Gordon Johnson On 8Point3: There Are A Lot Of Similar Characteristics To SunEdison, SolarCity

Gordon Johnson,
Axiom's noted alternative energy analyst, said in an e-mail response to Benzinga that he sees a lot of similar characteristics among
8Point3 Energy Partners LP
CAFD
, the now bankrupt
Sunedison IncSUNEQ
and
SolarCity CorpSCTY
, which would have gone bankrupt if not for
Tesla IncTSLA
CEO Elon Musk's funded bailout.

8point3 Energy Partners is a growth-oriented limited partnership formed by SunPower Corporation SPWR and First Solar, Inc. FSLR to own, operate and acquire solar energy generation projects.

Shirking Debt Payment

In a note released Tuesday, Axiom noted that unlike its peers, 8Point3 doesn't repay debt, with the company avoiding payment of a single principal debt payment since going public. This, according to the firm, contrasts with the company's YieldCo peers, which have made debt payments each year dating back to 2014.

Assuming a required payout of over $91 million, which is 93 percent of the company's guidance for 2017, Axiom believes something wouldn't get paid out, implying a default to a sponsor.

Growth At Risk

Johnson believes 8Point3's debt dilemma would impair its growth, as it has just $14 million in cash and with neither SunPower nor First Solar, two of its sponsors, in a strong enough position to give it a favorable price. Accordingly, the analyst believes the only recourse is to go in for dilutive equity raises to fund incremental acquisitions.

Consequently, Johnson believes growth of 8Point3 would stagnate, pushing up the required dividend yield, thus weighing on the shares.

Johnson's Take

Johnson told Benzinga, "And, because they don't pay debt, CAFD is the real world equivalent of a person buying a mansion in Manhattan with a five year interest only mortgage (meaning they are NOT paying back any principal on the mortgage), and then going out and showing people their bank account, implying they actually have 'disposable incom'; the reality, however, is they in fact DO NOT have disposable income (because once the principal becomes due, their disposable income will fall)."

Johnson compared run-off of 8Point3 assets, which is around $10-$11, to Pattern Energy Group Inc PEGI's $22–$23 at the same discount rate and Atlantica Yield PLC ABY's $25–$26 at 100 basis points higher discount rate. "CAFD has more risk as they are borrowing short-term to buy long-term and that doesn't work well in rising interest rate environment. PEGI and ABY are termed out on substantively all of their debt," Johnson added.

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