Tesla Finance, which already securitizes retail auto loans and leases on its electric cars, is now pushing into the arena of raising bond financing from revenue on 22,952 retail installment contracts for residential solar equipment with a $500 million issuance through the Tesla Sustainable Energy Trust.
Tesla Sustainable Energy Trust, 2024-1, is Tesla Finance's inaugural deal in this area. It will issue notes through five tranches of class A, B and C notes, according to ratings analysts at Kroll Bond Rating Agency.
Initially, the portfolio has a weighted average (WA) FICO score of 793, the highest presented in a residential solar ABS transaction, according to Fitch Ratings. Also, about 53% of the initial deal is composed of borrowers with a FICO score above 800.
Deutsche Bank Securities is the initial note purchaser, according to KBRA.
Citigroup, Goldman Sachs and Wells Fargo join Deutsche on the deal as managers, according to Asset Securitization Report's deal database. They are priced against the three-month I-curve, and yields range from 4.83% on the A1 notes to 6.3% on the class notes, according to the database.
The A1, A2 and A3 tranches have an initial credit enhancement level of 13.73%. Tranches B and C have initial credit levels of 9.31% and 4.89%, respectively, KBRA said. At the core of the structure is a credit enhancement scheme that includes required overcollateralization (OC) of 5.45%, yield supplement OC, subordination, a cash reserve account equaling 1.0% of the adjusted pool balance, and excess spread, KBRA said.
All classes will repay noteholders sequentially at closing, according to Fitch Ratings. The A1 tranche matures in December 2025, while the A2 through class C notes have a June 2050 legal final maturity date.
Solar retail installment contracts typically displace utility payments and reduce overall household electricity bills, and borrowers see savings whether their loans have longer or shorter tenors. This helps to offset the additional monthly debt payment, according to KBRA.
Fitch also notes that borrowers typically make a down payment of 13%, providing incentive to keep up with payments.
Tesla entities are integral to the deal. Tesla manufactured all the energy products financed, except for the solar panels, and Tesla Energy installed the solar systems in the homes, according to KBRA. Tesla Finance is servicing the underlying assets, with no backup servicer on the deal, according to the rating agency.
Despite Tesla Finance's limited track record, Fitch said it was able to assign ratings using data from Tesla and peer sources.
Fitch assigns ratings of F1+ to the A1 notes; AA to the A2 and A3 notes; AA- to the class B notes; and A- to the class C notes. KBRA assigns K1+ to the A1 nots; AAA to the A2 and A3 tranches; AA+ to the class B notes and A+ to the class C notes.
