Can $100 Million Investment Stop the Bleeding at SolarCity?


Private equity firm Silver Lake Kraftwerk will invest $100 million in SolarCity Corp. (NASDAQ: SCTY), according to an announcement Wednesday morning. SolarCity’s chairman, Elon Musk, will add $10 million to the pot, and CEO Lyndon Rive will kick in $3 million. The $113 million aggregate investment is being made in zero coupon convertible senior notes.

The notes will be senior, unsecured obligations of SolarCity, will not bear ordinary interest and the principal amount of the notes will not accrete. The notes are expected to be convertible into shares of SolarCity’s common stock based on an initial conversion rate of 30.303 shares of common stock per $1,000 principal amount of the notes, equal to an initial conversion price of $33.00 per share and subject to adjustment in certain circumstances. The notes are expected to mature in December 2020, subject to earlier conversion, redemption or repurchase.

SolarCity has been caught in the maelstrom surrounding solar PV makers like SunEdison Inc. (NYSE: SUNE) and their yieldcos. The spillover concerns for SolarCity are access to capital and the end of the investment tax credit for new solar installations looming for 2017.

For the year to date, SolarCity’s stock has dropped nearly 50% and shares are down about 60% from their May high.

When SolarCity reported third-quarter results in late October, the company posted a larger-than-expected net loss, even though revenues were better than expected. The company said then that it planned to focus its strategy on cost reduction and cash flow:

Specifically it is our goal to achieve positive cash flow by 2016 year-end and be in solid shape prior to the planned [investment tax credit] ITC expiration in 2017. We expect to continue to lead the industry in MW Installed with the lowest costs and strong returns, and we expect GAAP operating lease revenues to grow in excess of 70% year-over-year in 2016. In turn, we will be even more selective in the markets and projects we enter into. As such, we are introducing preliminary 2016 guidance of 1.25 GW Installed, representing a healthy year-over-year growth of approximately 41% as compared to the midpoint of our 2015 guidance. We also expect to announce meaningful reductions to our 2017 cost targets by our next earnings call.

Investors were not impressed with the lack of specificity and knocked the shares down more than 15%. This new announcement of some breathing room on capital access helped shares of SolarCity add nearly 6% at one point in early trading. Since then the stock has given back about half the gain to trade at $26.82, after closing Tuesday night at $26.00, in a 52-week range of $24.07 to $63.79. It’s worth noting that the low was posted last week.

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