SolarCity Corp (NASDAQ:SCTY) took off out the gate this morning, surging 5%-plus before paring those gains to a more modest 3.6%, and rising back up more than 8% as of this writing.
Sparking the positive price action in the first trading day after the market spiraled down the drain is news that SCTY has raised $305 million through a private investment fund with ties to Quantum Strategic Partners Ltd and advised by Soros Fund Management LLC.
The new funding includes an 18-year loan under five institutional investors, and covers 230 megawatts of solar capacity in 15 states. From the press release:
“By placing the equity investor and lender group separately, SolarCity was able to achieve a pre-tax, weighted average cost of capital for the transaction of 7.4%, a significant improvement over its first cash equity transaction. The transaction and terms demonstrate the exceptional quality of SolarCity’s distributed solar assets.”
The release goes on to call the loan the “first of its kind” for solar.
How SCTY Stock Is Reacting
Shares of SolarCity have been decimated in 2016, with SCTY stock off nearly 70%. Over the past month alone, shares of SolarCity plunged 27%. Just recently, SolarCity’s price target was cut by the folks at Axiom Capital, citing “significant risk” from the TSLA merger.
Today’s wildly fluctuating price could be the result of buyers swooping in on a down market and heavily damaged stock combined with sellers taking their profits and running.
While I don’t think this is the right time to short SCTY, it doesn’t necessarily mean it’s the right time to buy either.
SolarCity has reportedly struggled to close its financial commitments for new projects as a side effect of its in-progress merger with Tesla Motors Inc (NASDAQ:TSLA).
A quick look at its books shows SCTY had posted a $284 million loss of free cash flow just five years ago. Since then, SolarCity’s cash-flow loss has ballooned to $2.84 billion.
Stay on the sidelines for this one.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
