SolarCity Corp (SCTY) Continues “Utility Model” With New Bond Offering

SolarCity Corp (SCTY) Continues “Utility Model” With New Bond Offering
By BrokenSphere (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

SolarCity Corp (NASDAQ:SCTY) announced on Thursday that it plans to make an up to $200 million dollar bond offering as soon as the second quarter of 2014. Furthermore, according to Chief Financial Officer Bob Kelly, SolarCity is likely to issue more bonds on a quarterly basis. This tranche of bonds has been rated BBB+ by Standard & Poor’s. The bonds will offer a 4.8% interest rate and reach maturity in December 2026.

Shares of SolarCity Corp (NASDAQ:SCTY) gained 4.6% to $48.02 Thursday and have increased four-fold in 2013.

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SolarCity developing “utility model” for residential solar power

SolarCity (NASDAQ:SCTY) is committed to the commercial development of solar power using a utility model. SolarCity’s business model is to install rooftop solar systems for customers who pay very little up front, but sign long-term contracts to purchase the generated power.

This, of course, provides SolarCity Corp (NASDAQ:SCTY) with a steady, predictable revenue stream coming in every month as customers pay their utility bills. Furthermore, as CFO Bob Kelly points out, as the company gains more clients, it just makes good sense to package the revenue stream into securities.

SolarCity enjoying rapid growth

SolarCity Corp (NASDAQ:SCTY) is expanding rapidly. SolarCity had $500 million in nominal contract payments in 2011; that increased to a little over $1 billion in 2012, and is poised to top $1.7 billion in total contract payments 2012.

Analysts Ben Kallo and Tyler Frank of Robert W. Baird recently raised their price target for SolarCity Corp (NASDAQ:SCTY) to $50 per share, but they remain Neutral on the equity and express a few reservations. One major issue is that tax equity funds are set to run out in the next few months. The analysts point out that SolarCity owns sufficient tax equity funds for 149 megawatts of projects, but that amount is only likely to last until February or March of 2014. Furthermore, they project that the company will need north of $1 billion worth of tax equity funds for its currently planned 2014 operations.

JPMorgan Chase & Co. (NYSE:JPM) also initiated coverage of SolarCity on October 18, with a rating of Overweight and an initial price target of $68.

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