Spruce Finance Gets Second Act as Owner and Operator of Home Solar Assets

Spruce Finance, now a residential solar owner and operator, left the solar loan and origination market last year. Instead, the company said it’s been focused on growing its mergers and acquisitions platform.

On Wednesday the company announced $208 million in debt financing for its residential solar assets with Silicon Valley Bank and ING acting as lead arrangers. Key Bank and three other undisclosed lenders participated in the deal, according to Spruce.

Tim Distler, the company’s vice president of corporate development, said the money allows Spruce to continue pursuing opportunities to acquire “seasoned residential portfolios.”

“We see this financing as an opportunity not only to optimize our capital structure but also to leverage its existence to further grow Spruce through acquisitions,” said Distler. He added that the company is investigating acquisitions in adjacent solar sectors and confirmed that could mean commercial or community solar projects.

The financing announcement follows skepticism about Spruce’s financial position.

In November, debt fund HPS Investment Partners, a spinoff of JP Morgan Asset Management, acquired the company after providing $25 million in “strategic funding” the previous year. The acquisition did away with previous equity backers including Google Ventures, Dominion Resources and Duke Energy.

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Spruce’s servicing subsidiary, Energy Service Experts, continues to operate under the company and service Spruce projects as well as third-party assets.

Allison Mond, a senior solar analyst at Wood Mackenzie Power & Renewables, said the financing deal announced this week again demonstrates that more investors are interested in solar as an asset class.

“[Spruce’s] ability to secure this sort of financing is just one of many examples of investors and banks being increasingly comfortable with residential solar assets and wanting a stake in the game,” said Mond. “It fits within the larger trend that financing is not the biggest hurdle anymore in residential solar.”

But for providers, the residential solar finance market remains competitive, with slim margins. According to data from Wood Mackenzie Power & Renewables, Spruce’s share of the third-party solar financing provider market shrank from 7 percent in 2016 to 1 percent in 2018.

Moving away from the tricky origination space toward asset management, ownership and servicing could be a less risky pivot. Spruce joins other third-party solar financing companies in making such a move.

“The residential solar market is a continuously growing space. The assets need to be serviced and managed by someone and a lot of the companies that originate them don’t do that, particularly if it’s a smaller installer with loan financing,” said Mond. “There’s certainly opportunity for a company like Spruce to acquire and manage more assets.”

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In any case, this week's announcement confirms Spruce is still around — and looking to grow.

“That’s my task now that our financing is behind us, is to continue growing the company through M&A,” said Distler. “My hope is we’ll have more investment [announcements] to come later this year.”

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