A 'Cash Incinerating Project' Is Now Paying 14% Yield, If You Have The Stomach For It

Sunrun Inc. RUN has recently come under investor scrutiny for its ties to Silicon Valley Bank, which was taken over by regulators amid a collapse last week.

Pessimistic observers have labeled the company a “cash-incinerating science project.”

Sunrun's bonds are now yielding above 14%, with a yield spread of 1000 basis points (10 percentage points) higher than the benchmark yield, according to well-followed Twitter user @WallStCynic.

Cash/incinerating science project RUN’s bonds now yielding above 14%, 1000 over the curve. Their 6% “discount rate” still appears a bit low, given that. pic.twitter.com/YMgqoHlKdN

— Diogenes (@WallStCynic) March 13, 2023

This means that the market perceives the company's bonds as significantly riskier than benchmark securities. Further, Sunrun's use of a 6% discount rate for valuing its projects and investments has raised concerns, as it may be too low given the high yield on its bonds.

This could result in an overestimation of the value of Sunrun’s projects or investments, further exacerbating the company's financial challenges.

Adding to Sunrun's difficulties was its recent disclosure of exposure to SVB. Sunrun had cash deposits with SVB totaling nearly $80 million, and SVB's undrawn commitment in the non-recourse senior aggregation warehouse facility amounted to about $40 million, according to Reuters.

Despite the SVB challenges, Sunrun CEO Mary Powell recently announced that the company still has access to approximately $80 million in funds that had been held by the shuttered bank.

The company's cash balance was $953 million at the end of 2022. That should help it weather the current financial storm.

While the company's bonds are currently considered riskier than benchmark securities and its discount rate may be underestimated, Sunrun still has a substantial cash balance and access to funds held by SVB.

Next: Citigroup Initiates Coverage On Sunrun with Neutral Rating, Announces Price Target