SolarCity Corp (NASDAQ:SCTY) has finally pulled the curtain on its second round of solar-backed notes. The company said Thursday it has priced the offering of $70.2 million with 4.59% interest rate, and anticipated repayment date of April 2022. SolarCity said the notes were priced on April 3, and the sale would close on April 10, subject to customary closing conditions.
SolarCity stock plunged after the announcement
Companies have started using securitization as a way to fund projects beyond equity financing, and they do it in a cost-effective manner. SolarCity Corp (NASDAQ:SCTY) said the notes are fully secured, and will be paid from the cash flow generated by a pool of solar systems, power purchase agreements and ancillary rights. SolarCity is the market leader with 26% share of the U.S. residential solar market.
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SolarCity Corp (NASDAQ:SCTY) shares plunged as much as 5.1% yesterday to close at $60.50. Investors were disappointed because the company management said during its last conference call that the second securitization deal will be in the range of $90-$100 million. The smaller size ($70.2 million) and shorter duration means it will yield less retained value than many investors were expecting.
SolarCity is assessing the market dynamics
The San Mateo-based company priced its first asset-backed bonds last November, offering $54.4 million in notes due in 2026. It had an interest rate of 4.8%, higher than 4.59% for the yesterday’s deal. The difference between the two deals is in size, maturity date, and interest rate. The decline in interest rate is because the bonds mature earlier. Another reason is that investors have grown comfortable with securitization of solar assets. This will help SolarCity Corp (NASDAQ:SCTY) generate more cash flow from projects already under contract.
Roth Capital analysts said that the deal size was smaller than investors were hoping. However, on a positive note, the deal was oversubscribed. The research firm believes that SolarCity Corp (NASDAQ:SCTY) is assessing market dynamics adjusting the underlying factors as it prepares for the next deal. Roth Capital thinks that the next securitization will likely be larger and include tax equity.
SolarCity Corp (NASDAQ:SCTY) shares ticked up 1.65% to $61.54 as of 9:40 AM EDT today.