SolarCity completes its fourth securitization

On Thursday, SolarCity announced that it had completed the issue of its latest series of solar asset-backed notes. The company’s Class A notes represent US$103.5 million in principle with a 4.18% interest rate, and its Class B notes US$20 million at a 5.58% interest rate.

SolarCity has pioneered securitization, which involves pooling assets in financial instruments in order to attract investors at lower interest rates. The company announced its first US$54 million in securitized notes in November 2013, which was heralded as a breakthrough in lowering the cost of capital for the solar industry.

However, the model has been slow to spread. While SolarCity has now completed three additional securitizations, only one other solar company – rival third-party provider Sunrun – has priced asset-backed securities. Sunrun has not yet closed this transaction.

“I’m sure that the other companies are looking at it,” says Mercom Capital CEO Raj Prabhu. “We’re wondering why it hasn’t been faster, and more of these deals.”

Ratings have improved slowly. Standard & Poor gave SolarCity’s first securitization a BBB+ rating, and Kroll gave these latest notes an A rating for the class A notes and a BBB rating for the Class B notes.

While interest rates have fallen since the first securitization, they are slightly higher than the company’s third sale of asset-backed securities, in which two classes of notes were offered at 4.03% and 5.45%. Additionally, the fourth securitization is 40% smaller.

However, this is also SolarCity’s first securitization of distributed assets that were originally financed within a tax equity partnership. The company notes that it has now issued securities with an investment grade credit rating for assets which were originally financed through each of its most common financing structures.

SolarCity has raised $450 million in its four successful sales of asset-backed securities.