WithSolarCity Corp.apparently well-positioned to raise the tax equity it needs to achieve 2016installation targets, investor concern seems to be turning to the availabilityof debt and cash equity financing, Deutsche Bank Securities Inc. said.
Thesolar installer and financier needs up to another $1.3 billion in tax equityfinancing and about $1.25 billion in nonrecourse debt to pay for the 1,250 MWof solar systems it anticipates installing this year, Deutsche Bank analystVishal Shah wrote in an April 11 note.
Thecompany, which finished 2015 with about $650 million of tax equity on itsbooks, according to Shah, has announced nearly $600 million in tax-equity dealsin the past six weeks, Avondale Partners LLC senior analyst Michael Morosiwrote in an April 11 note, including a $188 million transaction on April 7 withBank of America Merrill Lynchand another investor.
"[Our]checks suggest that the tax equity markets are generally open and [SolarCity]should be in a position" to raise sufficient funding by year-end, Shahsaid. A "bigger concern," Shah said, is the availability of debt and cashequity. So far in 2016, SolarCity has raised between $400 million and $500million of non-recourse debt, according to Shah.
Themarket for solar asset-backed securities, which SolarCity pioneered, has gottentougher in 2016, with credit conditions pushing investors to demand higheryields and a regulatory decision in Nevada raising the prospect of increasedpolicy risk for the distributed solar sector, in March.
Atthe time, SolarCity had raised $234.6 million in a pair of transactions in2016. However, in a sign of the changing market conditions, the average blendedyield was up by more than a third, at 6.03%, over last year's average, accordingto data compiled by Marathon Capital. "While investor concerns over ABSfinancing availability appear to be valid … we note that [SolarCity] can stillaccess the cash equity markets by monetizing its operating assets," Shahsaid.
SolarCitydid not immediately respond to a request for comment. President and CFO TanguySerra, on an earnings call in February, said the company expects its "verygood" track record in the asset-backed securities market to continue.
Whilethe Nevada ruling injected uncertainty into the solar market, moves toincrease net-meteringcaps in Massachusetts and NewHampshire were seen as positive developments for SolarCity and itscompetitors.
Analystsalso welcomed SolarCity's hiring of former FERC Chairman Jon Wellinghoff as itsnew chief policy officer. Oppenheimer & Co. Inc. analyst Colin Rusch onApril 11 called the hire "very impactful."
SolarCityshares, which are down about 40% since the start of the year, rose 4% on April12 to close at $29.43. Shares have risen 9% since the company said it is hiringWellinghoff.