Solar Loans Securitisation. Loanpal Raises $400 Million In US

Pic Courtesy: Loanpal Website

Almost no infra sector can grow without access to finance, and this is as true of residential solar as anything else. If the Auto and housing sector exploded on the back of better access to finance, then the residential solar sector, at least in the US, seems to be going the same way. And now, even loan securitisation, a clear indicator of market confidence in the quality of those loans, is becoming bigger there.

Loanpal, a leader in residential solar financing in the US, has announced that Loanpal Solar Loan 2020-3 Ltd. closed a securitization of approximately $434 million worth of Loanpal solar loans previously purchased by Goldman Sachs, Blackstone Credit and Goodfinch. This represents the largest securitization of residential solar loans to date and vindicates Loanpal’s asset quality.

Loanpal offers its loans for users in the residential sector, while giving financial institutions and home improvement contractors the confidence to finance those products. The firm has worked with credit unions, insurance companies, banks and asset managers to provide $400 million of loans through its technology platform per month. Since 2018, the Company claims to have transacted over $5 billion in solar loans on its technology platform.

“The market for sustainable home improvement products is estimated to be worth more than $100 billion in 2021. Access to efficient financing for those products will be a key driver for the sector and the clean energy industry overall,” said Loanpal President and Chief Investment Officer Tanguy Serra. “We’re thrilled to continue our incredible relationship with Goldman Sachs and Blackstone Credit who support Loanpal’s mission and deeply understand the solar loan asset class.”

The latest securitization, sponsored by Goldman Sachs consists of $346.7 million of notes rated by Kroll Bond Rating Agency. The notes are modeled to a weighted average life of approximately 5.69 years, 7.23 years and 7.84 years for the Class A’s, B’s and C’s respectively, and are backed by an initial collateral pool of approximately $434 million of loans with an average FICO score (A measure of consumer risk credit) of 744.

“Efficient and innovative financing of renewable energy sources is part of our core offering. Having played a strategic role in Loanpal’s securitization program since inception, we look forward to seeing how this transaction sets the precedent for future activity,” said Katrina Niehaus, Managing Director at Goldman Sachs.

As the hub of financial innovation, especially in the consumer space, it is safe to say that eventually the model will be attempted in India too, where credit appraisal and evaluation for solar loans is laughably outdated, and difficult. To make the process faster, the few lending institutions who are trying it go simply with a trusted installer partner, or on the credit worthiness of the customer, almost ignoring the asset (solar plant)  quality itself. Thus, unlike say, the life of the solar plant (a claimed 15-25 years in most cases), loans are preferably for 3-5 year duration. Much needs to be done.

Many installers (or EPC contractors) we have spoken to over the months have made it clear that rather than the current generous but painfully tortuous process to get subsidies, they would prefer the subsidies to be replaced by interest subsidies, or straight loan guarantees to make residential rooftop really take off. As of now, nothing like that seems to have any momentum, partly due to the lack of understanding of the sector among financial firms too.

In Loanpal’s case, securitisation, and the future performance of the securitised portfolio, will only make further fund raising easier, and attract more firms to the business.