SolarCity completes its sixth securitization


On Tuesday, SolarCity announced that it has completed another securitization of its residential solar lease and power purchase agreement (PPAs) assets, which resulted in proceeds of $50 million. The securities offer an annual yield rate of 6.25%.

Securitization is a process by which various types of contracted assets are pooled and the cash flows from these assets is sold to investors as a security. While securitization is mostly known from the mortgage industry, SolarCity pioneered the process of securitizing distributed solar assets, completing its first securitization in November 2013.

The process has been hailed as a means to access lower-cost capital to deploy more residential solar. SolarCity has since gone on to complete five more securitizations, and other distributed solar financiers and installers including Sunrun have also completed securitizations.

"The 6.25% yield for SolarCity’s sixth securitization deal is their highest so far, but the cost of capital is still lower than tax equity financing," Mercom Capital CEO Raj Prabhu told pv magazine. "There have been two deals already this year and we expect more to come as they continue their efforts to bring the overall cost of capital down."

Securitization appears to be an especially important tool for SolarCity given difficult conditions for solar stocks. "Securitization continues to be a cost-effective financing mechanism for us, even in a volatile market, which reflects the quality of our distributed solar assets and the reliability of these cash flows," stated SolarCity Executive VP of Capital Markets Radford Small.

SolarCity notes that it received $3.13 of financing per watt of installed solar in its latest securitization, inclusive of previous tax equity financing. This is well above the $2.71 per watt installation costs which the company achieved in the fourth quarter of 2015.

Additionally, SolarCity notes that Standard & Poor’s has given this securitization an investment grade rating of BBB, and the Kroll Bond Rating Agency a BBB+. The company says that this reflects the “predictability and quality” of its assets, as well as the low degree of operational risk from solar assets.