Analysts’ take: How SunEdison’s $300M credit line boosts its solar pipeline

Two Wall Street analysts break down SunEdison’s new $300M credit facility and its impact on the company’s North American solar PV pipeline.

October 13, 2011 – SunEdison has secured a $300M three-year project finance revolving credit facility from Deutsche Bank Securities and Rabobank, to support construction costs of solar projects (both utility and rooftop) in the US and Canada. The funds, which the company calls “one of the largest non-recourse project financing revolving credit facilities ever issued for photovoltaic projects,” are also “non-recourse debt” meaning they’re only secured by pledging collateral, including project contracts and equipment.

SunEdison counts >500 solar projects and 330MW of installed solar capacity throughout the US and Canada, financed primarily through bank funding. The company added in a statement that it continues to seek banking partners to finance its North American solar project pipeline — including possibly bringing on more lenders for this new credit facility.

Analysts’ take

Citi analyst Tim Arcuri and Deutsche Bank’s Vishal Shah break down the math:

– Given widely available financing terms from module suppliers (?180 days), the new credit could support cash cycle for up to 200MW worth of projects, “a sizeable number,” says Arcuri. Both he and Shah agree the company can accelerate its development cycle especially given low module prices (more on that later).

– SunEdison already had ~1.6GW in its North America pipeline (out of ~2.5GW overall), and likely added ~1.4GW with its recent Fotowatio purchase which was also skewed toward North America, says Arcuri. (Shah digs further: SunEdison’s NA pipeline is skewed to large commercial and utility-scale projects: ~49% at 10-100MW, 28% at 1-10MW.) Assuming SunEdison adds two-thirds of Fotowatio’s backlog, that brings the total to ~3.3GW.

– Assuming a “typical” 70% factor of what will actually get developed, one arrives at a ~2GW pipeline of likely development, says Arcuri. At a typical 18-24 month development cycle from development to revenue, that works out to ?750MW in 2012.

– Assuming pricing of ~$2.75/W, ~25%-30% gross margins, and “conservatively” ~10% operating margins, Arcuri calculates $1.00/share in EPS in 2012 from the SunEdison business.

– Note that the US nonresidential pipeline increased to 24GW from 17GW over just the past two months. That’s due in large part to declining module prices, points out Shah — and since most of SunEdison’s pipeline (and thus PPA/pricing) was secured at least a year ago, that declining module pricing environment should help the company’s bottom line.

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