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Renewables firms exposed to Silicon Valley Bank crash have other lending options


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Renewables firms exposed to Silicon Valley Bank crash have other lending options

Plenty of other lenders should step in to fill any financing gaps for the clean energy sector caused by the collapse of Silicon Valley Bank, industry experts said.

California's financial regulator, the Department of Financial Protection and Innovation, took possession of the Santa Clara, Calif.-based bank on March 10, citing inadequate liquidity and insolvency.

That same day, residential solar installers Sunrun Inc., Sunnova Energy International Inc. and Spruce Power Holding Corp., as well as intelligent energy storage provider Stem Inc., all disclosed "immaterial" impacts from the collapse. Silicon Valley Bank has led or participated in 62% of community solar financings to date, according to its website.

SVB Financial Group's bank unit is one of many banks participating in a $600 million recourse credit facility for Sunrun that includes "letters of credit along with the company's $1.8 billion non-recourse senior aggregation warehouse facility," Sunrun said in a statement. Silicon Valley Bank also "represents ... less than 15%" of Sunrun's hedging facilities.

Meanwhile, Sunnova does not have any securities with the bank, but one of the company's subsidiaries is party to a holding company loan "in which Silicon Valley Bank participates as a lender," according to a statement. Silicon Valley Bank has "$15 million in unfunded commitments" under that vehicle, one of three warehouse facilities Sunnova subsidiaries have entered into "with current cumulative commitment amounts of $1.35 billion," the company said.

Spruce Power disclosed "less than $1 million of cash deposit exposure" in accounts held by Silicon Valley Bank while noting that the bank is "either a sole lender or party to [a] group of members" for non-recourse senior debt facilities taken out by company subsidiaries. Spruce Power also has negligible exposure to "interest rate hedge instruments associated with these facilities."

Stem has no credit facilities with Silicon Valley Bank but estimated that "less than 5% of our cash and short-term investments could be impacted by the closure of the bank," according to a statement.

Sunrun and Sunnova shares fell on March 10 following the Department of Financial Protection and Innovation's announcement, dipping 12% and 6%, respectively. Both stocks gained back some of that ground on March 13 after the Federal Deposit Insurance Corp. said it transferred all deposits to a newly created, full-service FDIC-operated bridge bank to protect all depositors of the second-largest bank failure in U.S. history.

Renewable energy industry observers remain confident that there are enough financiers to plug any holes.

"We believe … demand from major financial institutions for exposure to both residential and utility-scale solar will be able to fill the void in lending facilities, particularly on the heels of the [Inflation Reduction Act]," analysts at Scotiabank told clients March 10.

Raymond James managing director for renewable energy and clean technology Pavel Molchanov said in an interview that the bank's collapse has "practically no effect" on sector lending because other banks are keen to capitalize on those lower-risk loans.

Community solar manager Arcadia Power Inc. "managed to remove the majority of our funds" from Silicon Valley Bank on March 9, President and CEO Kiran Bhatraju said in an email. Renewable energy firms that did not will find plenty of other lenders "because these are some of the best infrastructure projects in America, but pipelines will be in flux for some time as those new relationships get sorted out and due diligence processes get underway," Bhatraju said.

Ted Brandt, CEO of investment bank Marathon Capital LLC, said in an interview that while he hopes there will be no impact on renewable energy project finance liquidity, Silicon Valley Bank's collapse certainly does not help the decreasing availability of tax equity.

"The good news is coming into this there were 100-something banks that were actively in the project financing business, but Silicon Valley Bank had something like a $5 billion commitment to the industry," Brandt noted. "We are counting on a whole lot of companies having taxable income that is going to provide tax equity into the market as well as banks that have liquidity."

"We're seeing all kinds of evidence that cost of capital and the scarcity of capital has dramatically increased ... over the last number of months," Brandt continued. "I don't think this particular incident is changing that perception."

Silicon Valley Bank's market capitalization was $15.86 billion and its shares were valued at 1.3x book value just two days before regulators closed it. The tech-focused bank had been suffering deposit outflows as venture funding dried up and its core, venture capital-backed customers burned through cash.

The bank attempted to launch an offering of about $2.25 billion of capital and announced a restructuring of its balance sheet shortly after hawkish remarks by Fed Chairman Jerome Powell cemented expectations that interest rates would go higher and stay high for longer. Its shares quickly nosedived, and customers reportedly yanked their deposits.

On March 9, Silicon Valley Bank faced withdrawals of $42 billion and was left with a negative cash balance of approximately $958 million even though it was in sound financial condition prior to the one-day run, according to a Department of Financial Protection and Innovation filing.

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