medium · Asset-Backed Securities

A Solar ABS structure includes a 'Tax Equity Flip'. How does this typically affect the cash flows available to the ABS bondholders?

1. Cash flows to bondholders are entirely suspended until the tax equity investor's IRR hurdle is met.
2. The ABS bond principal is repaid entirely by the tax equity investor once the flip date is formally reached.
3. ABS investors typically sit atop the structure and receive priority cash flows before and after the flip.
4. The flip automatically triggers a conversion of the outstanding ABS bonds into shares of common equity in the sponsor.

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