Fitch downgrades Sunnova’s IDR due to uncured missed interest payment

Investing.com -- Fitch Ratings has lowered the Long-Term Issuer Default Ratings (IDRs) of Sunnova Energy International Inc (NYSE:NOVA). (Sunnova) and Sunnova Energy Corporation (SEC) to ’RD’ from ’C’. The downgrade is a response to Sunnova’s missed interest payment on its $400 million senior notes due in 2028, which was due on April 1, 2025. The 30-day grace period for the payment has expired.

Despite the missed payment, Sunnova has entered into a forbearance agreement that extends from May 2, 2025, to May 8, 2025. The agreement could also extend until any other defined termination event occurs. The ratings also take into account the subordination of Sunnova’s corporate debt to nonrecourse securitization debt, a key funding source for the company.

Sunnova failed to make the interest payment scheduled for April 1, 2025, on its 11.575%, $400 million senior notes due in 2028. This uncured payment default, despite no bankruptcy filings or cessation of operations, aligns with an ’RD’ IDR, according to Fitch’s rating definitions.

Fitch also notes a high likelihood that Sunnova will not be able to refinance its $400 million senior unsecured bonds and $575 million convertible bonds, which mature in September and December 2026 respectively, at reasonable terms. The company’s liquidity remains weak and limited, with cash in hand of $34.7 million as of Dec. 31, 2024, available for corporate use, while cash flows are expected to remain under pressure.

In March, Sunnova issued a $185 million term loan with a 15% interest rate, secured by residual equity interests in all of Sunnova’s securitizations, excluding those of the Hestia and RAYS programs. The proceeds from the term loan are intended to manage the company’s working capital. However, the term loan increases Sunnova’s already high consolidated leverage, restricts future capital market access, and subordinates existing corporate debt.

Sunnova’s senior unsecured debt, issued by SEC, is subordinated to nonrecourse securitization debt. Most of Sunnova’s revenue serves securitizations and tax equity obligations, with the remainder available for debt service and operating expenses. A smaller portion is unencumbered by securitization and flows directly to Sunnova.

Sunnova’s credit profile is considerably weaker than its peers’, with a historically negative CFO, a noticeably weaker liquidity position, and high refinancing risk. Unlike its peers, Sunnova does not have parent support and relies on public market access to facilitate growth.

Fitch’s ’C’/’RR4’ rating for Sunnova’s senior unsecured notes in a bankruptcy case suggests a 31%-50% recovery. This rating is based on a scenario where Sunnova cannot feasibly restructure its debt.

The IDR could be further downgraded to ’D’ if any formal bankruptcy procedure is initiated. Conversely, Fitch will reassess the company’s credit profile if there is a successful resolution to the current restricted default.

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