New Hampshire, USA --
It's been a good couple of weeks for the benchmark third-party solar
installer, from financing to expansion, and it's quieted a pesky
argument too.
It's Raising the Bar for Solar Financing. This month SolarCity proposed and completed
the first securitization of distributed solar energy, issuing $54
million in solar asset-backed notes, yielding 4.80 percent and maturing
in December 2026. The notes are backed by a pool of PV systems, leases,
and power purchase agreements -- technically owned by SolarCity LMC
Series I, not insured or guaranteed by SolarCity itself. SolarCity says
it wants to do them maybe as frequently as every quarter, and says the
next one might be a $200 million deal.
"We're seeing financing moving to capital markets as standardization
of distributed generation is approved," explained Trevor J D'Olier-Lees,
analyst with Standard & Poors, who helped craft the group's BBB+
rating for SolarCity's offering. S&P liked the deal's "relatively
low leverage" of 62 percent outstanding notes vs. discounted solar
assets, their relatively young age (around two years), reserves for
interest and inverter replacements, and performance tests. S&P
credit analyst Xilun Chen noted that SolarCity's securitization pool has
good FICO scores on the residential side, and strong mostly
investment-grade ratings for the nonresidential parts. Liquidity and
scale of distributed generation asset are what make this securitization
asset class especially attractive, added D'Olier-Lees. In its analysis,
S&P also offered some more insights about SolarCity's customer base,
such as: only 2.4 percent of the company's 39,000 financed systems have
completed "contract reassignments" and "only a handful" were ultimately
removed, meaning SolarCity rarely has been left on the hook for any
defaults.
Deutsche Bank's Vishal Shah pointed out the offering was more
attractive than current tax equity financing with a far lower interest
rate, and he expects other companies to follow suit, including private
leasing companies and SunPower. "Tax equity financing has been the
primary constraint for companies involved in the residential solar
market and this transaction should act as a great source of incremental
capital," he wrote in a research note.
It's Settling Debates. Ten days ago U.S. Senator
Jeff Sessions (R-Alabama), ranking member of the Senate Budget
Committee, sent a letter to Treasury Secretary Jack Lew in which he re-raised some questions
about the 1603 stimulus program and specifically how SolarCity has been
calculating "fair market value" to get reimbursed under the 30 percent
tax credit. Barrons had picked up on the issue back in August and again earlier this month, and it's been called to our attention in the past.
Last week, though, SolarCity cleared the air with a point-by-point deconstruction
of those concerns and criticisms, which it says it couldn't do before
because of SEC quiet-period restrictions. The company emphasized
misinterpretation and miscalculation of "fair market value" and system
prices. "The inaccuracies are understandable, given the complexity of
the issues, and the fact that we had not addressed them," the company
acknowledges, "but felt we owe it to our customers, partners, employees,
and shareholders to set the record straight."
It's branching out. SolarCity also just announced it
is extending its reach in the biggest U.S. solar state, adding 10 new
operation centers across California and 260 workers -- it now will have
24 offices statewide, collectively putting it within 30 miles of 90
percent of the state's population, i.e. potential customers). Tanguy
Serra, EVP of operations, points out the expansion both reduces costs
thanks to less drive time and faster installations, even as state
incentives wind down. Here's a map of the company's California profile.
http://www.renewableenergyworld.com/rea/news/article/2013/11/solarcitys-good-news-trifecta-greenbacks-grants-and-growth
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