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Comment by forgetsusername | Hacker News Reader

>Solar City had to issue debt for an 18 month term at 6.5%

HackerNews tends to rip on the "bankers" for deceptive practices during the mortgage crisis. Yet SolarCity is offering unsecured and untransferable bonds, directly to the public, and on the front page is comparing the available interest rates to savings accounts and GICs:

https://solarbonds.solarcity.com/

With the financial situation as you describe, there is far more risk involved in buying these bonds than a savings account, so the appeal to the high rate of interest is not a fair comparison. I'm curious what people here think about this practice.

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untransferable bonds

There's such a thing???

Sure enough, found with Google, and evidently they've been doing this for a couple of years: https://solarbonds.solarcity.com/customer-agreement/

The Solar Bonds I purchase may not be listed or traded on any secondary market or exchange, and even if they are, they may not be actively traded. As a result, I should assume that I may have to hold the Solar Bonds until maturity. Also, because I am purchasing the Solar Bonds directly rather than through a broker or other financial intermediary, it may be more difficult for me to sell my Solar Bonds, even if a trading market is or becomes available.

I suppose if you view them as you should any crowdfunded thing, don't expect anything back, but you're hoping to help something you believe in, that's OK, but....

This is beginning to sound like a greener version of Enron.

Green that will be entirely in the red within 6-8 quarters.

It's already very in the red, and will continue to be for the foreseeable future.

Wait -- the only reason you would want to hamstring the bonds' liquidity like that is if you expected their open-market price to be lower (interest rate to be higher) than when bought straight from SC. Meaning the expect the risk/rate combo to be a bad deal?

Am I missing something?

they're backed by customers paying electricity bills. seems safe for 18months, as I don't see much risk for a whole tranche of credit worthy homeowners electing to turn off their electricity.

*edit swypo

If the interest rate of 6.5% is high, which as far as I can tell is the case, i.e. it appears to be in the lower range of "junk" bonds, and they're unmarketable, and (here it gets iffy due to the acquisition) Musk and company had to buy most of their latest offering, they're by definition risky. The very first detail, their interest rate, tells you that, for no one pays more money to borrow money than they have to.

And, BTW, SpaceX just had a rocket and its payload go ka-boom on a launchpad pre-flight test.... Musk's attention and potentially capital just got a huge distraction.

See also https://news.ycombinator.com/item?id=12405092 , Tesla's lenders did not act favorably towards the merger.

Ah, and see this in particular: https://news.ycombinator.com/item?id=12406715

Math and physics are seldom friendly to "green" efforts.

SpaceX is hardly green, I would imagine. That doesn't change the realities of what they're up to.

I don't support the green label on solar panels that are only profitable because of government dole. However, I still believe the methodology for determining risk (internal to SolarCity) to be sufficiently safe (for me to invest). I'm familiar with what they're up to, though.

Could it be the case that a 6.5% rate reflects the risk, but also the difficulty of securing operating funds. e.g. a sweetened deal for those willing to support them.

I'm interested in finance, but not a financier... so, my opinion could benefit from correction.

The entire solar city enterprise is based on "sophisticated financial engineeriing." They push solar lease and PPA deals on customers which are then securitized and sold to investors. Both sides of these deals (solar customers and abs investors) accept terms that benefit solar city at their expense. If it's not subprime 2.0 then it's subprime 3.0.

And somehow even with favorable terms Solar City is hemorrhaging cash and has a grim outlook for the future.

Sales and marketing expenses. Cut those and SCTY is cash flow positive.

But then revenue plunges and its value plunges accordingly thanks to negative growth rates.

Which is where Tesla comes in with its existing marketing and sales channels. And why it's a sound strategy to acquire SCTY.

I have no problem with it, because buying these bonds is completely voluntary (and indeed, anyone foolish enough to buy a non-transferrable corporate bond deserves what's coming to them).

The reason--at least, my reason--for ripping on "bankers" is because our entire system of money is founded on bonds and thus, debt servitude. No one asked me if I wanted every single dollar to be created in parallel with a debt instrument, and no one asked me if I wanted to have my income taken away to service that debt.

It all comes down to autonomy. People have a choice to purchase Solar City bonds, but our banking system is forcibly imposed upon people by an unelected, private entity.

For me, the only part that might be unethical is when they say "controlled risk." And then don't describe how the risk is controlled at all on the hyperlinked page. How is it controlled? Where am I in the pecking order if things go sour?

> there is far more risk involved in buying these bonds than a savings account

Please forgive my ignorance on this. I think there is a high potential that SolarCity will do well after merging with Tesla so I see these bonds returning good returns.

But...they're bonds.

If everything goes absolutely swimmingly, you will not make more than 6.5 percent on your investment. They're not going to give the bondholders a tip/bonus/whatever.

If you believe that Tesla + SolarCity is going to be a powerhouse, I'd consider buying the stock instead. Alternately, if you're looking for a 6.5 percent return, there are less risky ways to get it (it's about the expected annual return from a broad index fund).

I'm honestly not sure who these bonds make much sense for. The implied bet is something like "they're not going to do great, so the stock will not rise, but they also will not go bankrupt so I will get my principal back." On the other hand, if you are emotionally invested in the idea of self-driving solar powered electric cars and are willing to tie up some money to make that dream come true...I can see the appeal. (I own a tiny bit of TSLA for the same reason).

>so I see these bonds returning good returns.

Then why offer interest rates many multiples higher than other low-risk investments? Of course they might pay off (in fact, it's probable that they will). But it certainly isn't riskfree, like a savings account.

These statements need to be backed with skin in the game. How much are you willing to invest in these bonds? Would you transfer your current savings account all into these bonds?

These bonds are medium risk... you get all of the downsides of when they go bankrupt but none of the upsides of if they become wildly successful.

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