SolarCity Corp. (NASDAQ: SCTY) has got a financial boost ahead of its planned merger with Tesla Motors Inc (NASDAQ: TSLA). The company said that a fund affiliated to Quantum Strategic Partners Ltd injected $305 million in it in exchange for an equity stake. That particular fund was advised by Soros Fund Management LLC, the hedge fund run by billionaire investor George Soros, the company said.
SolarCity Corp. (NASDAQ: SCTY) said that the $305 million equity investment is for a stake in a portfolio of its solar power projects for residential, commercial and industrial customers. The company said that the transaction that yielded the $305 million cash injection included debt syndication to some five institutional investors, with Bank of America Corp. (NYSE: BAC) acting as the sole syndication agent.
Second equity fundraiser in 2016
The latest equity investment marks the second time this year that SCTY has diluted its stock in search for more capital. Early this year, the company sold equity stake in a portfolio of solar power projects to John Hancock. The equity transaction with Mr. Hancock yielded $227 million for SolarCity.
The company’s business model is where it installs solar panels at little or no upfront cost to the customer and waits to collect fees from the use of the systems. While the business model is viable considering that it eliminates a major barrier to entry for many customers seeking renewable energy, it requires massive investment on the side of SolarCity to complete projects before it can start generating money from them. As such, the company typically borrows to cover its capital needs and that is the reason behind the company’s $3.35 billion total debt at the end of 2Q2016.
Need for additional funds – SolarCity Corp. (NASDAQ: SCTY)
SolarCity Corp. (NASDAQ: SCTY) finished 2Q with cash of $146 million, down from $361 million in the previous quarter and $421 million in the year-ago quarter. The dip in cash position necessitated the need for a fundraiser and the company chose to dilute its stock.
The newly raised capital should keep SolarCity Corp. (NASDAQ: SCTY) in operation as it waits to be swallowed by Tesla. The debt-laden company agreed to sell itself to Tesla for $2.6 billion, though regulators and shareholders of SolarCity will have to weigh in on the transaction before it can close.