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Despite Plunging Shares, SolarCity Corp Raised Money in Bond Market

March 15
6:04 AM 2016

SolarCity Corp showed the company is still able to earn cash. Although it shares plunged by 48% last month, but the company managed to raise $235 million from asset-backed securities (ABS) market this year.

Securitization strategies seem to be working well for alternative energy companies, as investors are showing appetite to absorb bonds offered by the companies. A CEO of Marathon, an energy and infrastructure consultant, Ted Brandt told Bloomberg in a Monday interview, "It's highly likely that issuances will grow this year. There are a number of existing and new issuers that are very actively pursuing securitization strategies."

Marathon expected more companies to follow SolarCity, as other solar-energy companies such as Vivint Solar Inc., Sunnova Energy Corp., Sungevity Inc., Spruce Finance Inc. and SunPower Corp. have shown a good progress in term of sale. CEO of SunPower Tom Werner has also announced in last year's fourth quarter to consider selling the company's bond.

This news showed an exact opposite of the Elon Musk's company reported a very low performance in stock market. Motley Fool reported that in February, SolarCorp shares have plunged by 48% following its fourth-quarter earning reports. Missed guidance, weak first-quarter guidance and delay in building solar panel manufacturing drew negative sentiment in the stock market.

Solar City faced many challenges during the fourth quarter. One of which is the new regulation in Nevada to change net metering rules. The new regulation will lead to setback of its panel installation and weak growth in early 2016.

Investors also question the value of the company's business model in the long term. Currently, SolarCity in its own projection reported a net present value of $2 billion and it is still a growing company. However, that projection need to be realized eventually, therefore the company should focus more in generating value than growth.

Meanwhile Seeking Alpha reported that since since SolarCity operates at 76% debt-to-assets ratio, the company is certainly not scared of leverage. The management will continue to lever the company without any hesitation in orde to maintain its leadership in the industry. The company will have a capital inflow from all kind of investors as long as securities backed by solar power systems remain default-free.

Nevertheless SolarCity depends heavily on politics.

The company's business model relies heavily on tax credit and other government incentives to stay in business. The extension on solar ITC or tax credit will be a big deal for SolarCity, and the presidential election also plays important role to company's sustainability. It is because many candidates are more supportive than others regarding clean energy issues.

As for now, SolarCity look into the ABS market to increase its capital, and it has sold $235 million in asset-backed securities market this year. That marks the record high in its sales of bond.

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