If anyone is actually interested in the details of SCTY ABS, here you go
KBRA ABS SolarCity LMC Series IV LLC Series 2015-1 New Issue Report
There is a whole bunch of detail, but the basics
1. Each ABS (asset back security) starts out with about 35% more systems than is needed to payback the asset backed loan
2. The bond rating agency assumes loss of system output over the years on two main levels - panel degradation & customer default, but also includes inverter replacement, maintenance fees and servicing fees when calculating cash flows prior to payback of interest + principal
3. The rating agent details stress tests - for example one assumes a 9.4% system default rate, up to 37.5% of systems (by year 15) would renegotiate to lower rates, 100% inverter failure by year 12, 1.3% annual module degradation. In this scenario payback occurs in years 15 & 16 vs. 13 & 14 in the base case
4. Cash flows above and beyond repayment & expense schedule flow back to SolarCity. This includes payments during the term of the agreement and then once the notes are paid.
Other articles worth reading
Economics of Solar Panels Dim for Some SolarCity Borrowers
Solar securitisations and tax equity structures in the US | News+ | IJGlobal
http://www.nrel.gov/docs/fy16osti/64347.pdf
The other SCTY ABS reports are available at Standards & Poors.
If SCTY can keep production up (at the customer site) and maintenance costs down the overcapitalization of systems keeps default risks down. Once the loan is paid SCTY will keep cash flows.
As far as ABS goes, yes this (solar) is a new class vs. more traditional issuance (credit card debt, auto loans, auto leases) but the big benefit to SCTY is that they keep all the cash flows after repayment.
In terms of TSLA, I don't see how anyone can reasonably argue that an acquisition would put TSLA at substantial risk (i.e., Billions of dollars of capital needed) due to these ABS deals. Lifetime performance of solar panels is generally well know at this point, and a 15year useful life is not a big assumption. Plus TSLA will be able to look at actual performance of systems over the last 3-5 years & compare vs. assumptions in the ABS financial projections.
However I am beginning to think that residential batteries mostly make sense under PPA agreements, like the ones SCTY has. The structure really opens the market up to people who don't want to or can't pay for the batteries upfront.
