Fitch assigns AA-sf rating to USM Procurement 9 solar-backed notes

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Fitch AA rating for solar notes

Highlights

Fitch Ratings assigned AA-sf to USM Procurement 9 LLC's series 2026 notes, backed by a $25 million deferred capacity payment due Oct. 15, 2028.
The notes are secured by a payment bond from XL Specialty, with claim payouts required within 15 business days if payor defaults after a five-day cure period.
Note ratings are directly linked to XL Specialty's credit quality, with any Fitch view downgrade or upgrade triggering corresponding note rating actions.

Transaction structure and payment support

As reported by Fitch Ratings, USM Procurement 9 LLC will issue series 2026 notes backed by a deferred capacity payment linked to a procurement agreement for 113 million watts of solar panels from US Modules Parent LLC.

Under the agreement, the payor makes two payments, with the first, a $25 million DC payment, due on Oct. 15, 2028, to reserve production capacity. A final payment is due on Dec. 31, 2028, upon delivery of the panels, but that payment is not part of this transaction.

The DC payment is described as an absolute and unconditional obligation of the payor, with no right of setoff or reduction for non-delivery, liquidated damages claims or other disputes. The payment must also be made using preference-proof funds that are not subject to recapture in a bankruptcy proceeding.

To secure that obligation, the payor must provide a payment bond from XL Specialty equal to the par value of the DC payment. If the payor misses the deadline, USM Procurement 9, acting through the trustee, must notify both the payor and the surety, after which the payor has five days to cure the default before a claim notice is sent.

If a claim is filed, the surety must pay the outstanding amount within 15 business days of receiving the notice. Fitch said the notes are therefore ultimately backed by the surety's obligation.

Credit linkage and implications for investors

Fitch said the notes' rating is directly linked to the credit quality of XL Specialty and its ability to meet its obligations on time. XL Specialty is a subsidiary of AXA SA and is identified as a core subsidiary of the insurance group.

At closing, part of the proceeds equal to all quarterly interest payments due on the notes will be placed in an issuer account for the sole benefit of noteholders. Those funds, along with other transaction-related monies, will be held in trustee-managed accounts, and the trustee must carry a rating of at least A-.

The funds are to be invested in money market funds that satisfy the eligibility standards in the transaction documents and Fitch's structured finance counterparty criteria. Closing proceeds will also cover issuer operating costs, transaction expenses and the surety premium.

Fitch said any negative change in its view of XL Specialty's credit quality will lead to a corresponding downgrade of the notes, while a positive change will support a corresponding upgrade.

In our earlier article, we covered Hainan Rubber’s plan to refinance offshore debt via proposed subordinated perpetual sustainable securities issued by its majority-owned unit Halcyon Agri and guaranteed on a subordinated basis. We noted that Fitch’s rating reflected the instruments’ lower rank in the capital structure and their coupon deferral features, alongside the company’s high leverage profile and liquidity position supported by funding access.

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