SolarCity announced on Monday that it had raised around $305 million to fund projects in its second cash equity transaction. The clean energy giant said a private investment fund affiliated with Quantum Strategic Partners Ltd provided the equity investment. The solar panel installer is being purchased by Tesla for $2.6 billion.
Improved WACC for SolarCity
Soros Fund Management LLC advised the fund. The clean energy giant said the deal included an 18-year loan syndicated to about five high-quality institutional investors. Last month, the solar panel installer said that due to its takeover talks with Tesla, it was facing longer than usual delays in closing new project financing commitments.
The private fund provided the equity investment in a portfolio of industrial, commercial and residential solar projects. In addition, SolarCity was able to get a pre-tax weighted average cost of capital for the transaction of 7.4% by placing the lender group and equity investor separately. It was quite a good improvement over its first cash equity transactions. The terms and the transaction show the incredible quality of its distributed solar assets, the company says.
Bank of America Merrill Lynch acted as the structuring agent and sole syndication for the transaction. The fully-amortizing 18-year loan could represent a “first of its kind” for distributed solar assets. This will create another valuable financing tool for the clean energy giant. A leading credit rating agency rated the loan as investment-grade, and the financial is non-recourse to the solar installer.
SolarCity monetizes its underlying cash flows in the cash equity transactions but takes back ownership of the assets. The company then continues to service customers. As of June 30, the solar giant held around $5.2 billion in solar energy system assets on its balance sheet. In future payments, on a net present value basis 1, those solar energy assets are contracted to create $3.1 billion, the company says.
Still some risk to Tesla deal
In other SolarCity news, following bearish statements from Axiom Capital, SolarCity’s stock dropped sharply Friday. The bearish comments came in respect to the merger deal of SolarCity with Tesla. The merger deal faced censure from many analysts even though it is supposed to offer a better value proposition and bring in cost synergies.
SolarCity has not posted a profit since its start and now is in deep financial problems. The company’s debt level is high, and the gearing ratios are way worse than the average levels. There is still significant risk for the deal closing, believes Gordon Johnson of Axiom Capital.