Hannon Armstrong Sustainable Infrastructure Capital(HASI) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents unaudited condensed consolidated financial statements and detailed notes on key accounting areas Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and detailed notes on key accounting areas Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (Dollars in Thousands) | Metric | September 30, 2024 | December 31, 2023 | |:---|:---|:---| | Assets | | | | Cash and cash equivalents | $44,053 | $62,632 | | Equity method investments | $3,353,224 | $2,966,305 | | Receivables, net | $2,899,707 | $3,073,855 | | Total Assets | $6,672,524 | $6,552,350 | | Liabilities | | | | Total Liabilities | $4,349,425 | $4,410,725 | | Stockholders' Equity | | | | Total Stockholders' Equity | $2,323,099 | $2,141,625 | | Total Liabilities and Stockholders' Equity | $6,672,524 | $6,552,350 | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over reporting periods Condensed Consolidated Statements of Operations (Dollars in Thousands, Except Per Share Data) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---| | Total revenue | $81,965 | $89,851 | $282,298 | $233,286 | | Total expenses | $84,848 | $76,091 | $262,572 | $206,247 | | Net income (loss) | $(19,176) | $21,647 | $132,316 | $59,767 | | Net income (loss) attributable to controlling stockholders | $(19,616) | $21,446 | $129,949 | $59,075 | | Basic earnings (loss) per common share | $(0.17) | $0.20 | $1.12 | $0.59 | | Diluted earnings (loss) per common share | $(0.17) | $0.20 | $1.09 | $0.59 | Condensed Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income components, reflecting total earnings Condensed Consolidated Statements of Comprehensive Income (Dollars in Thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---| | Net income (loss) | $(19,176) | $21,647 | $132,316 | $59,767 | | Unrealized gain (loss) on available-for-sale securities and securitization assets | $13,547 | $(20,614) | $3,897 | $(17,046) | | Unrealized gain (loss) on interest rate swaps | $(47,520) | $76,597 | $(9,624) | $75,481 | | Comprehensive income (loss) | $(53,149) | $77,630 | $126,589 | $118,202 | | Comprehensive income (loss) attributable to controlling stockholders | $(53,131) | $76,713 | $124,322 | $116,737 | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including net income, share issuances, and dividends - Total Stockholders' Equity increased from $2,141,625 thousand as of December 31, 2023, to $2,323,099 thousand as of September 30, 2024, primarily driven by net income of $132,316 thousand and issued shares of common stock totaling $182,179 thousand, partially offset by dividends and distributions of $147,176 thousand[14] Condensed Consolidated Statements of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Dollars in Thousands) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---| | Net cash provided by (used in) operating activities | $18,055 | $92,340 | | Net cash provided by (used in) investing activities | $54,071 | $(1,419,180) | | Net cash provided by (used in) financing activities | $(88,572) | $1,320,400 | | Increase (decrease) in cash, cash equivalents, and restricted cash | $(16,446) | $(6,440) | | Cash, cash equivalents, and restricted cash at end of period | $58,636 | $169,532 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of significant accounting policies and financial statement line items 1. The Company This note describes the company's business, investment focus on climate solutions, and public listing - HA Sustainable Infrastructure Capital, Inc. (formerly Hannon Armstrong Sustainable Infrastructure Capital, Inc.) partners with clients to deploy real assets for energy transition, referred to as "climate solutions"[16] - The company's investments include equity, joint ventures, land ownership, lending, and other financing transactions, generating net investment income and fees from securitization, asset management, and broker/dealer services[16] - Common stock is listed on the NYSE under "HASI," and the company operates to maintain its exemption from registration as an investment company under the 1940 Act[16] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing financial statements - Financial statements are prepared in accordance with U.S. GAAP, requiring management estimates and assumptions that could materially differ from actual results[17] - The company consolidates entities where it has power and receives benefits (primary beneficiary of VIEs or control through voting interests)[18][19] - Equity investments, typically preferred return positions in LLCs, are accounted for using the hypothetical liquidation at book value (HLBV) method, with earnings recognized one quarter in arrears[20] - Receivables are classified as held for investment (amortized cost) or held-for-sale (lower of cost or fair value), with an allowance for credit losses determined under ASC Topic 326[21][22] - Real estate consists of land and lease intangibles, generally leased on a triple net basis, with rental income recognized on a straight-line basis for operating leases[23][24] - Securitization of financial assets is accounted for as sales under ASC 860 when assets are isolated and control is surrendered; retained interests (servicing rights, residual assets) are recognized at fair value[25] - Convertible Notes are accounted for under ASC 470-20 and ASC 815, with conversion options meeting the scope exemption for contracts indexed to and settled in the issuer's own equity[28] - Derivative financial instruments (interest rate swaps, collars) are used to manage interest rate risk and are designated as cash flow hedges, with changes in fair value recorded in AOCI[29] - The company revoked its REIT election effective January 1, 2024, and is now taxed as a C Corporation, making all net taxable income subject to corporate tax rates[31] - Equity incentive plans provide for various equity-based awards (restricted stock, RSUs, LTIP Units) with compensation expense recorded over the vesting period based on fair market value[32] - Basic EPS is calculated by dividing net income attributable to controlling stockholders by weighted-average common shares outstanding, while diluted EPS includes potential common stock instruments if dilutive[33] - The company manages its business as a single portfolio and reports all activities as one business segment[34] 3. Fair Value Measurements This note details valuation methodologies and hierarchy for financial instruments measured at fair value - Fair value is defined as the price received for an asset or paid to transfer a liability in an orderly transaction between market participants[35] - The company uses a three-level hierarchy (Level 1, 2, 3) for classifying financial instruments, with securitization residual assets, derivatives, and investments carried at fair value on a recurring basis[35] Fair Value and Carrying Value of Financial Instruments (September 30, 2024, in millions) | Metric | Fair Value | Carrying Value | Level | |:---|:---|:---|:---| | Assets | | | | | Receivables | $2,648 | $2,900 | Level 3 | | Receivables held-for-sale | $24 | $22 | Level 3 | | Investments | $18 | $18 | Level 3 | | Securitization residual assets | $258 | $258 | Level 3 | | Derivative assets | $10 | $10 | Level 2 | | Liabilities | | | | | Credit facilities | $116 | $116 | Level 3 | | Commercial paper notes | $18 | $18 | Level 3 | | Term loans payable | $420 | $420 | Level 3 | | Non-recourse debt | $137 | $135 | Level 3 | | Senior unsecured notes | $2,858 | $2,862 | Level 2 | | Convertible Notes | $763 | $621 | Level 2 | | Derivative liabilities | $37 | $37 | Level 2 | - The weighted average discount rates used to determine the fair value of securitization residual assets were 6.6% as of September 30, 2024, and December 31, 2023[43] Cash Deposits (in millions) | Metric | September 30, 2024 | December 31, 2023 | |:---|:---|:---| | Cash deposits | $44 | $63 | | Restricted cash deposits | $15 | $12 | | Total cash deposits | $59 | $75 | | Amount of cash deposits in excess of federally insured amounts | $57 | $63 | 4. Non-Controlling Interest This note explains the nature and accounting for non-controlling interests, primarily OP and LTIP units - Non-controlling interests primarily consist of OP units owned by limited partners, representing approximately 1% of outstanding OP units, redeemable for cash or common stock[45] - LTIP Units granted to leadership and directors qualify as profits interests in the Operating Partnership, initially with zero capital account balance, achieving parity with OP units upon "book gains" allocation[47] 5. Securitization of Financial Assets This note describes the company's securitization activities and accounting treatment of related assets Securitization Transactions (in millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---| | Gains on securitizations | $8 | $22 | $63 | $53 | | Cost of financial assets securitized | $106 | $23 | $864 | $424 | | Proceeds from securitizations | $114 | $45 | $927 | $477 | | Cash received from residual and servicing assets | $7 | $4 | $13 | $15 | - As of September 30, 2024, managed assets totaled $13.1 billion, with $6.8 billion in securitized assets held in unconsolidated trusts or co-investment structures[48] - The allowance for losses on securitization residual assets related to property assessed clean energy liens remained at $3 million for commercial assets as of September 30, 2024[50][51] 6. Our Portfolio This note provides details on the composition, performance, and credit quality of the investment portfolio - As of September 30, 2024, the portfolio included approximately $6.3 billion of equity method investments, receivables, real estate, and investments, primarily in climate solutions projects[52] Portfolio Performance Ratings (September 30, 2024, in millions) | Category | Performance Rating 1 (Low Risk) | Performance Rating 2 (Moderate Risk) | Performance Rating 3 (Substantial Doubt) | Total | |:---|:---|:---|:---|:---| | Receivables held-for-investment | $2,914 | $35 | $0 | $2,949 | | Receivables held-for-sale | $19 | $3 | $0 | $22 | | Investments | $16 | $2 | $0 | $18 | | Real estate | $3 | $0 | $0 | $3 | | Equity method investments | $3,320 | $0 | $33 | $3,353 | | Total | $6,272 | $40 | $33 | $6,296 | | Percent of Portfolio | 98% | 1% | 1% | 100% | - The allowance for losses on receivables was $49 million as of September 30, 2024, with a $1 million increase during the quarter, primarily due to new loans and commitments[57] Allowance for Loss on Receivables by Portfolio Segment (in millions) | Segment | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2024 | |:---|:---|:---| | Commercial | $49 | $49 | | Government | $0 | $0 | | Total | $49 | $49 | - In Q1 2024, the company sold $100 million carrying value of land and related intangibles, retaining a residual interest as an equity method investment[63] Equity Method Investments (September 30, 2024, in millions) | Investee | Carrying Value | |:---|:---| | Jupiter Equity Holdings LLC | $579 | | Daggett Renewable HoldCo LLC | $445 | | Lighthouse Renewable HoldCo 2 LLC | $350 | | CarbonCount Holdings 1 LLC | $84 | | Other equity method investments | $1,895 | | Total equity method investments | $3,353 | - The company entered a strategic partnership with KKR in May 2024, committing $1 billion each to CarbonCount Holdings 1 LLC (CCH1) for clean energy assets, with HASI providing services and accounting for its investment as an equity method investment[69][70][71] - As of September 30, 2024, approximately $899 million of receivables are loans to entities where the company also holds non-controlling equity investments of $832 million, often subordinate to senior debt and tax equity[75] - SunPower Corporation's Chapter 11 bankruptcy in August 2024 did not materially impact the company's $327 million commercial receivables from SunStrong SPEs or $31 million equity method investments, as cash flows are from individual residential customers and SPEs are bankruptcy remote[77][79] 7. Credit facility and commercial paper notes This note details the company's credit facilities and commercial paper programs, including balances and terms - The unsecured revolving credit facility was increased to $1.25 billion and extended to April 2028, with an outstanding balance of $116 million at a weighted average rate of 6.83% as of September 30, 2024[80] - The CarbonCount Green Commercial Paper Note Program capacity was increased to $125 million and extended to April 2026, with $18 million outstanding at an average borrowing rate of 6.25% as of September 30, 2024[81] - A new senior secured revolving credit agreement with a maximum of $100 million was entered in Q2 2024, maturing in 2029, with no outstanding balance but $22 million availability as of September 30, 2024[83] 8. Long-term Debt This note provides information on non-recourse debt, senior unsecured notes, and convertible notes - Non-recourse debt totaled $131 million as of September 30, 2024, secured by pledged assets of $302 million, with no recourse to other corporate assets for repayment shortfalls[86][88] - Senior Unsecured Notes totaled $2,840 million as of September 30, 2024, with covenants related to additional indebtedness and unencumbered assets terminating due to investment grade rating[92][96] - In Q3 2024, $700 million of 2034 Senior Unsecured Notes were issued at 6.375% to redeem $400 million of 2025 notes[93] - Convertible Notes totaled $613 million as of September 30, 2024, including 2025 Exchangeable Senior Notes ($217 million balance) and 2028 Exchangeable Senior Notes ($404 million balance), with capped call transactions mitigating dilution for the 2028 notes[101][102] - The CarbonCount Term Loan Facility has an outstanding principal of $251 million at 7.02% interest, with maturity extended to 2027 and a $275 million partial prepayment made in Q2 2024[104] - The Secured Term Loan has an outstanding balance of $169 million at 7.68% interest, maturing in January 2028, with $409 million in financing receivables pledged as collateral[107] Interest Rate Derivatives (September 30, 2024, in millions) | Instrument type | Notional Value | Fair Value (Sep 30, 2024) | |:---|:---|:---| | Interest rate swap (1 month SOFR) | $400 | $(16) | | Interest rate swap (Overnight SOFR) | $400 | $6 | | Interest rate swap (Overnight SOFR) | $600 | $5 | | Interest rate swap (Overnight SOFR) | $400 | $0 | | Interest rate collar (1 month SOFR) | $250 | $(1) | | Interest rate swaps (Overnight SOFR) | $170 | $(9) | | Interest rate swap (Overnight SOFR) | $375 | $(10) | | Total | $2,595 | $(25) | 9. Commitments and Contingencies This note discloses the company's legal proceedings, guarantees, and other contractual commitments - The company is not currently subject to any legal proceedings likely to have a material adverse effect on its financial position or results[115] - Guarantees include support for Jupiter project companies' working capital ($53 million maximum, $20 million annually) and obligations related to financing joint venture entities ($87 million maximum), with no current liability recorded as performance is not probable[116] 10. Income Tax This note details income tax expense/benefit and the impact of the REIT election revocation Income Tax (Expense) Benefit (in millions) | Period | 2024 | 2023 | |:---|:---|:---| | Three Months Ended Sep 30 | $7 | $5 | | Nine Months Ended Sep 30 | $(49) | $5 | - The company revoked its REIT election effective January 1, 2024, and is now taxed as a C Corporation, impacting dividend deductibility and overall tax exposure[31] 11. Equity This note provides information on dividends declared, equity issuances, and equity-based compensation Dividends Declared (2023-2024) | Announced Date | Record Date | Pay Date | Amount per share | |:---|:---|:---|:---| | 2/16/2023 | 4/3/2023 | 4/10/2023 | $0.395 | | 5/4/2023 | 7/5/2023 | 7/12/2023 | $0.395 | | 8/3/2023 | 10/4/2023 | 10/11/2023 | $0.395 | | 11/2/2023 | 12/29/2023 | 01/12/2024 | $0.395 | | 2/15/2024 | 4/5/2024 | 04/19/2024 | $0.415 | | 5/7/2024 | 7/3/2024 | 7/12/2024 | $0.415 | | 8/1/2024 | 10/4/2024 | 10/18/2024 | $0.415 | | 11/7/2024 | 12/30/2024 | 01/10/2025 | $0.415 | - During the nine months ended September 30, 2024, the company issued $181 million in equity through ATM offerings and public offerings[122] - Equity-based compensation expense was $4 million for the three months and $19 million for the nine months ended September 30, 2024, with $24 million unrecognized compensation expense remaining[126] - The Tax Benefits Preservation Plan (NOL Stockholder Rights Plan) was terminated on July 1, 2024, replaced by Charter Tax Benefit Provisions in anticipation of the company's reincorporation as a Delaware corporation[134] 12. Earnings per Share of Common Stock This note presents the calculation of basic and diluted earnings per common share Basic and Diluted Earnings Per Common Share | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---| | Net income (loss) attributable to controlling stockholders — basic | $(20.0) | $21.2 | $128.8 | $58.3 | | Net income (loss) attributable to controlling stockholders — dilutive | $(20.0) | $21.4 | $141.4 | $59.2 | | Basic earnings (loss) per common share | $(0.17) | $0.20 | $1.12 | $0.59 | | Diluted earnings (loss) per common share | $(0.17) | $0.20 | $1.09 | $0.59 | - Unvested share-based payment awards and dilutive Convertible Notes are included in diluted EPS calculations, with interest expense added back for Convertible Notes under the if-converted method[135] 13. Equity Method Investments This note details equity method investments, including income recognition and investee summaries - Income from equity method investments was $(23) million for the three months and $162 million for the nine months ended September 30, 2024, compared to $3 million and $27 million for the same periods in 2023[141] - The company had 47 equity method investments as of September 30, 2024, primarily in LLCs taxed as partnerships, with income/loss recognized using the HLBV method[141] Summary of Equity Method Investees' Income Statement (Six Months Ended June 30, in millions) | Metric | Jupiter Equity Holdings LLC | Daggett Renewable HoldCo LLC | Other Investments | Total | |:---|:---|:---|:---|:---| | For the six months ended June 30, 2024 | | | | | | Revenue | $6 | $31 | $489 | $526 | | Net income (loss) | $(95) | $1 | $(102) | $(196) | | For the six months ended June 30, 2023 | | | | | | Revenue | $59 | $2 | $386 | $447 | | Net income (loss) | $(27) | $2 | $(61) | $(86) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operating results, and liquidity Our Business This section describes the company's focus on climate positive investments and managed asset portfolio - The company is a climate positive investment firm focused on deploying real assets for energy transition, managing over $13 billion in assets[145] - Investments are concentrated in three markets: Behind-the-Meter (BTM), Grid-Connected (GC), and Fuels, Transport, and Nature (FTN)[145] - The company completed $396 million in transactions during Q3 2024 and $1.2 billion for the nine months ended September 30, 2024[145] - As of September 30, 2024, the company managed $13 billion in "Managed Assets," comprising $6.3 billion on-balance sheet "Portfolio" and $6.8 billion in unconsolidated securitization trusts or co-investment structures[145] - The pipeline of potential new opportunities for the next 12 months exceeds $5.5 billion, with 46% in BTM and 30% in GC assets[147] - The company calculates "CarbonCount" to quantify the carbon impact of investments, estimating 70,000 metric tons of annual carbon emissions avoided for Q3 2024 investments and over 7 million cumulative metric tons since 2013[147][183] Factors Impacting our Operating Results This section outlines key internal and external factors influencing financial performance - Operating results are primarily affected by portfolio size and mix, securitization income, credit risk, market interest rates, commodity prices, governmental policies, general market conditions, 1940 Act exemption maintenance, and climate change[148] Critical Accounting Policies and Use of Estimates This section highlights accounting policies requiring significant judgment and estimation - Critical accounting policies requiring significant judgment and assumptions include Consolidation, Equity Method Investments, Impairment or allowance under Topic 326 for the Portfolio, and Securitization of Financial Assets[150] Financial Condition and Results of Operations This section analyzes the company's portfolio composition, average balances, income, and debt costs - As of September 30, 2024, the Portfolio totaled approximately $6.3 billion, with 51% in unconsolidated equity investments, 42% in fixed-rate receivables, 5% in floating-rate receivables, and 2% in real estate[151] - The Portfolio consists of over 520 transactions with an average size of $12 million and a weighted average remaining life of approximately 17 years[151] Average Balances, Income/Expense, and Rates (in millions, except rates) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---| | Portfolio (excl. equity method investments) | | | | | | Interest income, receivables | $63 | $53 | $193 | $141 | | Average balance of receivables | $2,948 | $2,431 | $3,067 | $2,231 | | Average interest rate of receivables | 8.6% | 8.7% | 8.4% | 8.4% | | Rental income | $0 | $6 | $2 | $19 | | Average balance of real estate | $3 | $330 | $32 | $345 | | Average yield on real estate | 11.1% | 7.3% | 8.4% | 7.4% | | Average yield from receivables, investments, and real estate | 8.6% | 8.5% | 8.4% | 8.3% | | Debt | | | | | | Interest expense | $58 | $43 | $180 | $120 | | Average balance of debt | $4,159 | $3,527 | $4,252 | $3,320 | | Average cost of debt | 5.6% | 4.9% | 5.7% | 4.8% | Results of Operations This section provides a detailed comparison of financial performance across reporting periods - Three Months Ended September 30, 2024 vs. 2023: * Net income decreased by $40,823 thousand (189%) to $(19,176) thousand, primarily due to a $26 million decrease in income from equity method investments and an $8 million decrease in total revenue[158] * Total revenue decreased by $8 million (9%) to $81,965 thousand, mainly due to a $15 million decrease in gain on sale of assets, partially offset by a $13 million increase in interest and securitization asset income[158] * Interest expense increased by $16 million (37%) to $59,401 thousand, driven by a larger average outstanding debt balance and higher average interest rates[158] * Income (loss) from equity method investments decreased by $26 million (948%) to $(23,405) thousand, primarily due to mark-to-market losses on power purchase agreements[158] - Nine Months Ended September 30, 2024 vs. 2023: * Net income increased by $73 million (121%) to $132,316 thousand, driven by a $135 million increase in income from equity method investments and a $49 million increase in total revenue, partially offset by higher expenses and income tax expense[160] * Total revenue increased by $49 million (21%) to $282,298 thousand, mainly due to a $56 million increase in interest and securitization income[160] * Interest expense increased by $60 million (50%) to $180,804 thousand, due to a larger average outstanding debt balance and higher average interest rates[160] * Income from equity method investments increased by $135 million (491%) to $162,019 thousand, primarily due to allocations of income related to tax credits in a grid-connected utility-scale solar project[160] * Income tax expense increased by $55 million (1,033%) to $(49,429) thousand, due to larger income before income taxes[160] Non-GAAP Financial Measures This section presents non-GAAP financial metrics for supplemental insights into company performance - The company uses non-GAAP measures: Adjusted Earnings, Adjusted Net Investment Income, Managed Assets, and Adjusted Cash from Operations Plus Other Portfolio Collections, to provide supplemental insights into performance and liquidity[161][163] Reconciliation of GAAP Net Income (Loss) to Adjusted Earnings (in thousands, except per share) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---| | Net income (loss) attributable to controlling stockholders | $(19,616) | $21,446 | $129,949 | $59,075 | | Equity method investments earnings adjustment | $59,436 | $41,034 | $174,189 | $113,453 | | Equity-based expenses | $4,118 | $3,499 | $21,459 | $16,372 | | Non-cash provision (benefit) for income taxes | $(7,112) | $(5,128) | $49,429 | $(5,299) | | Adjusted earnings | $62,624 | $68,801 | $215,213 | $171,605 | | Adjusted earnings per share | $0.52 | $0.62 | $1.83 | $1.70 | Reconciliation of GAAP-based Net Investment Income to Adjusted Net Investment Income (in thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---|:---|:---| | GAAP-based net investment income | $4,750 | $17,039 | $16,747 | $44,200 | | Equity method earnings adjustment | $59,436 | $41,034 | $174,189 | $113,453 | | Adjusted net investment income | $65,142 | $58,789 | $192,066 | $159,900 | Reconciliation of GAAP-based Portfolio to Managed Assets (in millions) | Metric | September 30, 2024 | December 31, 2023 | |:---|:---|:---| | GAAP-based Portfolio | $6,296 | $6,193 | | Assets held in securitization trusts | $6,747 | $6,060 | | Assets held in co-investment structures | $74 | $0 | | Managed Assets | $13,117 | $12,253 | Adjusted Cash from Operations Plus Other Portfolio Collections (in thousands) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | TTM Ended Sep 30, 2024 | |:---|:---|:---|:---| | Net cash provided by operating activities | $18,055 | $92,340 | $25,404 | | Cash collected from our Portfolio | $718,588 | $346,321 | $814,589 | | Cash collected from sale of assets | $252,847 | $27,773 | $259,108 | | Cash used for compensation and benefit expenses and general and administrative expenses | $(62,516) | $(62,222) | $(78,975) | | Interest paid | $(123,548) | $(91,988) | $(169,978) | | Adjusted cash from operations plus other portfolio collections | $740,215 | $233,055 | $773,068 | | Less: Dividends | $(142,178) | $(115,087) | $(186,877) | | Cash Available for Reinvestment | $598,037 | $117,968 | $586,191 | Other Metrics This section includes additional performance indicators like unlevered portfolio yield and carbon emissions - Unlevered portfolio yield was 8.1% as of September 30, 2024, up from 7.9% as of December 31, 2023[181] Average Annual Realized Loss on Managed Assets | Metric | Value | |:---|:---| | Average Annual Recognized Loss on Managed Assets (GAAP) | 0.12 % | | Average Annual Realized Loss on Managed Assets | 0.07 % | - Investments originated in Q3 2024 are estimated to avoid 70,000 metric tons of annual carbon emissions, with a CarbonCount® of 0.18, and cumulatively, investments since 2013 have avoided over 7 million metric tons[183] Liquidity and Capital Resources This section discusses available liquidity, capital market activities, and the debt-to-equity ratio Available Liquidity (September 30, 2024, in millions) | Source | Amount | |:---|:---| | Unrestricted cash | $44 | | Unused capacity under unsecured revolving credit facility | $1,126 | | Unused capacity under commercial paper program | $107 | | Unused capacity under senior secured credit facility | $22 | | Total liquidity | $1,299 | - Capital markets activity in the nine months ended September 30, 2024, included increasing the unsecured revolving credit facility to $1.25 billion, extending the unsecured term loan facility to 2027, increasing the green commercial paper program to $125 million, establishing a senior secured credit facility, issuing $181 million in equity, and issuing $700 million of 2034 Senior Unsecured Notes[186] - The company's debt to equity ratio was approximately 1.8 to 1 as of September 30, 2024, below the board-approved limit of 2.5 to 1[192][194] - The percentage of fixed-rate debt, including interest rate derivatives, was approximately 100% as of September 30, 2024, at the top of the targeted range of 75% to 100%[192][194] Sources and Uses of Cash This section summarizes cash flows from operating, investing, and financing activities Summary of Cash Flows (Nine Months Ended September 30, in millions) | Activity | 2024 | 2023 | |:---|:---|:---| | Cash provided by (used in) operating activities | $18 | $92 | | Cash provided by (used in) investing activities | $54 | $(1,419) | | Cash provided by (used in) financing activities | $(89) | $1,320 | | Increase (decrease) in cash and cash equivalents | $(17) | $(7) | - Cash from operating activities decreased by $74 million YoY, despite higher net income, due to higher net negative adjustments[200] - Cash from investing activities increased by $1.4 billion YoY, driven by higher principal collections from receivables ($341 million, including a $209 million one-time prepayment) and $117 million more from sales of receivables, alongside reduced investments in equity method investments and receivables[200] - Cash from financing activities decreased by $1.4 billion YoY, primarily due to lower net borrowings ($1 billion) and reduced equity issuances ($285 million)[200] Off-Balance Sheet Arrangements This section describes relationships with non-consolidated entities and associated risks - The company has relationships with non-consolidated entities, including securitization trusts, and holds securitization assets of approximately $258 million that may be at risk in case of defaults or prepayments[201] - Limited guarantees have been provided for certain transactions, covering representations, warranties, covenants, and indemnities against specific losses or tax matters[202] Dividends This section outlines the dividend policy and the impact of the REIT status revocation - Dividend distributions are at the board's discretion, depending on operations, and may be funded from asset collections, sales, or future equity/debt offerings[203] - The company revoked its REIT status effective for tax year 2024, which will impact dividend deductibility and tax treatment[203] Book Value Considerations This section clarifies that book value may not reflect net realizable or fair market value - Book value does not necessarily represent net realizable value, liquidation value, or fair market value, as most assets and liabilities are carried at cost basis and do not reflect changes in economic conditions, interest rates, or commodity prices since initial recording[205] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details exposure to credit, interest rate, liquidity, commodity, and environmental risks Credit Risks This section discusses exposure to credit risk from project obligors and mitigation strategies - The company is exposed to credit risk from project obligors (PPAs, long-term contracts), suppliers, and project operators, including ESCO guarantees and mezzanine loans[206] - Risk is managed through rigorous underwriting, structural protections, and active asset management, but economic downturns can increase exposure[206] Interest Rate and Borrowing Risks This section addresses interest rate volatility, refinancing risks, and hedging strategies - The company faces interest rate risk from new originations, floating-rate borrowings, and refinancing existing debt, with potential difficulty in securing continued financing if market conditions worsen[207] - Mitigation strategies include matching debt/asset maturities, fixed-rate borrowing, matching interest rates (fixed/floating), and using interest rate swaps/caps[208] - As of September 30, 2024, $4.1 billion of debt is fixed-rate or hedged, with $0 million of unhedged variable interest rate debt, and a 50 basis point increase in benchmark rates would increase quarterly interest expense by $0 thousand on floating-rate borrowings[208] Liquidity and Concentration Risk This section highlights risks associated with illiquid assets and portfolio concentration - The company's assets are illiquid, making sales difficult in changing market conditions[209] - Concentration risk exists in projects with single obligors and in specific geographic areas, increasing susceptibility to poor performance or regional events[209] Commodity and Environmental Attribute Price Risk This section details exposure to price fluctuations in energy and environmental attributes - Equity and debt investments in renewable energy projects expose the company to volatility in energy prices (electricity, coal, natural gas) and environmental attribute prices (RECs)[210] - Risk is mitigated through long-term PPAs, leases, and structural protections, but projects with shorter-term contracts or merchant sales remain exposed[210] Environmental Risks This section discusses the impact of climate change and related regulations on the business - The business is impacted by climate change and related regulatory responses, with risks and opportunities discussed in the Form 10-K[212] Risk Management This section describes the company's approach to active asset management and risk oversight - The company employs active asset management, portfolio monitoring, interest rate management techniques, and credit risk mitigation through due diligence and structural protections[213] - A Finance and Risk Committee oversees risk assessment and management, including interest rate, counterparty, credit, capital availability, refinancing, and cybersecurity risks, with environmental risks integrated into underwriting and monitored post-transaction[213] Item 4. Controls and Procedures This section confirms effectiveness of disclosure controls and reports no material changes in internal controls Changes in Internal Controls over Financial Reporting This section confirms no material changes in internal control over financial reporting during the quarter - There have been no changes in the company's internal control over financial reporting during the three-month period ended September 30, 2024, that have materially affected, or were reasonably likely to materially affect, the company's internal control over financial reporting[215] PART II. OTHER INFORMATION This section provides additional information not covered in financial statements, including legal and equity disclosures Item 1. Legal Proceedings The company is not currently subject to any legal proceedings likely to have a material adverse effect - The company is not currently involved in any legal proceedings that are likely to have a material adverse effect on its financial position, results of operations, or cash flows[215][216] Item 1A. Risk Factors This section refers to the comprehensive discussion of potential risks and uncertainties in the 2023 Form 10-K - For a comprehensive discussion of potential risks and uncertainties, refer to Item 1A. "Risk Factors" in the company's 2023 Form 10-K[217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchases for tax obligations related to restricted stock vesting - During the nine months ended September 30, 2024, the company repurchased common stock from employees to satisfy federal and state tax obligations associated with the vesting of restricted stock awards[218] Common Stock Repurchases (Nine Months Ended September 30, 2024) | Period | Total number of shares purchased | Average price per share | |:---|:---|:---| | 3/5/2024 | 6,198 | $25.36 | | 5/15/2024 | 9,563 | $32.28 | | 8/15/2024 | 1,160 | $31.06 | Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - The company reported no defaults upon senior securities[220] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[221] Item 5. Other Information This section details shelf registration for debt securities and exclusion of subsidiary guarantor information - The company and its subsidiary guarantors have filed a shelf registration statement on Form S-3 for debt securities, and summarized financial information for the Subsidiary Guarantors has been excluded as their assets, liabilities, and results of operations are not materially different from the consolidated financial statements[222] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents and certifications - The exhibits include the Certificate of Incorporation, Bylaws, Specimen Common Stock Certificate, various Indentures for Senior Notes and Exchangeable Senior Notes, and certifications from the CEO and CFO[224][225] SIGNATURES The report is duly signed by the company's CEO, CFO, and Chief Accounting Officer - The report is signed by Jeffrey A. Lipson (CEO and President), Marc T. Pangburn (CFO and Executive Vice President), and Charles W. Melko (Chief Accounting Officer, Treasurer and Senior President) on November 8, 2024[228]