Income Investments

Tom Konrad CFA Disclosure: Long BEP, HASI. NRG Yield (NYSE:NYLD) was spun out of its parent, NRG Energy, Inc. (NYSE:NRG) in July, and has since been greeted with enthusiasm by investors.  The stock priced at $22, 10% over the mid-point of its expected range, and the underwriters exercised their full over-allotment option. NRG Yield presents itself as an owner and operator of contracted renewable and conventional electricity generation, as well as thermal infrastructure assets.  (Thermal infrastructure provides heat or cooling to businesses for use in their operations.)  The company has a green tinge because of its wind and...

by Tom Konrad Ph.D., CFA When SunPower (SPWR) and First Solar's (FSLR) YieldCo, 8point3 Energy Partners (CAFD), went public two years ago, I used the financial nerd joke in 8point3's ticker symbol as a launching point to explain what "cash available for distribution," or CAFD, means. In that article, I cautioned against the risks of using a short-term cash flow measure for long-term investing decisions. That risk is becoming more and more real for investors in 8point3 because the YieldCo is using  short-term, interest-only financing to fund its long-term investments. All of 8point3's debt matures in 2020, and refinancing that debt will...

Tom Konrad CFA Renewable Energy Investing Grows Up. In January I predicted 2014 would be the year "renewable energy finance comes of age."  Here's how Jennifer Runyon quoted me on Renewable Energy World: Konrad believes that 2014 will be a great year for renewable energy finance, he said.  He said that we saw the beginning of it in 2013 with the securitization of a bond by Solar City (SCTY) and pointed to Hannon Armstrong’s (HASI) securitization of an energy efficiency bond in late December 2013 as another indicator that renewable energy...

The Yieldco model is not broken. But investor expectations have changed. by Tom Konrad Ph.D., CFA The Yieldco bubble popped almost exactly a year ago after a virtuous cycle turned vicious. Last May, I explained how these public companies (which own solar farms, wind farms and similar assets) could grow their dividends at double-digit rates despite no internal growth or retained earnings. This “weird trick” can work so long as the Yieldco’s stock price is rising, allowing it to sell stock at higher valuations and increase the amount of money invested per share. As long...

by James Montgomery 2014 is predicted to be a breakout year for solar financing, as the industry eagerly pursues finance innovations. Many of these methods aren't really new to other industries, but they are potentially game-changing when applied in the solar industry.

by Sean Kidney   Earlier this month CitiBank (NYSE:C) and Bank of America Merrill Lynch (BoAML; NYSE:BAC) launched, via a special EuroWeek report on ‘sustainable’ capital markets, a “Framework for Green Bonds“. This is potentially a big development. In the paper the two banks laid out a ‘vision’ for the green bonds market and called for a Green Bonds Working Group of issuers, dealers and investors to be formed to drive the evolution of the nascent market. The paper calls for debate about the green bond market, especially about...

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 Second green bond from TerraForm to finance wind power acquisition, $300m 10yr, 6.125% s/a coupon, BB-/B1 TerraForm Power Operating , the yieldco spin off from SunEdison , has issued a second green bond shortly after tapping its inaugural green bond for a further $150m (making their first green bond a whopping $950m!). The new $300m green bond has 10-year tenor and semi-annual coupon of 6.125%, and was issued in the US private placement market. It is sub-investment grade with a rating of BB- from S&P and B1...

by Debra Fiakas CFA Are you an investor hungry for current income?  Is there a green line of global warming fear running through your investment selections?  I have stock that fulfills both requirements.  Brookfield Renewable Energy Partners (BEP:  NYSE) is a renewable power producer with assets in Canada, the U.S. and Brazil.  Brookfield generates over 5,900 megawatts of power each year from plants running on river water, wind or natural gas.  Another 2,000 megawatts is apparently under development in Canada and Brazil. What Brookfield does best is hydroelectric production.  The company claims over 170...

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...

Tom Konrad CFA Clean energy yieldcos buck the general trend by paying out a large proportion of cash flow to investors, and rapidly increasing their dividends at the same time.  The key to this trick has been their rapidly appreciating stock prices. High yield companies generally grow slowly, while high growth companies have low dividend yields. Normal companies grow by investing some profits in new business opportunities.  Early stage growth companies typically retain all their earnings to invest in new business.  More mature companies have fewer opportunities, and so share a larger proportion of...

Sean Kidney Out Monday: a very interesting bond from US listed sustainable infrastructure investor, Hannon Armstrong Sustainable Infrastructure (NYSE:HASI): a $100 million asset-backed securitization of cash flows from over 100 individual wind, solar and energy efficiency installations, all with investment grade obligors. They’re calling them “Sustainable Yield Bonds”; Climate Bonds for us. Coupon is 2.79%. This first bond was privately placed - but they’re planning lots more. Hannon Armstrong have taken the high ground on emissions and built in quantitative annual reporting of greenhouse gas emission reductions, measured in metric tons per $1,000 of par value. The assets...

by Tom Konrad, Ph.D., CFA It's been a busy several days in the YieldCo space. On February 5, 8point3 Energy Partners (NASD:CAFD) announced an agreement to be acquired by an infrastructure investment fund managed by Capital Dynamics. While I was still writing an article on why the sale price was at a virtually unheard of discount relative to the stock market price, two more YieldCo deals were announced: NRG Energy (NYSE:NRG) agreed to sell its sponsorship stake in NRG Yield (NYSE:NYLD and NYSE:NYLD/A) to Global Infrastructure Partners, and YieldCo TerraForm Power (NASD:TERP) made an offer to buy out Spanish YieldCo Saeta Yield (Madrid:SAY) at a 20 percent...