Yesterday (Sept. 12) SolarCity announced that it raised $305 million to support its growth across the US. The announcement comes before Tesla’s purchase of SolarCity is complete. The latest transaction is a cash equity transaction that the company said includes a first-of-its-kind fully-amortizing, long-term loan.
Overall, the solar installer and financier had $5.2 billion in solar power assets as of the quarter ended June 30 and continues to raise funds to expand its portfolio. The new round of funding will monetize a 230 megawatt portfolio of residential, commercial and industrial solar projects across 15 states. Most of the projects in the portfolio were completed in 2015 and 2016. SolarCity will continue to own the projects but monetized the underlying assets.
The equity financing in the deal came from a private investment fund affiliated with Quantum Strategic Partners advised by Soros Fund Management. It also included a separate 18-year loan that is fully amortizing syndicated to five high-quality institutional investors that SolarCity did not name.
“The syndication of a long-dated, fully-amortizing loan is believed to represent a ‘first of its kind’ for distributed solar assets, creating another valuable financing tool for SolarCity,” the company said in a release. “The loan was rated investment grade by a leading credit rating agency, and the financing is non-recourse to SolarCity. Bank of America Merrill Lynch acted as the sole syndication and structuring agent for the transaction.”
The unique financing arrangements, placing the equity investor and lender group separately, SolarCity said, helped it achieve a pre-tax, weighted average cost of capital of 7.4 percent. The company called that “a significant improvement over its first cash equity transaction.”
In May the company announced a cash-equity investment with John Hanock for $227 million. However that deal carried an 8 percent rate. Still, the investment and rate didn’t immediately assuage analysts.
“The fact that these transactions are happening at levels higher than the company's long-used 6 percent discount rate is still a negative,” wrote Seeking Alpha’s Aurelien Windenberger, who also has a positive view of the acquisition by Tesla. However, he’s optimistic about SolarCIty’s future. “Over time, as the company right-sizes its cost structure and starts generating more sales from direct sales, I believe it will be able to self fund future growth from internal cash flows, rather than being required to monetize portions of those flows.”Tweet