This Deal Matters: SolarCity Leads Market into New World of Solar Securitization
Despite its stock getting battered late in the week due to a bigger-than-expected third quarter loss, we believe hindsight will judge last week a good one for SolarCity. For us, the short-term whims of speculative day traders and hedge funds do not outweigh the significance of the company’s announcement a week ago that it was planning a private placement, worth $54 million, of debt securities backed by the cash flows of its solar projects.
The deal is significant as it is the first of its kind and an important step in the direction of securitization of solar generation facilities. If all goes well, it will be yet another proof point for the bank-ability of solar. Thus far, in the United States, solar project developers have raised project finance funds based on pass-through arrangements that promise the delivery of tax subsidies accrued to the solar facility, to institutional investors (typically big banks) with large tax liabilities. SolarCity’s new private placement may open the door to a plethora of private-sector pooled-asset financing vehicles including real estate investment trusts (REITs) and master limited partnerships (MLPs), that are attractive for their future cash flows, not just subsidies.
Across the pond in July, a £130 million public offering on the London Stock Exchange by Bluefield Partners’ Bluefield Solar Income Fund marked a similar waypoint by offering shares in a pooled fund that has already begun acquiring utility-scale solar projects. Speaking at the time to Solar Power Portal, Bluefield managing partner James Armstrong explained why solar PV is becoming more attractive to investors. He said: “The nature of the solar asset lends itself well for investment – it’s classic infrastructure: the irradiation is very stable, the technology to capture it is very stable; therefore you have a very stable income and that’s the nub of it. Solar works very well for what investors are looking for today.”