Why You Should Keep an Eye on Sunrun’s Leverage, Liquidity Position
What Do Analysts Expect from Sunrun’s 1Q16 Earnings?
Significance of liquidity
The business models of downstream solar (TAN) players like Vivint Solar (VSLR), SolarCity (SCTY), Sunrun (RUN), and the downstream operations of SunPower (SPWR) generate income over the term of customer agreements. These agreements typically last 20 years.
This means that most of the capital required for such companies’ expansion have to come from outside sources. As a result, it’s important for a company like Sunrun to maintain its liquidity position and the quality of its assets in order to raise capital at low cost.
Interest expenses
Sunrun’s (RUN) interest expenses were consistently on the rise during fiscal 2015. The company reported ~$9.2 million as interest expenses for 4Q15. The increase in interest expenses is due to an increase in debt.
As of December 31, 2015, the company had about $538 million in consolidated debt on its books, increased from $239 million as of December 31, 2014. Out of $538 million, $195 million is non-secured debt and the remaining is secured in nature.
Sunrun’s liquidity position
As of December 31, 2015, Sunrun had about $204 million in cash on its balance sheet. Also, in January 2016, the company entered into a secured credit facility arrangement with a group of banks for $250 million in committed capital.
Also, investors must look at company’s key operating metrics such as unleveraged net present value along with the average FICO score of the company’s residential portfolio. The higher the unleveraged net present value, the higher is the gross profit per watt on a deployed basis. The FICO score helps to determine the quality of the underlying assets.
As of December 31, 2015, Sunrun reported an unleveraged net present value of $0.86 per watt, and the average FICO score of Sunrun’s customers under lease and PPAs (power purchase agreement) was 760.
Browse this series on Market Realist: