New York - A South African bank has become the
go-to funding source for the US rooftop solar industry just two years
after entering the market.
Investec arranged $880 million in debt financing for
rooftop solar developers and financiers in 2016. That’s more than half of the
$1.5 billion bank debt raised last year, according to Bloomberg New Energy
Finance.
Financing for rooftop solar is underpinned by thousands
of small contracts with consumers. While the debt is tied to strong individual
credit scores, banks have favoured big solar farms because they generally have
contracts with investment-grade utilities. Investec has filled the gap by
focusing on the rooftop industry’s unique financing needs, said Ralph Cho, the
bank’s co-head of power & infrastructure in the Americas.
“We’re not a plain vanilla solar lender,” the New
York-based Cho, 44, said in an interview. “We do more complicated deals that
sometimes take commodity risk or construction risk.”
The bank was founded in Johannesburg in 1974, and 15
years later was listed on the local stock exchange. It moved into the U.K. in
1992 and listed there a decade later. It focuses today on asset management and
wealth management for high net-worth clients, with an emphasis on the UK,
South Africa and Australia.
Read also: 'Reject Investec pay hikes'
Investec hired Cho and fellow co-head Michael
Pantelogianis in 2013. They worked previously at German bank WestLB, where they
helped finance several landmark power and energy deals including the largest US
wind farm, the $1.9 billion Shepherds Flat project in Oregon. They also raised
about $4 billion for ethanol projects, another energy sector that didn’t get
ample attention from banks.
“We felt we could replicate the ethanol template we used
back at WestLB for residential solar,” said Pantelogianis, 46. Investec
typically puts together a deal to anchor the financing, and raises the rest
from “targeted banks active with consumer finance and power-project finance.”
The bank’s first rooftop deal, in 2014, was arranging
$195 million in credit facilities for Sunrun, the second-biggest US installer.
Investec’s second deal didn’t come for more than a year, another financing for
Sunrun. Its clients also include Vivint Solar Inc. and Spruce Finance.
Investec gained market share as rooftop installers and
financiers began looking increasingly at bank debt to finance growth. Bankers
had initially expected the rooftop industry to turn to the securitization
market, where investors are familiar with consumer credit risk and long-term
contracts with homeowners.
There have only been a handful of deals for rooftop solar
asset-backed securities. Solar companies have raised $882 million in the ABS
market through the end of 2016, including $321 million in the first half of
2016 and none in the second half, according to New Energy Finance.
“The ABS market is very chicken or the egg: investors
want more deals, but won’t do the work until they come,’’ said Nat Kreamer,
Spruce Finance’s San Francisco-based chief executive officer. Spruce, a Kleiner
Perkins Caufield & Byers LLC-backed provider of consumer financing for
residential solar and home efficiency projects, raised about $225 million in a
pair of Investec-led deals last year.
‘Good niche’
Investec has “carved a good niche in this space,” said
Thomas Plagemann, chief commercial officer at Lehi, Utah-based Vivint Solar.
“The Investec guys said, ‘I understand these structures,’ they understand
solar, and said, ‘I can get my head around the consumer finance piece.’” Vivint
raised $313 million in August through an Investec-led deal.
When Sunrun hired Investec, the idea was that
the bank would essentially provide the installer with a credit card, until some
of its consumer contracts could be packaged into new securities or medium-term
bank loans, Cho said. Now, Investec is providing medium-term debt that competes
with the ABS market.
“There’s a little more to understand than just consumer
credit,’’ Edward Fenster, chairman at San Francisco-based Sunrun, said in an
interview. “Deal execution is an art.”