Why First Solar And SunPower Are Looking To Exit Their YieldCo

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Over the last few months, SunPower (NASDAQ:SPWR) and First Solar (NASDAQ:FSLR) have both decided to sell their stakes in 8Point3 Energy Partners (NASDAQ:CAFD), the joint venture yieldco that they set up to hold some of their utility-scale solar power plant assets. In this note, we take a look at some of the reasons why the companies are looking to exit the high-profile venture that they formed just about two years ago.

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First Solar announced plans to sell its stake in the yieldco around April, noting that it intended to use the proceeds to fund its capital expenditures, as it looks to migrate from its legacy Series 4 modules to its new large-format Series 6 module format while improving its capacity. The plan would also align with the company’s intention of speeding up its return of capital from its systems business by selling projects earlier in the construction phase. That said, it’s very likely that valuation concerns also played a part in First Solar’s decision, given that it remains very well capitalized, with cash and cash equivalents of over $2 billion.

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8Point3’s stock has been underperforming, declining from levels of around $20 per share, when it was listed in June 2015, to roughly $14 currently. This is partly because of the rising interest rate environment, which gives yield seeking investors other avenues such as government bonds to deploy their capital. Moreover, 8Point3 was launched when interest rates were much lower, prompting the company to take on sizable amounts of interest-only debt to fund operations. Most of the debt is due by 2020, and there is a chance that refinancing that debt at higher interest rates could reduce its ability to pay dividends.

While SunPower noted that it was initially looking for another company to replace First Solar as a partner in 8Point3, it received feedback that investors were more interested in purchasing the entire yieldco, prompting it to look at selling its stake in the venture as well. The sale could free up capital for SunPower, potentially helping it to retire a $300 million convertible debenture that’s due in June 2018. Moreover, the divestiture could also help SunPower to better organize its business, which has been getting increasingly complex especially from an accounting perspective (yieldco, cash sales, leases etc). The simplification could help investors better value the company.

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