Income Investments

by Sean Kidney Renewable Energy Finance via BigStockPhoto There has been a bit of interest recently about rapidly expanding options for retail investors to get involved in renewable energy projects. While we still see retail bonds as making a relatively modest contribution to the transition to a low carbon economy, they are important in engaging the public and creating awareness for green thematic investments which can only be good. Here’s a round up of some of the activity going on in the retail bond market (please note, this...

Tom Konrad The 5.7 MW Solar Farm in Salisbury, MA is the largest solar farm in New England. The land under if was purchased by Power REIT (NYSE:PW) in December. Photo source: Power REIT I first wrote about Power REIT’s (NYSE:PW) plans to invest in renewable energy real estate in May 2012.  The intent was to buy the real estate underlying a solar, wind, or other renewable energy project, charging the project owners rent.  This can be done profitably because REITs often have a lower cost of capital...

Jennifer Runyon According to Richard Kauffman, Senior Advisor to the Secretary, DOE, making REITs or MLPs available for renewable energy project financing is the key to advancing the industry.   Top engineering, procurement and construction firms gathered to network, learn and do business with corporate-level project developers at the PGI Financial Forum, one of four co-located events that took place in Orlando, Fla. earlier this month. Richard Kauffman, Senior Advisor to the Secretary of the U.S. Department of Energy, gave the keynote address during a luncheon that took place during the conference. ...

by the Climate Bonds Team Another successful year for the green bond market with 2015 issuance hitting $41.8bn making it the biggest year ever for green bonds. Achieving scale hasn’t been the only reason to celebrate the green bond market at the year-end; the real success is the geographical spread of green bonds across the world. Green bond markets are popping up all across the world, in Brazil, China, Estonia, Mexico and India… just to name a few! Green bond market momentum continues to build after a successful COP in Paris. ...

Tom Konrad CFA The last day for a solar developer to submit an application for the Treasury’s 1603 grant program was September 30th, and only for grandfathered solar projects which broke ground before the end of 2011. Solar panel prices have continued to drop this year, but solar project development remains a capital-intensive business.  The 1603 program allowed solar developers to monetize the solar investment tax credit (ITC) much more quickly than they could otherwise, and this essentially reduced their cost of capital.  As the rush of projects begun before the end of 2011 are completed, developers are looking...

by Sean Kidney “There is more liquidity than ever being put into the system, but funds are still not being allocated to renewable energy projects” “The bottleneck for renewable energy is not in construction financing but a year or two after construction .” “ is not an asset class where risk changes over time – it changes between pre-completion to post-completion stages… it is incorrect to think that offloading an asset post-completion dumps risk onto others because the riskier part of the project is past.” “Alignment of interest with investors is strong as the issuing bank...

Tom Konrad CFA Disclosure: I have long positions in MCQPF and AQUNF. Capstone Infrastructure Corporation (TSX:CSE, OTC:MCQPF) has been trading at a significant discount to its peers because of a  power supply agreement which expires at the end of 2014.  Capstone is seeking a new agreement with the Ontario Power Authority for its Cardinal gas cogeneration facility, a process which has taken much longer than management expected. The cardinal Cardinal plant currently accounts for about a third of Capstone’s revenue and a quarter of earnings before interest, taxes, and depreciation (EBITDA), but two-thirds of distributible income.  The high fraction...

By Beate Sonerud SolarCity (NASD:SCTY) is issuing US$200m of asset-linked retail bonds, with maturities ranging from 1-7 years and interest rates from 2-4%. Wells Fargo is the banking partner. While the bonds are registered,SolarCity expects the bonds to be buy and hold, and not traded in the secondary markets. The bond is issued for small-scale investors, with investment starting at US$1000, giving this bond issuance a crowdfunding aspect. Choosing such a different structure allows SolarCity to diversify their investor base – the company stresses that small-scale investors are a complement, not substitute, for large-scale institutional investors. While...

Tom Konrad CFA Pattern Energy's Gulf Wind Farm in Armstrong, Texas Disclosure: Long BEP. Pattern Energy Group (NASD:PEGI, TSX:PEG) completed a very successful Initial Public Offering (IPO) on the Nasdaq and Toronto stock exchanges on September 27th.  Not only did the shares price at $22, near the top of the expected range, but the underwriters exercised their full over allotment option to purchase 2.4 million shares in addition to the initial 16 million offered.  Total proceeds from the offering were $404.8 million.  Most of the proceeds went to Pattern Energy Group, LP (PEGLP) in consideration for a...

by the Climate Bonds Team This week the yieldco TerraForm Power (TERP) issued a huge high-yield green bond; seeing more high-yield bonds is a sign that the green bond market is continuing to mature. In addition to TerraForm, more green bonds from repeat issuers OPIC, World Bank, IFC and Credit Agricole have been announced and will be closing in the coming weeks. For today, let’s dig deeper into the latest green high-yield offering. The US-based renewable energy company TerraForm Power Operating has issued US$800m of senior unsecured green bonds (debentures), making it the largest green bond of 2015...

by the Climate Bonds Team Halfway in 2016: Issuance Up on 2015: New Underwriters from China: And Where Will Green Bonds Land by Dec 31st? The Headline Figures: At the end of Q2, issuance for 2016 stood at USD 34.6bn – bringing it close to the total issuance for 2015 with 6 months of the year to go.  In the first two weeks since the end of Q2 - total issuance surpassed the 2015 total. We expect even more in the second half of the year.  USD 18.6bn issued in Q2 alone making it the highest single quarter of green bond...

Tom Konrad CFA After the close on Thursday, November 7th, Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI) declared third quarter earnings.  Results were in-line with my, and other analysts’ expectations: Earnings per share (EPS) of 14 cents, and a declared dividend of 14 cents as well. This more than doubled the second quarter’s 7 cent EPS and 6 cent dividend. Note: I have a large long position in HASI. HASI remains on track to reach managements’ dividend target of “over 7% of the $12.50 IPO price” (22 cents a quarter,) and provided some additional guidance for future dividends....

by Tom Konrad Ph.D., CFA On a podcast recorded on September 14th, I said I thought that Yieldco stocks had bottomed at the end of September.  Two weeks later, that call still looks like a good one (see chart.) I'm starting to hear optimistic noises from other Yieldco observers, although the general tone remains quite bearish. Why do I think September 29th was the likely bottom? End of quarter.  Some institutional investors such as mutual funds reshuffle their portfolios at the end of the quarter so that they don't have...

by Tom Konrad Ph.D., CFA Last week, a Bloomberg reported on a rumor that Brookfield Asset Management (BAM) was in talks to buy Abengoa's (ABGOY) stake in its former YieldCo Atlantica Yield (ABY).  Atlantica had been looking for a new sponsor for well over a year since parent Abengoa filed for bankruptcy. Purchasing Yieldcos (companies that own clean energy infrastructure and use the cash flows to pay large dividends to shareholders) is not new to Brookfield.  Not only has BAM long sponsored Brookfield Renewable Partners, LP (BEP), a limited partnership that has essentially been a Yieldco since before the term was...

India had been trying to get a corporate bond market going for 15 years – search “growing India corporate bonds” and you’ll find papers on the subject from the Reserve Bank of India, Bank of International Settlement and others scattered over past years. The latest Indian 5 year plan has this as a priority – and has green finance as a priority in a separate section. India has a particular need: a miniscule local corporate bond market means restricted financing options for business, including for renewable and energy efficient building developers – diversity with financing options helps drive down costs...

Tom Konrad CFA Compared to the peak of the Yieldco bubble in May, many Yieldcos have dropped by more than half, and most by more than a third. Some of this decline is because rapid dividend growth depends on an endless supply of cheap investor capital which is another way of saying that we can have rapid dividend growth or high dividend yields, but not both.  Part of the decline was due to the realization that many Yeildcos (most notably Terraform Power (TERP), Terraform Global (GLBL), and Abengoa Yield (ABY)) were not immune to...