Revisiting Yield Vehicles In Context of Rising Rates & Slower Replacement Cycle
“With yieldco and yield-based vehicles selling off sharply post-election on expectations for rate increases, we believe it appropriate to consider the new landscape for these names in further detail. First, we expect increased yields for comparable assets to be a headwind as investors have more options with similar current income.
Second, the potential for softer regulation and non-enforcement may make accretive acquisitions increasingly difficult due to fewer projects being built, even for platforms with strong ROFO lists. Third, we believe slowing growth expectations would likely de-risk Street expectations and provide support for these names.
We continue to highlight HASI as a top pick given management’s history of managing through cycles and maintaining investment flexibility across multiple asset classes. We continue to be constructive on CAFD and NEP given their access to projects to support growth and PEGI given relatively attractive valuation.”