Morningstar DBRS Assigns Provisional Credit Ratings to Sunnova Aurora I Issuer, LLC

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by Sunnova Aurora I Issuer, LLC, Series 2024-PR1 (Sunnova 2024-PR1 or the Issuer):
-- $197,600,000 Series 2024-PR1 Class A Notes at (P) AA (low) (sf)
-- $17,900,000 Series 2024-PR1 Class B Notes at (P) A (sf)
-- $12,700,000 Series 2024-PR1 Class C Notes at (P) BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION
The Morningstar DBRS provisional credit ratings on the Notes are based upon a review by Morningstar DBRS of the following considerations:

(1) The transaction's capital structure and the form and sufficiency of available credit enhancement.
-- Overcollateralization, subordination, reserve account amounts, and excess spread create credit enhancement levels that are commensurate with the proposed ratings.
-- Transaction cash flows are sufficient to repay investors under all rating stress scenarios in accordance with the terms of the Sunnova 2024-PR1 transaction documents.
-- The quality and credit characteristics of the solar lease customers.
-- Structural features of the transaction that require the Notes to enter into full turbo principal amortization if performance deteriorates or if the Notes remain outstanding post-ARD.
(2) The experience, origination, and underwriting capabilities of Sunnova.
-- Morningstar DBRS has performed an operational assessment of Sunnova and considers the entity to be an acceptable originator.
(3) The ability of the Servicer to perform collections on the collateral pool and other required activities.
-- Morningstar DBRS has performed an operational assessment of Sunnova and considers the entity to be an acceptable servicer.
(4) The legal structure and expected legal opinions that will address true sale, nonconsolidation, that the trust has a valid first-priority security interest in the assets, and the consistency with the Morningstar DBRS Legal Criteria for U.S. Structured Finance.
(5) The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2024 Update, published on September 25, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.

Morningstar DBRS' credit rating on the Class A Notes, Class B Notes, and Class C Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are Note Interest and the Outstanding Note Balance on the Class A Notes, Note Interest, Interest on unpaid Note Interest, Class B Deferred Interest, interest on unpaid Class B Deferred Interest, and the Outstanding Note Balance on the Class B Notes, and Note Interest, Interest on unpaid Note Interest, Class C Deferred Interest, interest on unpaid Class C Deferred Interest, and the Outstanding Note Balance on the Class C Notes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, interest on unpaid Note Interest on the Class A Notes, Post-ARD Additional Note Interest, Deferred Post-ARD Additional Note Interest, and the Make Whole Amount on the Class A Notes, Class B Notes, and Class C Notes.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
The following Environmental factor(s) had a relevant effect on the credit analysis: The environmental factor "Climate and Weather Risks" had a relevant effect on the credit analysis, as the environmental factor related to extreme weather events, together with other geographic concentration factors, had a qualitative impact on default expectations.

All of the solar lease customers in the Sunnova 2024-PR1 transaction reside in Puerto Rico, a region vulnerable to extreme weather events, such as hurricanes. The island's electricity transmission and distribution infrastructure suffered significant damage and prolonged power outages in recent Hurricanes Maria (2017) and Fiona (2022). Morningstar DBRS assessed geographic concentration risk by considering, in whole, the pool's significant risk to natural disasters and their increasing frequency in recent years, economic downturns, home price declines, and regulatory changes. Consequently, conservative default multiples were applied at the various rating categories to account for the geographic concentration risk.

100% of the Sunnova 2024-PR1 solar PV systems are coupled with batteries, a Sunnova requirement for all solar PV systems installed in Puerto Rico since 2018. The policy was implemented following the island-wide blackout caused by Hurricane Maria (2017), and is meant to protect customers against power loss from grid failures. Solar PV systems stop generating power if the power grid is down, unless a battery is installed to provide electricity to the home during a power outage. Hence, batteries create a substantial value proposition for customers, and may lead to lower default probabilities compared to those without batteries. Morningstar DBRS was not provided with data demonstrating different default performance between customers with batteries versus without batteries, and therefore, there was no impact to the credit analysis due to this factor.

There were no Social/Governance factor(s) that had a significant or relevant effect on the credit analysis

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is

Rating Solar ABS Transactions (September 18, 2024) https://dbrs.morningstar.com/research/439590.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model (only model referenced in this press release; September 30, 2024) https://dbrs.morningstar.com/research/440090
-- Rating U.S. Structured Finance Transactions (October 28, 2024) https://dbrs.morningstar.com/research/441883
-- Legal Criteria for U.S. Structured Finance (October 28, 2024) https://dbrs.morningstar.com/research/441840
-- Operational Risk Assessment for U.S. ABS Originators and Servicers (August 6, 2024) https://dbrs.morningstar.com/research/437545

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.