Income Investments

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...

Investors looking for income have long relied on the stocks of electric utilities. Naturally cash generative utility companies have a history of generous dividend payout policies.  However, for those investors who have a concern about sustainability or climate change, even utilities with the highest dividend yields may not be appealing. We looked at a selection of nine utility companies with mixed achievements in terms of the percentage of renewable energy sources found in their retail sales of electricity.  The intensity of renewable energy in utility portfolios varies considerably across the industry.  Many utilities are grappling with legacy coal and oil infrastructure.  Others are not favored...

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...

Tom Konrad CFA Disclosure: Long HASI, BEP. Short PEGI calls, NYLD calls. When I was asked in an interview last month what I thought 2014 would hold for green tech finance, I said 2014 would be the year that “renewable energy finance comes of age.” What I mean is that a new type of renewable energy investment is proliferating.  Solar, other renewables, and energy efficiency investments are no longer limited to risky growth plays like Tesla Motors (NASD:TSLA.)   There are now a number of yield focused investments available to small investors.  As of last year,...

by the Climate Bonds Team Hannon Armstrong’s (HASI) second green ABS, $118.6m, will save 0.39 tons of GHG annually per $1,000!  ($100.5m, 4.28%, 19 yr, A and $18.1m, 5.00%, 19 yr, BBB) Hannon Armstrong (NYSE:HASI) closed its second green ABS bond (Sustainable Yield Bond) following its inaugural issuance in December 2013. The ABS was a private placement split into two tranches with different credit ratings (from Kroll Bond Credit Rating Agency): $100.5m with a rating of A and 4.28% interest rate, and $18.1m with a rating of BBB and 5.00% interest rate. Both tranches have a 19-year tenor....

Tom Konrad CFA Conserving the planet for conservative investors. Investing in clean energy stocks has an (often well-deserved) reputation for risk.  Although energy efficiency and more inclusive progressive energy indexes have held up fairly well over the last few years, the performance of narrower clean energy sectors has been dismal, and some industry observers feel that the declines in wind and solar are structural (and hence permanent) as opposed to cyclical (and therefor temporary.) This presents a conundrum for investors with long time horizons who not only need their investments to earn a steady return...

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 Sean Kidney Tesla issues $600m, 5yr EV convertible bond Tesla Motors’ inaugural bond issue has been, as you’d expect, electrifying (just had to say that). The US electric sports car manufacturer has just issued a 5 year, $600m convertible bond in a fundraising program which has seen it raise approximately $1bn through shares and convertible bonds. Coupon is 1.5-2%; conversion premium is 35%; bookrunners were JPMorgan, Goldman Sachs, Morgan Stanley. Tesla had planned to raise $450m through convertible bonds, but this was raised to $600m after strong demand from investors. That demand allowed Tesla to drop what was going to be a 2-2.5% coupon down to...

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...

Bridget Boulle It’s been another ground breaking quarter for green bonds – the biggest yet with just under USD9bn issued ($8.997bn). It seems our initial estimate of $20bn for the year will be met much sooner than we thought so we’ve revised it to $40bn (there are no rules). There have been new issuers, new currencies, new underwriters, new areas of issuance and, for the first time, a green bonds index. All good things, here is a summary… The development banks led the way for the quarter but not by too much: development banks = USD4.9bn while corporates =...

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...

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...

Tom Konrad CFA Capstone Infrastructure Corp.'s Gas Cogeneration facility in Cardinal, Ontario. Capstone Infrastructure Corporation (TSX:CSE, OTC:MCQPF. Disclosure: I own this stock) is an international operator and developer of green infrastructure assets and utilities which is currently selling at a significant discount to most comparable firms.  I recently ran a comparison of six similar Canada-listed firms, and Capstone seemed much cheaper on several measures. The Discount The following chart compares five renewable energy and green infrastructure firms with most of their operations in Canada: Capstone, Algonquin Power and Utilities (TSX:AQN, OTC:AQUNF), Brookfield Renewable Energy Partners (NYSE:BEP),...

New Canadian Climate bond: Northland Power releases a pretty big ABS - CA$232m (US$206m) - backed by solar projects with proceeds for renewables. 18-year tenor, 4.397% coupon, BBB. Securitisation key future area for green bonds.