Are More Solar Asset-Backed Securities Coming?

Back in September of 2015, AES Distributed Energy announced a new solar asset-backed securities (ABS) offering. Together with four other similar offerings by SolarCity Corp SCTY and Sunrun Inc RUN, the total amount of solar ABS offerings at the time had reached $560.5 million.

In December, Moody’s analyst Tracy Rice had high hopes for the solar ABS market in 2016.

“We expect further growth in ABS secured by rooftop solar contracts in 2016 and beyond,” rice said. “The key drivers of expansion will be continued strong growth of the US rooftop solar market, regulatory and policy support for solar power, as well as institutional investors’ growing acceptance of the asset class.”

Related Link: Recovery Or Bankruptcy: Where Will Sunedison Be A Year From Now?

However, by the beginning of March, the outlook for the solar ABS market had taken a dramatic turn. In a March 2 report, ROTH Capital Partners analyst Philip Shen described the firm’s outlook for solar ABS in 2016.

“We would not be surprised to see a brief hiatus on solar ABS especially from the largest issuer over the near-term, potentially through mid-2016 given recent regulatory challenges and overall macro factors driving spreads wider,” Shen wrote at the beginning of March.

This week, Shen provided some additional clarity to ROTH’s outlook following the Solar Power Finance and Investment Summit last week.

“With ABS likely not fully available to resi solar players near-term, some [commercial banks] are even exploring the idea of lending to residential solar players over a period of five years thereby giving the companies time for the ABS markets to settle down.”

The turn in the solar ABS market has severely impacted solar stocks. The Guggenheim Solar ETF TAN is down 27.4 percent so far in 2016.

Disclosure: the author holds no position in the stocks mentioned.