Done Deal: The first securitization of rooftop solar assets

SolarCity SCTY -2.98% announced Thursday it has completed the market’s first sale of notes backed by the rooftop solar systems it’s installed across the country. The securitization effort has been a while in the making and closely watched by the solar industry as an indicator of investors’ sentiment toward this relatively new energy market.

California-based SolarCity sold about $54.23 million worth of notes with a 4.8% interest rate. The notes are scheduled to mature in December 2026. The company announced the pricing of the notes on Nov. 13.

The company sells leases or power purchase agreements to home and business owners, who pay for the solar electricity from their rooftop solar panels but do not own the equipment. Those contracts run up to 20 years.

To finance those installations and expand its market reach, SolarCity has to raise lots of money. In the past, it’s raised capital from financial institutions and corporate investors. The pressure to raise money prompted the company to explore the securitization of its assets, and that in effect paves the way for its competitors to do so as well.

SolarCity’s first offering is backed by about 44 megawatts of residential and commercial installations, said Bob Kelly, SolarCity’s chief financial officer. That pool involves around 5,000 customers — 71% of them residential and 29% commercial. Overall, SolarCity has signed contracts with about 82,000 customers.

“What you have here are contracts with high-quality consumers making an energy payment. An energy payment is highly predicable,” Kelly said. That expectation of uninterrupted payments from SolarCity’s customers was key to convince investors that they weren’t making high-risk investments.

But whether the risk is truly low remains to be seen, at least from a credit agency’s point of view. SolarCity’s assets are rated at BBB+ from Standard & Poor’s.  Kelly said it will take time to show that the assets can deliver the values they promised and should therefore receive a higher rating that is similar to what utilities’ often get.

“Why are energy payments different for SolarCity than for PG&E PCG +0.27%? Fundamentally they are the same customers,” Kelly said. SolarCity will likely make another offering next year, Kelly said. He said he was “pleasantly surprised” by the investors interest and expects the future offerings to be sized in the $100 million to $200 million range.

http://www.forbes.com/sites/uciliawang/2013/11/21/done-deal-the-first-securitization-of-rooftop-solar-assets/?ss=business%3Aenergy