Are YieldCos Overpaying for Their Assets?

Tom Konrad CFA YieldCos buy and own clean energy projects with the intent of using the resulting cash flows to pay a high dividend to their investors.  Several such companies, often captive subsidiaries of listed project developers, have listed on U.S. markets since 2013. So far, YieldCos have been a win-win: The developers that list YieldCos have gained access to inexpensive capital, and income investors have gotten access to a new asset class paying stable and growing dividends.  So far, they have also gained from significant stock price appreciation. The seven U.S.-listed YieldCos are up...

Is Suzlon’s $650m Wind Bond the First of Many?

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...

Green Dividend Yield Portfolio

By Harris Roen There is a new and growing interest in the world of alternative energy investing, the search for high-quality dividend yield among green investments. To this end, the Roen Financial Report has created a Green Dividend Yield Portfolio, a select group of high-yield alternative energy stocks. Together, this selection of companies can produce a steady stream of income for the alternative energy investor. A New Source for Dividend Yield The Green Dividend Yield Portfolio is a collection of high-yield stocks that are in the alternative energy business. Companies that fall...

Green Bond Update: Wind Company Bonds

by Corporate Bonder Market Overview Data compiled by the Bank for International Settlements indicate that the total size of the global debt securities market (domestic and international) was $98.7 trillion as at September 2011, of which $89.9 trillion were notes and bonds. Governments accounted for $44.6 trillion of outstanding debt securities, financial organizations $41.9 trillion, corporations $11.2 trillion and international organizations $1.0 trillion. The focus of this report is on corporate borrowers. US corporations are the largest debt issuers, accounting for 46% of corporate debt globally, followed by the Eurozone with 20%, Japan 9%, China 6%, and...

Comparative Valuation of 15 Yieldcos

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...

Green Bonds From Terraform Global, SolarCity, and Hannon Armstrong

by the Climate Bonds Team Yieldco TerraForm Global (GLBL) issues a whopping $810m green bond (7 years, 9.75%, B2/B+) TerraForm Global Operating has issued an $810m green bond, with 7-year tenor, 9.75% coupon and ratings of B2 and B+ from Moodys and S&P respectively. TerraForm Global is a recent yieldco spin off (IPO last month) of SunEdison (SUNE) group (have a look here if the yieldco concept is new to you). Terraform Global owns and operates renewable energy assets - solar, wind and hydro - in emerging markets, in the following locations: Solar: China, India, South Africa,...

Investors Awaken to NextEra YieldCo

by Debra Fiakas CFA Last week NextEra Energy Partners, LP (NEP:  NYSE) reported financial results for the third quarter ending September 2015.  The numbers were released in along with quarter results from its parent, Florida-based utility NextEra Energy, Inc. (NEE:  NYSE).  The partnership is the operating arm of clean energy projects originated by the NextEra parent.  The ‘yieldco’ as these operating entities have been kindly dubbed by shareholders, delivered $1.0 million in reported net income, but operating cash flow was a whopping $36 million in the quarter. The consensus estimate had been for $0.24 in earnings per...

Toyota’s Asset Backed Green Bond: This Is Big

Sean Kidney Toyota Motor Corp. (NYSE:TM) will close mid-next week on what will be the world’s first green bond backed by auto loans – electric vehicle and hybrid car loans to be specific. And what a kickstart for that market, at $1.75 billion. According to a report in International Financing Review (IFR), the bond will be in multiple tranches, each at a different ratings level: A2 tranche, A3 and A4 (Moody’s ratings). First thing to know: they told the media a week ago it would be a US$774.675 million bond. Rumour has it that initial investor interest...

Roundtable Greenlights Effort on Renewable Energy Covered Bonds

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...

Capstone Infrastructure: How Bad Is The Worst Case?

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...

The Status of The Yieldco

by Tom Konrad, Ph.D., CFA Last week I delivered the keynote at Yieldcon USA, a conference put on by Solar Plaza entirely focused on Yieldcos. (Yieldcos are companies that own clean energy assets such as solar and wind farms and use the cash flows to pay a high rate of current income to investors.) Given all that's gone on in the space in the last few weeks, the conference could not have been more timely. You can find the presentation here and embedded below:

Convertible Solar Bonds: Trina, SunPower Stoke Fire; Ascent Descends

by Sean Kidney Trina’s $150m 3.5% 5yr convertible solar bond In June Chinese solar manufacturer Trina announced the private placement of $150m of 5 year, 3.5% convertible bonds to “institutional investors” (no details provided). Trina weren’t clear how they would use the proceeds, but they are planning to build 400-500MW of solar plants over the rest of this year. Book-runners were Deutsche Bank, Barclays, J.P. Morgan and Goldman Sachs (Asia), with co-manager HSBC. SunPower issues $400m 7yr 0.875% (!) convertible solar bond That same month SunPower announced a private placement of $400 million, 7 year, 0.875% senior convertible bonds. What...

Power REIT’s Preferred Stock Offering: A Hedge That Pays 7.75%

Power REIT's preferred stock offerning (NYSE:PW-PRA) is an excellent hedge for the legal risks borne by the holders of its common stock (NYSE:PW.)

Renewable Energy REITs or MLPs Would Unlock Billions

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. ...

No Longer Just Growth: Investing in Renewable Energies for Yield

by Robert Muir Given the determined investor quest for yield as the Federal Reserve maintains the benchmark Federal Funds rate at zero, and the resurgence of attention being paid to alternative energy generation, mainly solar, and to a lesser extent wind and hydro, it’s no wonder Yield Co’s have gained so much investor interest lately. In the near to mid-term, the enthusiasm may be justified. Supported by Power Purchase Agreements, energy infrastructure financing and leasing contracts, and electricity transmission and distribution concessions, all with credit-worthy counter-parties, Yield Co’s are designed specifically to pay out a large portion of...

Buffet Bet Comes Out for Solar

by Sean Kidney Warren Buffet is a famous proponent of value investing and he surely received a sign of the value in solar investments over fossil fuels last week. The MidAmerican Energy $850m Topaz solar project bond we mentioned a couple of weeks ago was so successful that a second tranche is expected to cover the remaining debt of the project. The offer was oversubscribed by $400m which would have mopped up the total $1.2bn of debt in the project; Buffet's Berkshire Hathaway (BRK-A) controls MidAmerican. In contrast, Buffet’s investment in $2bn of bonds from gas company...