Will Sunrun's annual default rate on securitized portfolios exceed 100 bps by year-end 2026?

Default rates at 50-75 bps annually are well below the 100 bps threshold. Residential solar defaults are structurally low because: (1) solar reduces electricity bills, creating financial incentive to maintain the lease, (2) systems are attached to homes, and homeowners who sell their homes typically transfer the lease, (3) defaults require both financial distress AND a decision to forgo electricity savings. For defaults to breach 100 bps, we'd need a severe economic downturn affecting a significant portion of Sunrun's 1.1M customer base. The affiliate channel reduction may actually improve credit quality of new originations. Securitization rating agencies have maintained or upgraded ratings, providing independent validation.

The methodology change from cumulative to annual default rate reporting in Q4 2025 introduces some uncertainty — we have limited history of annual default rates as defined by the new methodology. If the previous cumulative rate was being reported in a way that understated the annual rate, the rebased metric could show higher numbers. However, the 50-75 bps range is consistent with securitization performance data from rating agencies, which have their own independent default tracking. Macroeconomic risk (recession, rising unemployment) is the primary driver for default increases, and current economic conditions are not pointing to severe consumer stress in Sunrun's markets.

Residential solar lease defaults have historically been among the lowest consumer asset classes — comparable to prime auto loans. The structural economic benefit of solar (bill savings) creates a strong incentive to maintain the lease. Sunrun's portfolio spans 1.1M+ customers across 20+ states, providing geographic diversification that limits concentrated default risk. The threshold (100 bps) represents roughly a 33-100% increase from current levels, which in consumer credit typically requires significant macroeconomic stress. The probability of such stress materializing within 2026 and flowing through to reported defaults (which typically lag) is low.

The question includes an OR condition — rating agency downgrade on any deal also triggers YES resolution. Rating downgrades can occur even without defaults breaching 100 bps if the rating agency revises its assumptions or if subordination levels change. This broadens the resolution criteria somewhat. However, rating agencies have been maintaining or upgrading Sunrun securitizations, suggesting a comfortable credit outlook. A downgrade would likely require either observed default increases or methodology changes at the rating agency level.

Defaults at 50-75 bps with a stable economic outlook and strong structural protections (bill savings, home attachment) make a breach of 100 bps unlikely in 2026. The Vivint Solar customer base integration could be a risk factor if those customers have different credit profiles, but the merged portfolio has been performing for years without adverse trends. The affiliate channel cuts may actually reduce default risk by eliminating lower-quality originations.

The tail risk is a sudden economic downturn — recession with significant unemployment increases in Sunrun's key markets (California, Texas, Massachusetts). Even in such a scenario, solar lease defaults tend to be among the last consumer obligations to default on because the alternative (grid electricity) costs more. The time lag between economic stress and reported default data also means that even if a recession begins in late 2026, the impact on reported defaults would likely appear in 2027. Probability around 13%.

Solar lease defaults are structurally low. Current rates at 50-75 bps with rating agency upgrades. No indication of deterioration. Very low probability.

The OR condition for rating downgrades adds some probability. But overall, the portfolio is performing well, economic conditions are not pointing to severe stress, and structural protections are strong. Around 14%.

A 33-100% increase in default rates within one year is a significant jump for a consumer credit portfolio with no deterioration signals. Only a severe recession would drive this outcome, and even then the timing lag makes 2026 reporting unlikely. Around 12%.