Morningstar DBRS Places Credit Ratings on Sunnova Aurora I Issuer, LLC Under Review With Negative Implications

DBRS, Inc. (Morningstar DBRS) placed its credit ratings on three securities in the Sunnova Aurora I Issuer, LLC asset-backed securities (ABS) transaction Under Review with Negative Implications as detailed below.

The credit rating actions are based on the following analytical considerations:

-- On June 8, 2025, the Sunnova Energy International Inc. (Company) and certain of its subsidiaries voluntarily filed petitions for Chapter 11 relief in the United States bankruptcy court in the Southern District of Texas to facilitate a sale process for certain of the Company's assets and business operations. The Company intends to continue operating its business in the ordinary course throughout the sale process.

-- On June 12, 2025, the bankruptcy court conditionally approved a debtor-in-possession financing (the "DIP Financing") of $90 million by a group including some of the company's bondholders to fund an in-court marketing process. Separately, the Company entered into a Stalking Horse purchase agreement with the DIP lenders to sell substantially all of its assets to the DIP lenders if no superior bid is received during its marketing process. The Stalking Horse agreement sets a minimum bid for an auction of the company's assets and is expected to be finalized by the end of July 2025. The execution of the Stalking Horse agreement is subject to the outcome of the sales process and will not be known until the end of July.

-- If the Company executes the Stalking Horse purchase agreement, a new named successor servicer and manager will assume servicing of the lease contracts and management of the solar systems. The new named successor servicer is expected to subcontract certain servicing responsibilities to third parties. Additionally, the new named successor servicer is expected to maintain contractual relationships with existing Operations & Maintenance managers.

-- Given the uncertain outcome of the bankruptcy and potential impact of the proposed servicing transfer on the transaction, all classes of notes have been placed on Under Review with Negative Implications. Morningstar DBRS will continue to monitor the bankruptcy process, the servicing transfer and evaluate asset performance following the servicer transfer.

-- The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, "Baseline Macroeconomic Scenarios for Rated Sovereigns March 2025 Update," published on March 26, 2025. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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 2024-1PR 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 concentration geographic risk.

100% of the Sunnova 2024-1PR 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 (May 16, 2025) https://dbrs.morningstar.com/research/454196.

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

The principal methodology applicable to the credit ratings is Morningstar DBRS Master U.S. ABS Surveillance (June 17, 2025) https://dbrs.morningstar.com/research/456340.

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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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.

-- Operational Risk Assessment for U.S. ABS Originators and Servicers (March 26, 2025)
https://dbrs.morningstar.com/research/450709

-- Legal Criteria for U.S. Structured Finance (December 3, 2024)
https://dbrs.morningstar.com/research/444064

-- Rating U.S. Structured Finance Transactions (March 10, 2025)
https://dbrs.morningstar.com/research/449616

-- Rating Solar ABS Transactions (June 17, 2025)
https://dbrs.morningstar.com/research/456372

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