazos began issuing student-loan backed bonds in 1995,
and to date has completed 42 deals totaling $15.7 billion,
according to Asset-Backed Alert’s ABS Database. It last was in
the market in August 2012 with a $115.2 million issue, with
Morgan Stanley as bookrunner.
Corrections
An April 5 article, “CLO Issuers Mulling Capital Calls,” overstated
the spread for a class of a Carlyle Group collateralized
loan obligation. The 5.4-year senior tranche of the deal, Carlyle
Global Market Strategies, 2013-2, priced at 115 bp over threemonth
Libor.
An item in The Grapevine on April 5 misidentified the headquarters
of Ares Management. The firm is based in Los Angeles.