KBRA continues to monitor developments relating to SunPower Corporation’s (SunPower or the Company) financial status following the filing of its most recent 8-K on July 3, 2024. KBRA rates the Class A of SunStrong 2018-1 ‘A’/Watch Developing, a residential solar lease ABS transaction . The Watch Placement was effectuated on December 21, 2023 due to the financial health of SunPower. In the 8-K, the Company indicated that its independent auditor, Ernest & Young LLP (EY), has resigned. SunPower also reiterated statements from its April 23, 2024 8-K, that its audit committee determined recent financial statements should no longer be relied upon and should be restated due to accounting errors. The filing further indicated that the Securities and Exchange Commission (SEC) had subpoenaed the Company in regard to certain accounting matters related to revenue recognition.

According to the 8-K, on June 27, 2024 EY notified the Company that it was resigning as the Company’s independent auditor. EY had advised SunPower’s audit committee that information has come to its attention that has made EY unwilling to be associated with the financial statements prepared by management. The 8-K also states that there was a disagreement between the Company and EY regarding EY’s auditing scope or procedures at the time of EY’s resignation.

The SEC subpoena was dated February 28, 2024, and related to certain accounting matters surrounding revenue recognition focused on the periods discussed in the Company’s April 23, 2024 8-K and the Company’s fourth fiscal quarter of 2023. In response, the Company’s audit committee authorized an internal review which is ongoing and is being conducted by an independent outside law firm, with the assistance of an independent forensic account advisor. The Company states that it intends to fully cooperate with the SEC investigation.

In SunPower’s December 18, 2023 10-K/A, the Company stated it breached a covenant in its credit agreement due to a delay in filing their 10-Q caused by them identifying a material weaknesses in their internal controls over financial reporting. As a result, creditors at that time could have demanded immediate repayment of amounts owed under their credit facilities. In connection with this, and also reported in the 10-K/A on December 18, 2023, SunPower stated that substantial doubt exists about their ability to continue as a going concern. Since that time, it has received waivers from lenders of its credit facilities as it raised additional financing commitments and was working to provide restated audited financial statements as required under the credit facilities. With the resignation of EY, there may be a substantial delay until audited financial statements are available. It still remains uncertain if the credit facility providers will continue to provide waivers or for how long. If they don’t provide waivers and it results in SunPower filing for bankruptcy it could cause a manager termination event, which could negatively impact transaction performance.

SunStrong Capital Holdings, LLC (Sunstrong), as manager of the Sunstrong 2018-1 transaction, is responsible for providing all administrative, collection and other management services for the Issuer and in respect of the managing members. Sunstong was formed in 2018 and is jointly owned 51% directly by SunPower and 49% indirectly by HannonArmstrong. SunStrong, although obligated to ensure all services are performed, has delegated substantially all of its responsibilities to SunPower Services, an indirect wholly owned subsidiary of SunPower, as sub-manager. SunStrong has replaced GreatAmerica Portfolio Services Group LLC with Launch Servicing, LLC., (Launch) and also Launch has transitioned to performing warm backup servicing for SunStrong 2018-1. Additionally, Launch will be the sub-servicer for billing and collections activities on SunStrong 2018-1.

The involvement of Launch in the transaction could help mitigate potential performance disruption should the situation surrounding SunStrong continue to deteriorate. KBRA will continue to monitor the developments and implications of SunPower’s financial health, as well as possible manager transitions and performance of the SunStrong 2018-1 transaction.

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Related Publications

• KBRA Maintains Watch Developing Placement on SunStrong 2018-1 Issuer, LLC
• KBRA Places Rating on SunStrong 2018-1 Issuer, LLC on Watch Developing

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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