SolarCity is the largest installer of solar panels for residential homes. According to their press release yesterday they provide one out of every three solar systems installed in the U.S. To date they have installed around $5 billion worth of solar panels in 15 states and the money for this has been raised from large institutional investors. Now, they are looking to do something different.
Yesterday, SolarCity announced the launch of Solar bonds. They intend to raise $200 million from individual investors in all 50 states. There are no minimum income requirements to invest – as long as you are over 18 years of age, have a U.S. bank account and can afford the $1,000 minimum investment then you can invest. Like most investments like this offered to the public there is a prospectus on file with the SEC where you can read all the details including the many risk factors.
An Unsecured Investment Paying 2-4%
For Lending Club and Prosper investors the returns on solar bonds will seem paltry. Here is the breakdown of loan terms and interest rates:
- 1 year – 2%
- 2 year – 2.5%
- 3 year – 3%
- 7 year – 4%
Keep in mind that these are unsecured loans to SolarCity, there are no assets backing these bonds. So, if you are looking at this as a purely financial transaction the returns are not very compelling. However, there are plenty of impact investors who are looking for a financial return while at the same time being socially responsible. According to this Forbes article published late yesterday on their first day there was very strong demand for these solar bonds from investors.
Even though this can’t really be considering p2p lending there is a direct link between this industry and SolarCity. Prosper co-founder John Witchel is also the co-founder of Common Assets a company acquired by SolarCity in December last year. Common Assets is providing the technology platform to make this solar bonds offering happen and Witchel is now the Senior Technology Architect at SolarCity according to his LinkedIn profile.
The Solar Industry is Growing Rapidly
Mosaic was the first company in this country to allow every day investors to invest in solar energy; I wrote about their platform back on January last year and have made a small investment myself. Mosaic focuses on refinancing large commercial solar projects but there have been no new investments available for me as a Colorado investor all year.
The prices for solar panels have come down considerably over the last few years and the industry is expanding rapidly. I know of one new startup looking to target an offering to p2p investors and I expect more will follow next year.
However, to get broad acceptance from the p2p lending community I think yields need to be higher. While there will always be a subset of investors who believe in solar energy for its environmental impact I don’t see the popularity of solar reaching Lending Club-type levels without higher yields.
I don’t think yields have to be higher. It’s either yields have to be higher to compensate for unsecured lending OR the bonds receive some sort of credit enhancement to justify such low borrowing rates.
Rawraw, I think there are certain environmentally conscious investors that will be happy to take these solar bonds as is with no enhancements and the low yield. I expect SolarCity to do well with this offering.
I couldn’t help but notice that these bonds as taxes as normal income.
Andrew, Yes. Just like Lending Club and Prosper notes, or any corporate bond for that matter, interest earned is taxed as ordinary income.
Hey, Solar Bonds really break the mold! They are basically corporate bonds issued directly by the company to buyers, bypassing the corporate bond market and dealers. As “Senior Unsecured” they rank above unsecured bonds (the usual level of corporate bond issuance) in the capital structure, good for recoveries should SolarCity become insolvent. However, according to the customer agreement (https://solarbonds.solarcity.com/customer-agreement/), there will be no secondary market for these bonds, so an investor would need to hold them to maturity. I wonder if SolarCity will start a trend of companies issuing their corporate bonds directly to individual investors?
Hi Harlan, You raise an interesting point. Once this industry matures and the masses are used to investing in all kinds of debt online maybe large companies will start doing what SolarCity has just done.
I honestly doubt the masses will ever be investing in all kinds of debt. However, the investment managers with their 401k dollars may start
Rawraw, I truly believe the masses will be investing all kinds of debt in the future but most will do it through mutual funds and their 401k’s. These funds have yet to launch but I expect they will become the way most retail investors will participate in this asset class.
Peter – Is Mosaic a public traded company? I can’t seem to find that information.
No Mosaic is a private company. They have raised around $20 million in outside capital according to their Crunchbase page:
http://www.crunchbase.com/organization/solar-mosaic
Isn’t Mosaic defunct now? What I heard is that they were unable to raise another round of funding and closed their doors. You may want to consider doing a follow-up story on Mosaic.
As you also invested on Mosaic platform, it will be good to know how your existing investments are being managed by Mosaic or another entity. It will be good information for investors concerned about their investment protection on marketplace lending platforms.
Where are you seeing that? This is the first thing I see when I search for Solar Mosaic in Google News: http://www.digitaljournal.com/pr/2268230
Yes, Mosaic is still doing well as demonstrated by their news yesterday. I think the confusion stems from the fact that they were originally open to investors from many states but I believe they ran into some regulatory challenges and have not been able to make new projects generally available.
I agree with what Harlan writes above about this breaking the mold. Not because of the concept, but because of the execution. Prior to the JOBS Act, it would be virtually impossible for a privately held company to issue debt securities to the public legally. I applaud private firms embracing this newly legal framework; and I suspect it will become increasingly popular as more precedent is established.
With that said, Peter, would you mind elaborating on what you wrote below:
“Common Assets is providing the technology platform to make this solar bonds offering happen…”
Is this what Common Assets does for a living? They work as a de facto investment bank for privately held companies by raising awareness/investment for their clients’ debt/equity securities? Furthermore, how does their technology platform work with this service they are providing?
I found this article especially interesting and I would love to learn more. Thanks for sharing the info Peter!
Common Assets was acquired by SolarCity in January. I haven’t seen the technology that Common Assets has developed and hadn’t really heard about them until the acquisition. But at that time they were described this way:
“Common Assets is the developer of a web-based investment platform that allows retail investors and small companies to provide debt-based financing for solar projects”.