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• Content META

  Title	Fitch Downgrades Sunnova's IDR to 'CCC-'
  ID	7531170
  External ID	7606393647
  Author	Unknown
  Published Date	March 6, 2025, 3:49 p.m.
  Summary	Thu 06 Mar, 2025 - 3:36 PM ET Fitch Ratings - Toronto - 06 Mar 2025: Fitch Ratings has downgraded Sunnova Energy International Inc.'s (Sunnova) and Sunnova Energy Corporation's (SEC) Long-Term Issuer
  Tags	None
  URL	https://www.fitchratings.com/research/corporate-finance/fitch-downgrades-sunnova-idr-to-ccc-06-03-2025
  Sentiment	Negative: 0.95223    Neutral: 0.02555    Positive: 0.02221
  Relevance	0.03734

• Content Details

  Content ID	4836416
  Key	bb53304a-c07b-454f-a10c-9fdbc9674b4e
  Content	Thu 06 Mar, 2025 - 3:36 PM ET Fitch Ratings - Toronto - 06 Mar 2025: Fitch Ratings has downgraded Sunnova Energy International Inc.'s (Sunnova) and Sunnova Energy Corporation's (SEC) Long-Term Issuer Default Ratings (IDRs) to 'CCC-' from 'B-'. Fitch has also downgraded SEC's senior unsecured debt rating to 'CCC-' with a Recovery Rating of 'RR4' from 'B'/'RR3'. The downgrade reflects Fitch's view of a greater likelihood that Sunnova would be unable to refinance its upcoming 2026 and 2028 corporate maturities on reasonable terms. Cash flow generation fell short of Fitch's expectations, and residential solar developers face tougher operation conditions due to a peer's bankruptcy and uncertainties about renewable asset funding. Recent poor capital market performance of Sunnova's equity and debt instruments, along with limited access new corporate debt, further constrain its options. The company issued a going-concern warning along with its 10-K filing earlier this week. Sunnova's ratings also reflect the structural subordination of corporate debt to nonrecourse securitization debt, a primary funding source for the company. Key Rating Drivers Refinancing Risk Heightened : Fitch views a higher likelihood that Sunnova will be unable to refinance its $400 million senior unsecured bonds and $575 million convertible bonds, maturing in September and December 2026, respectively, at reasonable terms, or generate enough cash to repay bonds at maturity. As of Dec. 31, 2024, Sunnova had $211.4 million in cash and cash equivalents. However, only $34.7 million was held outside of secured collection accounts and available for corporate use. On March 2, 2025, Sunnova issued a $185 million term loan with a 15% interest rate, secured by pledging residual equity interests in all Sunnova's securitizations, excluding those of the Hestia and RAYS programs. The company intends to use the proceeds to manage its working capital. The term loan weakens Sunnova's already high consolidated leverage, constrains any future capital market access, and subordinates the existing corporate debt. Credit Metrics to Remain Weak : Fitch expects Sunnova's funds from operations (FFO) coverage metrics and cash flow from operations (CFO) to remain weak over the forecast horizon, with the consolidated FFO interest coverage ratio persistently low, in the 1.1x-1.2x range through 2026. Fitch believes cash flows could improve from Sunnova's cost-saving measures, including a 30% headcount reduction since 2023, moderated capex, and efforts to renegotiate dealer terms. However, Sunnova's working capital is expected to remain under pressure from timing mismatches between dealer payables and tax equity inflows. Fitch's calculation of FFO includes principal payments from solar loans customers. Structural Subordination of Corporate Debt : Sunnova's senior unsecured debt, issued by SEC, is subordinated to nonrecourse securitization debt. Most of Sunnova's revenue services securitizations and tax equity obligations, with the residual available for debt service and operating expenses. A smaller portion is unencumbered by securitization and flows directly to Sunnova, including revenue from sale of the renewable energy credits, loan and inventory sales, and residual revenue from securitizations. It also receives management and service fees, which are paid before any tax equity and securitization payments. Securitization Refinancing Risk : The main concern at the holding company level is the securitization refinancing risk at the anticipated repayment date (ARD), typically five to 10 years after issuance. If not refinanced by then, cash flow from residuals ceases. While a performance trigger breach could similarly disrupt cash flow, this is less likely given the diversified customer base, which would require a systemic market disruption. The next ARD is in 2027, providing some runway. However, the main risk would be Sunnova can secure capital market access, especially in the current high-interest-rate environment. Parent Subsidiary Linkage : There is parent-subsidiary linkage between Sunnova and SEC. Fitch determines Sunnova's standalone profile based on consolidated metrics. SEC has a stronger standalone profile than its parent Sunnova due to additional debt at the Sunnova level. Legal ring-fencing, access and control are open. As a result, Fitch consolidates the IDRs of Sunnova and SEC. Peer Analysis Sunnova's closest peers among Fitch-rated renewable energy providers are TerraForm Power Operating LLC (TerraForm; BB-/Stable) and Leeward Renewable Energy Operations (Leeward; BB-/Stable), which own and operate portfolios of nonrecourse, predominantly renewable projects. Fitch views Sunnova's portfolio of assets as different from its peers, as it consists of more than 441,000 residential solar projects across U.S. states and territories. In contrast, its peers concentrate ownership in a few large utility-scale wind or solar projects. Portfolio diversity provides more protection from any single project failure affecting credit, which has an issue for some of Sunnova's peers. Fitch also views favorably Sunnova's portfolio mix, primarily consisting of solar and solar/storage assets. Leeward owns almost 100% wind generation assets, which exhibit more resource variability. TerraForm's portfolio benefits from a large proportion of solar generation assets at 44%. Sunnova's has a longer remaining contract life of about 22 years, compared to Leeward's nine years. TerraForm's long-term contracted fleet has a remaining contract life of 11 years. However, Sunnova's credit metrics are materially weaker than those of its peers, with historically negative CFO. Additionally, Sunnova has a materially weaker liquidity position and high refinancing risk, contributing to a several-notch difference between Sunnova's rating and its peers'. Sunnova does not have a parent support like its peers. Leeward benefits from having OMERS Administration Corporation (AAA/Stable) as a sponsor, while TerraForm is fully owned by Brookfield Renewable Partners L.P. (BBB+/Stable). Sunnova depends on public market access to facilitate growth. Key Assumptions --Growth capex to be financed with a combination of tax equity and non-recourse securitized debt; --No dividends over the forecast period; --Revenue, EBITDA, FFO and CFO are adjusted to include principal payments (net of those already in revenue) from those customers who have loan contracts with Sunnova. Revenue and EBITDA also include interest income from loan customers; --Average interest rate on the new securitized loans of 6.5% over the forecast period. Recovery Analysis The 'CCC-'/'RR4' rating, where 'RR4' denotes a 31%-50% recovery for Sunnova's senior unsecured notes in a bankruptcy case, is based on a scenario in which Sunnova is not able to refinance its senior unsecured note maturing in 2026. Fitch assumes the deconsolidated going-concern (GC) EBITDA at Sunnova is approximately $120 million. The deconsolidated GC EBITDA reflects the steady-state, no-growth residual cash flow after securitizations and tax equity payments, and other unencumbered revenue available to service corporate debt, assuming there is no additional growth beyond 2024. GC EBITDA reflects the absence of growth expenditure and a full year of operations from the assets put in place as of YE 2025. Fitch used a multiple of 4.0x to calculate a post-reorganization valuation. The multiple applied in the Sunnova recovery scenario reflects the company's operating profile as an entity with a predominately subordinated cash flow stream. Using this GC EBITDA and a 10% administrative claim in the recovery calculation as specified in Fitch's Corporates Notching and Recovery Ratings Criteria, the agency determines the senior unsecured notes' recovery rating to be 'RR4'. Recovery ratings are capped at 'RR2' for senior unsecured rating. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade --Inability to refinance/repay upcoming 2026 maturities such that a default appears probable; --A debt restructuring that is considered as a distressed debt exchange; -- Inability to access capital markets to refinance existing securitizations or finance future growth; --An inability to maintain sufficient cash levels to operate over the next 12 months. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade --Repayment or refinancing of its 2026 maturities without a material reduction in terms; --Meaningful improvement in liquidity, FFO interest coverage consistently over 1.0x, and positive CFO generation. Liquidity and Debt Structure As of Dec. 31, 2024, Sunnova had total $211 million in unrestricted cash and cash equivalents, of which $34.7 million was held outside of secured collection accounts. It also had available borrowing capacity under various non-recourse financing arrangements, consisting of $383.4 million under the EZOP RCF, $194.1 million under the TEPH facility, $42.6 million under the IS facility and $3.8 million under the BMB facility. However, these are typically not available for corporate use. In January 2025, an event of default was introduced in the EZOP agreement requiring repayment of a substantial portion of the facility by March 31, 2025 if Sunnova failed to complete takeout transactions for 95% of eligible solar loans within 60 days. On March 2, 2025, Sunnova issued a $185 million secured term loan with a 15% interest rate to manage its working capital. Sunnova has significant upcoming maturities, with $400 million in senior unsecured bonds and $575 million in convertible bonds, due in September and December 2026, respectively. Another $400 million in senior unsecured bonds and $600 million in convertible bonds mature in 2028. Poor recent capital market performance restricts funding access. Sunnova was compliant with its debt covenants as of Dec. 31, 2024. Issuer Profile Sunnova Energy International Inc. is a leading residential energy service provider, serving nearly 441,000 customers across the 50 U.S. states and territories. Sunnova builds, owns, operates and finances residential solar and battery storage assets. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores RATING ACTIONS Entity / Debt Rating Sunnova Energy International Inc. LT IDR CCC- Downgrade B- Sunnova Energy Corporation LT IDR CCC- Downgrade B- senior unsecured LT CCC- Downgrade B Additional information is available on www.fitchratings.com PARTICIPATION STATUS The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure APPLICABLE MODELS Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 ADDITIONAL DISCLOSURES ENDORSEMENT STATUS Sunnova Energy Corporation EU Endorsed, UK Endorsed Sunnova Energy International Inc. EU Endorsed, UK Endorsed
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  Publisher Name	Fitch Rating (#3235)
  Publisher URL	https://www.fitchratings.com
  Description	None
  Trust Flow Score	33
  Citation Flow Score	46

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  Data Source Name	Quantexa News (#5)
  Data Source Type	news
  Data Source URL	https://app.aylien.com/dashboard
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