Our business and operations are subject to a number of risks and uncertainties, the occurrence of which could adversely affect our business, financial condition, consolidated results of operations and ability to make distributions to stockholders and could cause the value of our capital stock to decline.
−Removed: We may refer to the energy efficiency, renewable energy and the other sustainable infrastructure projects or market collectively as sustainable infrastructure projects or the industry.
+Added: We may refer to the energy efficiency, renewable energy and the other
+Added: sustainable infrastructure projects or market collectively as climate solutions projects or the industry.
Please also refer to the sections entitled “Forward-Looking Statements” and “Risk Factor Summary”.
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federal, state or local governmental policies and incentives that support or enhance project economic feasibility.
−Removed: Such policies may include governmental initiatives, laws and regulations designed to reduce energy usage and impact the use of renewable energy or the investment in and the use of sustainable infrastructure.
−Removed: Policies and incentives provided by the U.S.
−Removed: federal government may include tax credits (with some of these tax credits that are related to renewable energy being recently reduced and scheduled to be eliminated or phased out in the future), tax deductions, bonus depreciation, federal grants and loan guarantees and energy market regulations.
−Removed: The value of tax credits, deductions and incentives may be impacted by changes in tax laws, rates or regulations.
−Removed: Incentives provided by state and local governments may include renewable portfolio standards (“RPS”), which specify the portion of the power utilized by local utilities that must be derived from renewable energy sources such as renewable energy as well as the state or local government sponsored programs where the financing of energy efficiency or renewable energy
−Removed: projects is repaid through a special tax assessment against commercial property in accordance with various state and local government programs known as C-PACE.
−Removed: Additionally, certain states have implemented feed-in tariffs, pursuant to which electricity generated from renewable energy sources is purchased at a higher rate than prevailing wholesale rates.
−Removed: Other incentives include tariffs, tax incentives and other cash and non-cash payments.
−Removed: Governmental agencies, commercial entities and developers of sustainable infrastructure projects frequently depend on these policies and incentives to help defray the costs associated with, and to finance, various projects.
−Removed: Government regulations also impact the terms of third-party financing provided to support these projects.
+Added: Such policies may include governmental initiatives, laws and regulations designed to reduce energy usage and impact the use of renewable energy or the investment in and the use of climate solutions.
+Added: federal policies and incentives include, for example, tax credits (including credits that have been recently reduced and scheduled to be eliminated or phased out in the future), tax deductions, bonus depreciation, federal grants and loan guarantees and energy market regulations.
+Added: State and local governments policies and incentives include, for example, renewable portfolio standards (“RPS”), commercial property assessed clean energy (“C-PACE”) programs, feed-in tariffs, other tariffs, tax incentives and other cash and non-cash payments.
+Added: Governmental agencies, commercial entities and developers of climate solutions projects frequently depend on these policies and incentives to help defray the costs associated with, and to finance, various projects.
+Added: Government regulations also impact the terms of third-party financing provided to support these projects, including through energy savings performance contracts.
If any of these government policies, incentives or regulations are adversely amended, delayed, eliminated, reduced, retroactively changed or not extended beyond their current expiration dates, or there is a negative impact from the recent federal law changes or proposals, the operating results of the projects we finance and the demand for, and the returns available from, the investments we make may decline, which could harm our business.
−Removed: federal, state and local government entities are major participants in the sustainable infrastructure industry and their actions could be adverse to our projects or our company.
+Added: federal, state and local government entities are major participants in, and regulators of, the energy industry, and their actions could be adverse to our project companies or our company.
The projects we invest in are subject to substantial regulation by U.S.
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If the projects in which we invest fail to obtain or comply with applicable regulations, permits, or contractual obligations, they could be prevented from being constructed or subjected to monetary penalties or loss of operational rights, which could negatively impact project operating results and the returns on our assets.
+Added: In addition, government counterparties also may have the discretion to change or increase regulation of project operations, or implement laws or regulations affecting project operations, separate from any contractual rights they may have.
+Added: These actions could adversely impact the efficient and profitable operation of the projects in which we invest.
Contracts with government counterparties that support the projects in which we invest may be more favorable to the government counterparties compared to commercial contracts with private parties.
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In most cases, the prepayment amounts provide us with amounts sufficient to repay the financing we have provided but may be less than amounts that would be payable under “make whole” provisions customarily found in commercial lending arrangements.
−Removed: In addition, government counterparties also may have the discretion to change or increase regulation of project operations, or implement laws or regulations affecting project operations, separate from any contractual rights they may have.
−Removed: These actions could adversely impact the efficient and profitable operation of the projects in which we invest.
Government entities may also suspend or debar contractors from doing business with the government or pursue various criminal or civil remedies under various government contract regulations.
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Our ability to originate new assets could be adversely affected if one or more of the ESCOs or other origination sources with whom we have relationships are suspended or debarred or fail to win new, or renew existing, contracts.
−Removed: Changes in the terms of energy savings performance contracts could have a material and adverse impact on our business.
−Removed: We derive a portion of our income from the assignment to us of payment streams under energy savings performance contracts with property owners, including government customers, in which the scope and cost of improvements and services are specified.
−Removed: federal, state and local government rules governing such contracts vary, such rules may, for example, permit the funding of such contracts through long-term financing arrangements, permit long-term payback periods from the savings realized through such contracts, allow units of government to exclude debt related to such contracts from the calculation of their statutory debt limitation, allow for award of contracts on a “best value” instead of “lowest cost” basis and allow for the use of sole source providers.
−Removed: To the extent these rules become more restrictive in the future, our ability to provide financing to support these projects could be adversely impacted, which could harm our business.
−Removed: Changes in these rules, including retroactive changes, could also negatively impact the operating results of the projects we finance and the returns on our assets.
A change in the fiscal health, level of appropriations or budgets of U.S.
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Although our energy efficiency investments do not normally require additional governmental appropriations to cover repayment due to the energy and operating savings derived from the newly installed equipment and systems, a significant decline in the fiscal health, level of appropriations or budgets of government customers may make it difficult for them to remain current on existing payment obligations or undesirable to enter into new energy efficiency improvement projects.
−Removed: Alternatively, some government entities may choose to provide appropriations or other credit support for sustainable infrastructure projects,
−Removed: which would negatively impact the use of private capital such as ours.
+Added: Alternatively, some government entities may choose to provide appropriations or other credit support for climate solutions projects, which
+Added: would negatively impact the use of private capital such as ours.
This could have a material and adverse effect on the return of and return on our investments for existing projects and on our ability to originate new assets.
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The repayment of the investment, or the return on our asset, could be adversely affected if appropriations for any such projects are delayed or terminated.
−Removed: Because our business depends to a significant extent upon relationships with key industry players, our inability to maintain or develop these relationships, or the failure of these relationships to generate business opportunities, could adversely affect our business.
−Removed: We rely, to a significant extent, on our relationships with key industry players in the markets we target.
−Removed: We originate transactions through programmatic finance relationships with various parties, including global ESCOs.
−Removed: We also originate transactions with renewable energy manufacturers, developers and operators who own and operate renewable energy projects, including several U.S.
−Removed: utility companies.
−Removed: In addition to the net proceeds from past and future debt and equity offerings, we have also financed our business by accessing the securitization, syndication, or other debt markets, primarily utilizing our relationships with insurance companies and commercial banks.
−Removed: We also rely on relationships with a variety of key financial participants, including institutional investors, senior lenders, and investment and commercial banks, as well as leading intermediaries, to complement our origination and financing activities.
−Removed: Our inability to maintain or develop these relationships, or the failure of these relationships to generate business opportunities, could adversely affect our business.
−Removed: In addition, individuals and entities with whom we have relationships are not obligated to provide us with business opportunities, and, therefore, there is no assurance that such relationships will generate business opportunities for us.
If the cost of energy generated by traditional sources of energy continues to stay or further declines from present levels, demand for the projects in which we invest may decline.
Many traditional sources of energy such as coal, petroleum-based fuels and natural gas can be influenced by the price of underlying or substitute commodities.
−Removed: While we believe the potential for rising or increasingly volatile commodity prices and inflation will spur investment in our industry, there have been, and may continue to be, decreases in such prices, which may reduce the demand for energy efficiency projects or other projects, including renewable energy facilities, that do not rely on fossil fuel energy sources.
−Removed: For example, we believe low natural gas prices may reduce the demand for projects like renewable energy that can substitute for natural gas.
−Removed: Additionally, low natural gas prices can adversely affect both the price available to renewable energy projects under future power sale agreements and the price of the electricity the projects sell on either a forward or a spot-market basis.
+Added: Such prices, which have decreased and may continue to decrease, may reduce the demand for energy efficiency projects or other projects, including renewable energy facilities, that do not rely on fossil fuel energy sources.
+Added: For example, low natural gas prices may reduce the demand for projects like renewable energy that can substitute for natural gas, as well as adversely affect both the price available to renewable energy projects under future power sale agreements and the price of the electricity the projects sell on either a forward or a spot-market basis.
Technological progress in electricity generation, storage or in the production of traditional fuels or the discovery of large new deposits of traditional fuels could reduce the cost of energy generated from those sources and consequently reduce the demand for the types of projects in which we invest, which could harm our new business origination prospects as well as the value of our existing Portfolio.
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Any resulting decline in demand for our investments or the price that industry participants receive for the sale of fossil fuel could adversely impact our operating results.
−Removed: If the market for various types of sustainable infrastructure projects or the investment techniques related to such projects do not develop as we anticipate, new business generation in this target area may be adversely impacted.
−Removed: The market for various types of sustainable infrastructure projects such as renewable energy projects, commercial office building energy efficiency projects, electricity storage, and storm water and various other sustainable infrastructure projects is emerging and rapidly evolving, leaving their future success uncertain.
+Added: If the market for various types of climate solutions projects or the investment techniques related to such projects do not develop as we anticipate, new business generation in this target area may be adversely impacted.
+Added: The market for various types of climate solutions projects is emerging and rapidly evolving, leaving their future success uncertain.
Similarly, various investing techniques, such as leasing land for renewable energy projects, purchasing interests in existing renewable energy projects, the use of C-PACE financing and the use of taxable debt for state and local energy efficiency or sustainable infrastructure financings are emerging and the future success of these investing techniques is also uncertain.
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Any changes in the markets, products, technologies, financing techniques, or the regulatory environment could adversely impact the demand or financial performance for such projects and our investments.
−Removed: In addition, renewable energy projects rely on electric and other types of transmission lines and facilities owned and operated by third parties to receive and distribute their energy.
−Removed: Any substantial access barriers to these lines and facilities could make projects that depend on them more expensive, which could adversely impact the demand or financial performance for such projects and our investments.
−Removed: Existing electric utility industry regulations, and changes to regulations, may present technical, regulatory and economic barriers to the purchase and use of renewable energy and energy efficiency systems that may significantly reduce demand for systems in which we can invest.
+Added: Some projects in which we invest rely on net metering and related policies to improve project economics which if reduced could impact repayment of our investments or the return on our assets.
+Added: There has been a nationwide increase in distributed generation which has prompted discussions among policy makers and regulators regarding ways to both better integrate distributed energy resources into the electric grid and how to compensate distributed generators.
+Added: Many states have a regulatory policy known as net energy metering, or net metering.
+Added: Net metering typically allows some project customers to interconnect their on-site solar or other renewable energy systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate for the amount of energy in excess of their electric usage that is generated by their renewable energy system and is exported to the grid.
+Added: At the end of the billing period, the customer simply pays for the net energy used or receives a credit at the retail rate if more energy is produced than consumed.
+Added: Net metering policies are under review or have been limited or amended in a number of states.
+Added: The ability and willingness of customers to pay for renewable energy systems which benefit from net metering rules may be reduced if net metering rules are eliminated or their benefits reduced, which may also impact our returns on such systems.
+Added: Existing electric utility industry regulations, and changes to regulations, may present technical, regulatory and economic barriers to the purchase and use of renewable energy and energy efficiency systems that may significantly reduce demand for systems and projects in which we invest or may adversely affect the profitability of such projects.
Federal, state and local government regulations and policies concerning the electric utility industry, and internal policies and regulations promulgated by electric utilities, heavily influence the market for electricity products and services.
These regulations and policies often relate to electricity pricing and the interconnection of customer-owned electricity generation.
−Removed: In the United States, governments and utilities continuously modify these regulations and policies.
+Added: the United States, governments and utilities continuously modify these regulations and policies.
These regulations and policies could deter customers from purchasing energy efficiency and renewable energy systems.
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In addition, any changes to government or internal utility regulations and policies that favor electric utilities could reduce competitiveness and cause a significant reduction in demand for systems in which we invest.
−Removed: Some projects in which we invest rely on net metering and related policies to improve project economics which if reduced could impact repayment of our investments or the return on our assets.
−Removed: There has been a nationwide increase in distributed generation which has prompted discussions among policy makers and regulators regarding ways to both better integrate distributed energy resources into the electric grid and how to compensate distributed generators.
−Removed: Many states have a regulatory policy known as net energy metering, or net metering.
−Removed: Net metering typically allows some project customers to interconnect their on-site solar or other renewable energy systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate for the amount of energy in excess of their electric usage that is generated by their renewable energy system and is exported to the grid.
−Removed: At the end of the billing period, the customer simply pays for the net energy used or receives a credit at the retail rate if more energy is produced than consumed.
−Removed: Net metering policies are under review or have been limited or amended in a number of states.
−Removed: The ability and willingness of customers to pay for renewable energy systems which benefit from net metering rules may be reduced if net metering rules are eliminated or their benefits reduced, which may also impact our returns on such systems.
−Removed: Sustainable infrastructure projects that involve the generation, transmission or sale of electricity such as renewable energy projects may be subject to regulation by the Federal Energy Regulatory Commission under the Federal Power Act or other regulations that regulate the sale of electricity, which may adversely affect the profitability of such projects.
−Removed: Sustainable infrastructure projects that involve the generation, transmission or sale of electricity such as renewable energy projects may be “qualifying facilities” that are exempt from regulation as public utilities by the “FERC under the Federal Power Act, (the “FPA”) while certain other such projects may be subject to rate regulation by the FERC under the FPA.
+Added: Further, certain climate solutions projects in which we invest may be “qualifying facilities” that are exempt from rate regulation as public utilities by FERC under the Federal Power Act, (the “FPA”).
FERC regulations under the FPA confer upon these qualifying facilities key rights to interconnection with local utilities and can entitle such facilities to enter into PPAs with local utilities, from which the qualifying facilities benefit.
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federal laws and regulations could increase the regulatory burdens and costs and could reduce the revenue of the project.
−Removed: In addition, modifications to the pricing policies of utilities could require sustainable infrastructure projects to achieve lower prices in order to compete with the price of electricity from the electric grid and may reduce the economic attractiveness of certain energy efficiency measures.
+Added: In addition, modifications to the pricing policies of utilities could require climate solutions projects to achieve lower prices in order to compete with the price of electricity from the electric grid and may reduce the economic attractiveness of certain energy efficiency measures.
To the extent that the projects in which we invest are subject to rate regulation, the project owners will be required to obtain FERC acceptance of their rate schedules for wholesale sales of energy, capacity and ancillary services.
−Removed: Any changes in the rates project owners are permitted to charge could impact the repayment of our investments, or the return on our assets.
−Removed: In addition, the operation of, and electrical interconnection for, our sustainable infrastructure projects may be subject to U.S.
+Added: Any adverse changes in the rates project owners are permitted to charge could negatively impact the repayment of our investments, or the return on our assets.
+Added: In addition, the operation of, and electrical interconnection for, our climate solutions projects may be subject to U.S.
federal, state or local interconnection and federal reliability standards, some of which are set forth in utility tariffs.
−Removed: These standards and tariffs specify rules, business practices and economic terms to which the projects where we invest are subject and which may impact a project’s ability to deliver the electricity it produces or transports to its end customer.
+Added: These standards and tariffs specify rules, business practices and economic terms to which the projects in which we invest are subject and that may impact a project’s ability to deliver the electricity it produces or transports to its end customer.
The tariffs are drafted by the utilities and approved by the utilities’ state and U.S.
federal regulatory commissions.
−Removed: These standards and tariffs
−Removed: change frequently and it is possible that future changes will increase our administrative burden or adversely affect the terms and conditions under which the projects render services to their customers.
−Removed: In addition, under certain circumstances, we may also be subject to the reliability standards of the North American Electric Reliability Corporation.
−Removed: If project owners fail to comply with the mandatory reliability standards, they could be subject to sanctions, including substantial monetary penalties, which could also raise credit risks for, or lower the returns available from, the projects in which we invest.
+Added: These standards and tariffs change frequently and it is possible that future changes will increase our administrative burden or adversely affect the terms and conditions under which the projects render services to their customers.
+Added: Under certain circumstances, we may also be subject to the reliability standards of the North American Electric Reliability Corporation.
+Added: If project owners fail to comply with the mandatory reliability standards, they could be subject to sanctions, including substantial monetary penalties, which could also raise credit risks for, or lower the returns available from, the project companies in which we invest.
These various regulations may also limit the transferability or sale of renewable energy projects and any such limits could negatively impact our returns from such projects.
−Removed: Unfavorable publicity or public perception of the industries in which we operate could adversely impact our operating results and our reputation.
−Removed: The sustainable infrastructure industry, including various forms of renewable energy and C-PACE financings receives significant media coverage that, whether or not directly related to our business or our projects, can adversely impact our reputation and the demand for our investments.
−Removed: Similarly, negative publicity or public perception of the renewable energy industry or the broader energy industries in which we operate or of climate change in general could reduce demand for our investments and our projects’ services.
−Removed: Any reduction in demand for sustainable infrastructure projects or for our investments could damage our reputation or could have a material adverse effect on our results of operations and business prospects.
+Added: We are subject to risks related to our ESG activities and disclosures.
+Added: Our ESG strategy and practices and the level of transparency with which we are approaching them are foundational to our business and expose us to several risks, including:
+Added: • that we may fail or be unable to fully achieve one or more of our ESG goals due to a range of factors within or beyond our control, or that we may adjust or modify our goals in light of new information, adjusted projections, or a change in business strategy, which could negatively impact our reputation and our business;
+Added: • that a failure to or perception of a failure to disclose metrics and set goals that are rigorous enough or in an acceptable format, a failure to appropriately manage selection of goals, a failure to or perception of a failure to make appropriate disclosures, stockholder perception of a failure to prioritize the “correct” ESG goals, or an unfavorable ESG-related rating by a third party, which could negatively impact our reputation and our business;
+Added: • that certain data we utilize in our CarbonCount or similar metric calculations is prepared by third parties or receives limited assurance from and/or verification by third parties and may undergo a less rigorous review process than assurance sought in connection with more traditional audits and such review process may not identify errors and may not protect us from potential liability under the securities laws, and, if errors are identified our reputation and our business could be negatively impacted and if we were to seek more extensive assurance or attestation with respect to such ESG metrics, we may be unable to obtain such assurance or attestation or may face increased costs related to obtaining and/or maintaining such assurance or attestation;
+Added: • that the ESG or sustainability standards, norms, or metrics, which are constantly evolving, change in a manner that impacts us negatively or requires us to change the content or manner of our disclosures, and our stockholders or third parties view such changes negatively, we are unable to adequately explain such changes, or we are required to expend significant resources to update our disclosures, any of which could negatively impact our reputation and our business;
+Added: • that our business could be negatively impacted if any of our disclosures, including our CarbonCount or similar metrics, reporting to third-party ESG standards, or reporting against our goals, are inaccurate, perceived to be inaccurate, or alleged to be inaccurate.
We operate in a competitive market and future competition may impact the terms of our investments.
We compete against a number of parties who may provide alternatives to our investments including specialty finance companies, savings and loan associations, banks, private equity, hedge or infrastructure investment funds, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, utilities, independent power producers, project developers, pension funds, government entities, public entities established to own infrastructure assets and other entities.
−Removed: The continued low interest rate environment and increasing investor acceptance of the sustainable infrastructure market have increased the level of competition we experience.
+Added: The continued low interest rate environment and increasing investor acceptance of the climate solutions market have increased the level of competition we experience.
We also encounter competition in the form of potential customers or our origination partners electing to use their own capital rather than engaging an outside provider such as us.
−Removed: In addition, we may also face competition based on technological developments that reduce demand for electricity, increase power supplies through existing infrastructure or that otherwise compete with our sustainable infrastructure projects.
+Added: In addition, we may also face competition based on technological developments that reduce demand for electricity, increase power supplies through existing infrastructure or that otherwise compete with our climate solutions projects.
Some of our competitors are significantly larger than we are, have access to greater capital and other resources than we do and may have other advantages over us.
In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we can.
−Removed: In addition, many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the 1940 Act.
+Added: Further, many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the 1940 Act.
These characteristics could allow our competitors to consider a wider variety of opportunities, establish more relationships and offer better pricing and more flexible structuring than we can offer.
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If we match our competitors’ pricing, terms and structure, we may not be able to achieve acceptable risk-adjusted returns on our assets or we may be forced to bear greater risks of loss.
−Removed: The increase in the number and/or the size of our competitors in this market has resulted, and could continue to result, in less attractive terms on our investments or the need to accept a higher level of risks associated with our investments.
+Added: The increase in the number or the size of our competitors in this market has resulted, and could continue to result, in less attractive terms on our investments or the need to accept a higher level of risks associated with our investments.
As a result, competitive pressures we face could have a material adverse effect on our business, financial condition and results of operations.
Our business is affected by seasonal trends and construction cycles, and these trends and cycles could have an adverse effect on our operating results.
−Removed: The volume and timing of our originations are subject to seasonal fluctuations and construction cycles, particularly in climates that experience colder weather during the winter months, such as the northern United States, or at educational institutions, where large projects are typically carried out during summer months when their facilities are unoccupied.
+Added: The volume and timing of our originations are subject to seasonal fluctuations and construction cycles, particularly in climates that experience colder weather during the winter months or at educational institutions, where large projects are typically carried out during summer months when their facilities are unoccupied.
In addition, government customers, many of which have fiscal years that do not coincide with ours, typically follow annual procurement cycles.
−Removed: Further, government contracting cycles can be affected by the timing of, and delays in, the legislative process related to government programs, funding, or incentives that help drive demand for sustainable infrastructure projects.
+Added: Further, government contracting cycles can be affected by the timing of, and delays in, the legislative process related to government programs, funding, or incentives that help drive demand for climate solutions projects.
As a result of such fluctuations, we may occasionally experience fluctuations in the timing of new asset opportunities or declines in revenue or earnings as compared to the immediately preceding quarter, and comparisons of our operating results on a period-to-period basis may not be meaningful.
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and (4) the market value of our interest rate swap agreements to increase.
−Removed: Conversely, decreases in interest rates, in general, may over time cause:
−Removed: (1) project owners to be more interested in borrowing or raising equity and thus increase the demand for our assets;
+Added: Decreases in interest rates, in general, may over time cause:
+Added: (1) project owners to be more interested in borrowing or raising equity thus increase the demand for our assets;
(2) prepayments on our assets, to the extent allowed, to increase;
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Adverse developments resulting from changes in interest rates could have a material adverse effect on our business, financial condition and results of operations.
−Removed: The lack of liquidity of our assets may adversely affect our business, including our ability to value and sell our assets.
+Added: The lack of liquidity of our assets may adversely affect our business, including our ability to value our assets.
Volatile market conditions could significantly and negatively impact the liquidity of our assets.
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As a result, our ability to vary our Portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition.
−Removed: Provisions for loan losses are difficult to estimate.
−Removed: Our provision for loan losses is evaluated on a quarterly basis.
−Removed: The determination of our provision for loan losses requires us to make certain estimates and judgments, which may be difficult to determine.
−Removed: Our estimates and judgments are based on a number of factors, including a project’s operating results, loan-to-value ratio, any cash reserve, the ability of expected cash from operations to cover the cash flow requirements currently and into the future, key terms of the transaction, the ability of the borrower to refinance the transaction, other credit support from the sponsor or guarantor and the project’s collateral value.
−Removed: In addition, we consider the overall economic environment, the sustainable infrastructure sector, the effect of local, industry, and broader economic factors, the impact of any variation in weather and the historical and anticipated trends in interest rates, defaults and loss severities for similar transactions.
−Removed: Our estimates and judgments may not be correct and, therefore, our results of operations and financial condition could be severely impacted.
−Removed: In June 2016, the FASB issued ASU No.
−Removed: 2016-13, Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments (Topic 326), which is effective for accounting periods beginning after December 15, 2019 and replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss ("CECL") model.
−Removed: Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment, at the net amount expected to be collected.
−Removed: The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
−Removed: This measurement will take place at the time the financial asset is first added to the balance sheet and updated quarterly thereafter.
−Removed: This differs significantly from the “incurred loss” model required under current accounting principles generally accepted in the United States (“GAAP”), which delays recognition until it is probable a loss has been incurred.
−Removed: Accordingly, the adoption of the CECL model has affected how we determine our allowance for loan losses and is requiring us to increase our allowance and recognize provisions for loan losses earlier in the lending cycle.
−Removed: Moreover, the CECL model may create more volatility in the level of our allowance for loan losses.
−Removed: If our required level of allowance for loan losses is material for any reason, such increase could adversely affect our business, financial condition and results of operations.
−Removed: We may experience a decline in the fair value of our assets.
−Removed: A decline in the fair market value of available-for-sale securities, any receivables we hold for sale, our interest rate hedges, if any, or any other assets which we may carry at fair value in the future, may require us to reduce the value of such
−Removed: assets under GAAP.
−Removed: In addition, our other financial assets are subject to an impairment assessment that could result in adjustments to their carrying values.
−Removed: Upon the subsequent disposition or sale of such assets, we could incur future losses or gains based on the difference between the sale price received and adjusted value of such assets as reflected on our balance sheet at the time of sale.
Some of the assets in our Portfolio may be recorded at fair value and, as a result, there could be uncertainty as to the value of these assets.
+Added: Further, we may experience a decline in the fair value of our assets.
Our investments are not publicly traded.
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The valuation process can be particularly challenging during periods when market events make valuations of certain assets more difficult, unpredictable and volatile.
−Removed: We may not realize income or gains from our assets, which could cause the value of our common stock to decline.
−Removed: We seek to provide attractive risk-adjusted returns to our stockholders.
−Removed: However, our assets may not appreciate in value and, in fact, may decline in value, and the assets we originate or acquire may default or not perform in accordance with our expectations.
−Removed: Accordingly, we may not be able to realize gains or income from our assets.
−Removed: Any gains that we do realize may not be sufficient to offset any other losses we experience.
−Removed: Any income that we realize may not be sufficient to offset our expenses.
+Added: A decline in the fair market value of any asset we carry at fair value, may require us to reduce the value of such assets under GAAP.
+Added: In addition, our other financial assets are subject to an impairment assessment that could result in adjustments to their carrying values.
+Added: Upon the subsequent disposition or sale of such assets, we could incur future losses or gains based on the difference between the sale price received and adjusted value of such assets as reflected on our balance sheet at the time of sale.
+Added: The preparation of our financial statements, including provision for loan losses, involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be incorrect.
+Added: Financial statements prepared in accordance with GAAP require the use of estimates, judgments and assumptions that affect the reported amounts.
+Added: Different estimates, judgments and assumptions reasonably could be used that would have a material effect on the financial statements, and changes in these estimates, judgments and assumptions are likely to occur from period to period in the future.
+Added: Significant areas of accounting requiring the application of management’s judgment include but are not limited to determining the fair value of our assets.
+Added: These estimates, judgments and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required.
+Added: Any charges could significantly harm our business, financial condition, results of operations and the price of our securities.
+Added: See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our business, financial condition and results of operations.
+Added: Further, our provision for loan losses is evaluated on a quarterly basis.
+Added: The determination of our provision for loan losses requires us to make certain estimates and judgments, which may be difficult to determine.
+Added: Our estimates and judgments are based on a number of factors and may not be correct.
+Added: If our estimates or judgments are incorrect, our results of operations and financial condition could be severely impacted.
+Added: See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to our provision of loan losses.
+Added: We rely on our project sponsors for financial reporting related to our project companies, and our financial statements may be materially affected if the financial reporting related to our project companies proves to be incorrect.
+Added: We have equity investments in climate solutions project companies which we account for under the equity method of accounting, which requires us to rely on the project sponsor for the reporting of the financial results of those project companies, including in some instances the allocation of earnings under the hypothetical liquidation at book value (“HLBV”) method.
+Added: The HLBV method involves complex judgments around the interpretation of legal provisions governing liquidation of the entity in which we are invested.
+Added: To the extent the reporting inclusive of these HLBV allocations we are provided is incorrect, our financial results reported using that information may be incorrect.
The majority of our investments are not rated by a rating agency, which may result in an amount of risk, volatility or potential loss of principal that is greater than that of alternative asset opportunities.
The majority of our investments are not rated by any rating agency and we expect that most of the assets we originate and acquire in the future will not be rated by any rating agency.
−Removed: Although we focus on sustainable infrastructure projects with high credit quality obligors, we believe that some of the projects or obligors in which we invest, if rated, would be rated below investment grade, due to speculative characteristics of the project or the obligor’s capacity to pay interest and repay principal or pay dividends.
+Added: Although we focus on climate solutions project companies with high credit quality obligors, we believe that some of the projects or obligors in which we invest, if rated, would be rated below investment grade, due to speculative characteristics of the project or the obligor’s capacity to pay interest and repay principal or pay dividends.
Some of our assets may result in an amount of risk, volatility or potential loss of principal that is greater than that of alternative asset opportunities.
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Many of the projects are structured as special purpose limited liability companies which limits our ability to realize any recovery to the collateral or value of the project itself.
−Removed: In the event of the bankruptcy of a project owner, obligor, or other borrower, our investment or the project will be deemed to be subject to the avoidance powers of the bankruptcy trustee or debtor-in-
−Removed: possession and our or the project’s contractual rights may be unenforceable under federal bankruptcy or state law.
+Added: In the event of the bankruptcy of a project owner, obligor, or other borrower, our investment or the project will be deemed to be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession and our or the project’s contractual rights may be unenforceable under federal bankruptcy or state law.
Foreclosure proceedings against a project can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed investment.
−Removed: Our sustainable infrastructure projects may incur liabilities that rank equally with, or senior to, our investments in such projects.
+Added: Our climate solutions project companies may incur liabilities that rank equally with, or senior to, our investments in such projects.
We provide a range of investment structures, including various types of debt and equity securities, senior and subordinated loans, real property leases, mezzanine debt, preferred equity and common equity.
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In the case of securities ranking equally with instruments we hold, we would have to share on an equal basis any distributions with other stakeholders holding such instruments in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant project.
−Removed: Our mezzanine or subordinated loans are less protected against losses than senior debt.
−Removed: We make or acquire mezzanine and subordinated loans, which are loans made to project owners for sustainable infrastructure projects that are subordinate to other more senior interest or are secured by pledges of the borrower’s ownership interests in the project and/or the project owner.
−Removed: These mezzanine and subordinated loans may be subordinate to senior secured loans on the projects or to the returns required by the investors focused on the tax attributes in a project, known as tax equity investors, but senior to the project owner’s equity.
−Removed: In the event a borrower defaults on a loan and lacks sufficient assets to satisfy our mezzanine or subordinated financing, we may suffer a loss of principal or interest.
−Removed: In the event a borrower declares bankruptcy, we may not have full recourse to the assets of the borrower, or the assets of the borrower may not be sufficient to satisfy our mezzanine or subordinated loan.
−Removed: In addition, mezzanine or subordinated loans are by their nature structurally subordinated to more senior project level investments, and in some cases, to tax equity investors.
−Removed: If a borrower defaults on our mezzanine or subordinated loan, on its obligations to the tax equity investor or on debt or other obligations senior to our loan, or if a borrower declares bankruptcy, our mezzanine or subordinated loan will be satisfied only after the project level debt or other obligations or tax equity and other senior debt is paid in full.
−Removed: Significant losses related to our mezzanine or subordinated loans would result in operating losses for us and may limit our ability to make distributions to our stockholders.
Our subordinated and mezzanine debt and equity investments, many of which are illiquid with no readily available market, involve a substantial degree of risk.
−Removed: We make subordinated and mezzanine debt and equity investments which may fail to be repaid or appreciate and may decline in value or become worthless and our ability to recover our investment will depend on the success of the project in which we make such investments.
Subordinated and mezzanine debt and equity investments involve a number of significant risks, including:
−Removed: • such investments could be subject to further dilution as a result of the issuance of additional debt or equity interests and to serious risks because subordinated and mezzanine debt are subordinate to other indebtedness and in some cases, project tax equity, and equity interests are subordinate to all indebtedness (including trade creditors) and any senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy process;
−Removed: • to the extent that a project in which we invest requires additional capital and is unable to obtain it, we may not recover our investment;
−Removed: • in some cases, subordinated and mezzanine debt may not pay current interest or principal or equity investments may not pay current dividends, and our ability to realize a return on our investment, as well as to recover our investment, will be dependent on the success of the project in which we invest.
+Added: • such investments could be subject to further dilution as a result of the issuance of additional debt or equity interests and to additional risks because subordinated and mezzanine debt are subordinate to other indebtedness and in some cases, project tax equity, and equity interests are subordinate to all indebtedness (including trade creditors) and any senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy process;
+Added: • to the extent that a project company in which we invest requires additional capital and is unable to obtain it, we may not recover our investment;
+Added: • in some cases, subordinated and mezzanine debt may not pay current interest or principal or equity investments may not pay current dividends, and our ability to realize a return on our investment, as well as to recover our investment, will be dependent on the success of the project company in which we invest.
The project may face unanticipated costs or delays or may not generate projected cash flows which could lead to the project generating lower than expected rates of return.
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We invest in joint ventures and other similar arrangements that subject us to additional risks.
−Removed: Some of our projects are structured as joint ventures, partnerships, securitizations, syndications and consortium arrangements.
−Removed: Part of our strategy is to participate with other institutional investors or the project’s sponsor on various sustainable infrastructure transactions.
−Removed: These arrangements are driven by the magnitude of capital required to complete acquisitions and the development of sustainable infrastructure projects and other industry-wide trends that we believe will continue.
+Added: Some of our project companies are structured as joint ventures, partnerships, securitizations, syndications and consortium arrangements.
+Added: Part of our strategy is to participate with other institutional investors or the project’s sponsor on various climate solutions transactions.
+Added: These arrangements are driven by the magnitude of capital required to complete acquisitions and the development of climate solutions projects and other industry-wide trends that we believe will continue.
Such arrangements involve risks not present where a third party is not involved, including the possibility that partners or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions.
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If any of the foregoing were to occur, our business, financial condition and results of operations could suffer as a result.
−Removed: In addition, some of our joint ventures, partnerships, and equity investments, subject the sale or transfer of our interests in these projects to rights of first refusal or first offer, tag along or drag along rights and buy-sell, call-put or other restrictions.
+Added: In addition, some of our joint ventures, partnerships, and equity investments, subject the sale or transfer of our interests in these project companies to rights of first refusal or first offer, tag along or drag along rights and buy-sell, call-put or other restrictions.
Such rights may be triggered at a time when we may not want them to be exercised and such rights may inhibit our ability to sell our interest in an entity within our desired time frame or on any other desired terms.
−Removed: Energy efficiency, renewable energy and other sustainable infrastructure projects are subject to performance risks, including risks due to extreme weather events, that could impact the repayment of and the return on our assets.
−Removed: Energy efficiency, renewable energy and other sustainable infrastructure projects are subject to various construction and operating delays and risks that may cause them to incur higher than expected costs or generate less than expected amounts of savings or outputs such as electricity in the case of a renewable energy project.
−Removed: These risks include, extreme weather events, construction delays, a failure or degradation of our, our customers’ or the utilities’ equipment;
−Removed: obsolescence of, or an inability to find suitable, equipment or parts;
−Removed: labor shortages;
−Removed: less than expected supply of a project’s source of renewable energy, such as solar insolation and wind;
−Removed: or a faster than expected diminishment of such supply.
−Removed: Further, many projects in which we invest will be subject to competitive risks and to volatility in commodity prices including the price of energy.
−Removed: Any extended interruption in the project’s construction or operation, any cost overrun or failure of the project for any reason to generate the expected amount of output or cash flow, could have a material adverse effect on the repayment of and the return on our assets.
Many of our assets depend on revenues from third-party contractual arrangements.
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Revenues at some of the projects in which we invest depend on reliable and efficient metering, or other revenue collection systems, which are often specified in the contract.
−Removed: There is a risk that, if one or more of such projects are not able to operate and maintain the metering or other revenue collection systems in the manner expected, if the operation and maintenance
−Removed: costs, are greater than expected, or if the customer disputes the output of the revenue collection system, the ability of the project to repay our investments or provide a return to us on our asset could be materially and adversely affected.
+Added: If one or more of such projects are not able to operate and maintain
+Added: the metering or other revenue collection systems in the manner expected, if the operation and maintenance costs, are greater than expected, or if the customer disputes the output of the revenue collection system, the ability of the project to repay our investments or provide a return to us on our asset could be materially and adversely affected.
We are exposed to the credit risk of ESCOs, various project sponsors, and others.
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We are also exposed to credit risk in projects in which we invest that do not depend on funding from governments.
−Removed: Where we make loans to or own equity interests in special purposes entities such as those which lease solar energy systems to residential customers, those special purpose entities often enter into various contractual arrangements with, or receive performance guarantees from the affiliate project sponsor to ensure satisfactory equipment or other project performance over the term of the lease or power purchase agreement.
+Added: Where we make loans to or own equity interests in special purposes entities such as those that lease solar energy systems to residential customers, those special purpose entities often enter into various contractual arrangements with, or receive performance guarantees from the affiliate project sponsor to ensure satisfactory equipment or other project performance over the term of the lease or power purchase agreement.
To the extent those parties are unable to perform on their contractual obligations or performance guarantees we may see diminished equity returns or the special purpose entity may be unable to repay their loan timely or at all.
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Nevertheless, unanticipated credit losses could occur which could adversely impact our operating results.
−Removed: During periods of economic downturn in the global economy, our exposure to credit risks from obligors increases, and our efforts to monitor and mitigate the associated risks may not be effective in reducing our credit risks.
+Added: During periods of economic downturn in the global economy, the solvency and financial wherewithal of counterparties with whom we do business could be impacted and our exposure to credit risks from obligors increases, and our efforts to monitor and mitigate the associated risks may not be effective in reducing our credit risks.
+Added: In the event a counterparty to us or one of our climate solutions projects becomes insolvent or unable to make payments, we may fail to recover the full value of our investment or realize the value from the counterparty’s contract, thus reducing our earnings and liquidity.
+Added: In addition, the insolvency of one or more of our, or one of our climate solutions projects’, counterparties could reduce the amount of financing available to us, which would make it more difficult for us to leverage the value of our assets and obtain substitute financing on attractive terms or at all.
+Added: A material reduction in our financing sources or an adverse change in the terms of our financings could have a material adverse effect on our financial condition and results of operations.
Certain participants in the sustainable energy industry have experienced significant declines in the value of their equity and difficulty in raising or refinancing debt, which increases the credit risk to these companies and there can be no assurance they will be able to fulfill their obligations which could adversely impact our operating results.
−Removed: Some of the projects in which we invest have sold their output under PPAs which expose the projects to various risks.
+Added: Some of the projects in which we invest have sold their output under PPAs that expose the projects to various risks.
Some of our projects enter into PPAs when they contract to sell all or a fixed proportion of the electricity generated by the project, sometimes bundled with renewable energy credits and capacity or other environmental attributes, to a power purchaser, often a utility, or increasingly, a corporation.
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In the event that any of these events were to occur, our business, financial condition, and results of operations could suffer as a result.
−Removed: Portions of the electricity our assets generate is sold on the open market at spot-market prices.
+Added: Portions of the electricity and environmental attributes our assets generate are sold on the open market at spot-market prices.
A prolonged environment of low prices for natural gas, or other conventional fuel sources such as we are experiencing may, and could continue to, have a material adverse effect on our long-term business prospects, financial condition and results of operations.
−Removed: Historically low prices for traditional fossil fuels, particularly natural gas, could cause demand for renewable energy to decrease and they have, and may continue to, adversely affect both the future sale price of energy under new PPAs and the current sale price of energy sold on a spot-market basis.
+Added: Low prices for traditional fossil fuels, particularly natural gas, could cause demand for renewable energy to decrease and prices have, and may continue to, adversely affect both the future sale price of energy under new PPAs and the current sale price of energy sold on a spot-market basis.
Low PPA and spot market power prices, if combined with other factors, can have a material adverse effect on our projects and their respective values and our expected returns, results of operations and cash available for distribution.
+Added: Some of the projects we invest in, or may plan to invest in, sell environmental attributes such as renewable energy credits or other similar credits on an uncontracted basis.
+Added: To the extent merchant prices for these attributes are lower than expected, our projects revenues could be adversely impacts, and our business, financial condition, and results of operations could suffer as a result.
The ability of our assets to generate revenue from certain projects depends on having interconnection arrangements and services.
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The projects in which we invest will be obligated to bear the expense of repairing the damaged renewable energy systems and replacing spare parts for key components and insurance may not cover the costs or the lost revenue.
−Removed: Natural disasters or unfavorable weather and atmospheric conditions could impair the effectiveness of the renewable energy assets, reduce their output beneath their rated capacity, require shutdown of key equipment or impede operation of the renewable energy assets, which could adversely affect our business, financial condition and results of operations and cash flows.
+Added: Natural disasters or unfavorable weather and atmospheric conditions, such as extreme cold temperatures impacting Texas in February 2021, could impair the effectiveness of the renewable energy assets, reduce their output beneath their rated capacity, require shutdown of key equipment or impede operation of the renewable energy assets, which could adversely affect our business, financial condition and results of operations and cash flows.
Sustained unfavorable weather could also unexpectedly delay the installation of renewable energy systems, which could result in a delay in our investing in new projects or increase the cost of such projects.
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Therefore, renewable energy facilities in which we invest may not meet anticipated production levels or the rated capacity of the generation assets, which could adversely affect our business, financial condition and results of operations and cash flows.
−Removed: The amount of electricity renewable energy generation assets produce is also dependent in part on the time of year.
−Removed: For example, because shorter daylight hours in winter months results in less solar irradiation, the generation of particular assets will vary depending on the season.
−Removed: Further, time-of-day pricing factors vary seasonally which contributes to variability of revenues.
−Removed: As a result, we expect the revenue and cash flow from certain of our assets to vary based on the time of year.
In addition, many of the project’s end-customers are large entities with wide ranging activities.
A climate related event in a non-related part of the business could have a material adverse impact on the financial strength of such end-customer and their ability to honor their contractual obligations which could negatively impact on revenue and the cash flow of the project and our business.
−Removed: Operation of the projects in which we invest involves significant risks and hazards customary to our investees that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
−Removed: The ongoing operation of the projects in which we invest involves risks that include the breakdown or failure of equipment or processes or performance below expected levels of output or efficiency due to wear and tear, latent defect, design error or operator error or force majeure events, among other things.
−Removed: In addition to natural risks such as earthquake, flood, drought, lightning, wildfire, hurricane, ice, wind, and temperature extremes, other hazards, such as fire, explosion, structural collapse and machinery failure, acts of terrorism or related acts of war, hostile cyber intrusions or other catastrophic events are inherent risks in the operation of a project.
+Added: Operation of the projects in which we invest involves significant risks and hazards that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
+Added: Climate projects are subject to various construction and operating delays and risks that have in the past caused them to, and may in the future cause them to, incur higher than expected costs or generate less than expected amounts of savings or outputs, such as electricity in the case of a renewable energy project.
+Added: The ongoing operation of the projects in which we invest involves risks that include construction delays, the breakdown or failure of equipment or processes or performance below expected levels of output or efficiency due to wear and tear, latent defect, design error or operator error or force majeure events, among other things.
+Added: In addition to natural risks such as earthquake, flood, drought, lightning, wildfire, hurricane, ice, wind, and temperature extremes, other hazards, such as fire, explosion, structural collapse and machinery failure, acts of terrorism or related acts of war, hostile cyber intrusions, pandemics, or other catastrophic events are inherent risks in the construction and operation of a project.
These and other hazards can cause significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment and contamination of, or damage to, the environment and suspension of operations.
Operation of a project also involves risks that the operator will be unable to transport its product to its customers in an efficient manner due to a lack of transmission capacity.
−Removed: Unplanned outages of projects, including extensions of scheduled outages due to mechanical failures or other problems, occur from time to time and are an inherent risk of the business.
+Added: Unplanned outages of projects, including extensions of scheduled outages due to mechanical failures or other problems, occur from time to
+Added: time and are an inherent risk of the business.
Unplanned outages typically increase operation and maintenance expenses and may reduce revenues as a result of selling less electricity or require the project to incur significant costs as a result of obtaining replacement power from third parties in the open market to satisfy forward power sales obligations.
−Removed: The project’s inability to operate its assets efficiently, manage capital expenditures and costs and generate earnings and cash flow could have a material adverse effect on our investment and our business, financial condition, results of operations and cash flows.
+Added: Any extended interruption in a project’s construction or operation, a project’s inability to operate its assets efficiently, manage capital expenditures and costs and generate earnings and cash flow could have a material adverse effect on the repayment of and return on our investment and our business, financial condition, results of operations and cash flows.
While the projects maintain insurance, obtain warranties from vendors and obligate contractors to meet certain performance levels, the proceeds of such insurance, warranties or performance guarantees may not cover the lost revenues, increased expenses or liquidated damages payments should the project experience any equipment breakdowns, insurance claims or non-performance by contractors or vendors.
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In addition, some of these expenditures may not be recoverable from current or future contractual arrangements.
−Removed: The use of real property rights that we acquire or are used for our sustainable infrastructure projects may be adversely affected by the rights of lienholders and leaseholders that are superior to those of the grantors of those real property rights to us.
+Added: The use of real property rights that we acquire or are used for our climate solutions projects may be adversely affected by the rights of lienholders and leaseholders that are superior to those of the grantors of those real property rights to us.
The projects in which we invest often require large areas of land for construction and operation or other easements or access to the underlying land.
In addition, we may acquire rights to land or other real property.
−Removed: The rights to own or use the land can be obtained through fee simple title, leases and other rights of use.
−Removed: Although we believe that the real property rights we acquire, or our projects in which we invest, have valid rights to all material easements, licenses and rights of way, not all of such easements, licenses and rights of way are registered against the lands to which they relate and may not bind subsequent owners.
+Added: Although we believe that we, or our projects in which we invest, have valid rights to all material easements, licenses and rights of way, not all of such easements, licenses and rights of way are registered against the lands to which they relate and may not bind subsequent owners.
Some of our real property rights and projects generally are, and are likely to continue to be, located on land occupied pursuant to long-term easements and leases.
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Negative market conditions or adverse events affecting tenants, or the industries in which they operate, could have an adverse impact on our underwritten returns.
−Removed: Moreover, many of our assets are concentrated in similar geographic locations, which subjects us to an increased risk of significant loss if any property declines in value, incurs a natural disaster or if we are unable to lease a property.
+Added: Moreover, many of our real estate assets are concentrated in similar geographic locations, which subjects us to an increased risk of significant loss if any property declines in value, incurs a natural disaster or if we are unable to lease a property.
We own land or leasehold interests used by renewable energy projects that are concentrated in a limited number of geographic locations.
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If a tenant elects to terminate its lease prior to or upon its expiration or does not renew its lease as it expires, we may not be able to rent or sell the properties or realize our expected value.
−Removed: Furthermore, leases that are renewed and some new leases for properties that are re-leased, may have terms that are less economically favorable than expiring lease terms, or may require us
−Removed: to incur significant costs, such as lease transaction costs.
+Added: Furthermore, leases that are renewed and some new leases for properties that are re-leased, may have terms that are less economically favorable than expiring lease terms, or may require us to incur significant costs, such as lease transaction costs.
In addition, negative market conditions or adverse events affecting tenants, or the industries in which they operate, may force us to sell vacant properties for less than their carrying value, which could result in impairments.
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If projects are unable to avail themselves of warranty protection or receive the expected protection under the terms of the guaranties or bonding, we may need to incur additional costs, including replacement and installation costs, which could adversely impact our investment.
+Added: In addition, renewable energy projects rely on electric and other types of transmission lines and facilities owned and operated by third parties to receive and distribute their energy.
+Added: Any substantial access barriers to these lines and facilities could adversely impact the demand or financial performance for such projects and our investments.
Liability relating to environmental matters may impact the value of properties that we may acquire or the properties underlying our assets.
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To the extent that we become liable for the removal costs, our results of operation and financial condition may be adversely affected.
−Removed: presence of hazardous substances, if any, may adversely affect our ability to sell the affected real property or the project and we may incur substantial remediation costs, thus harming our financial condition.
+Added: The presence of hazardous substances, if any, may adversely affect our ability to sell the affected real property or the project and we may incur substantial remediation costs, thus harming our financial condition.
Our insurance and contractual protections may not always cover lost revenue, increased expenses or liquidated damages payments.
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Risks Related to Our Company
−Removed: We may change our operational policies (including our investment guidelines, strategies and policies) with the approval of our board of directors but without stockholder consent at any time, which may adversely affect the market value of our common stock and our ability to make distributions to our stockholders.
+Added: We may change our operational policies (including our investment guidelines and strategies) with the approval of our Board but without stockholder consent at any time, which may adversely affect the market value of our common stock and our ability to make distributions to our stockholders.
Our board of directors determines our operational policies and may amend or revise our policies, including our policies with respect to acquisitions, dispositions, growth, operations, compensation, indebtedness, capitalization and dividends, or approve transactions that deviate from these policies, without a vote of, or notice to, our stockholders at any time.
−Removed: We may change our investment guidelines, underwriting process and our strategy at any time with the approval of our board of directors, but without the consent of our stockholders, which could result in originating assets that are different in type from, and possibly riskier than, the assets initially contemplated.
−Removed: In addition, our charter provides that our board of directors may authorize us to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interests to qualify as a REIT.
+Added: We may change our investment guidelines, underwriting process and our strategy at any time with the approval of our Board, but without the consent of our stockholders, which could result in originating assets that are different in type from, and possibly riskier than, the assets initially contemplated.
+Added: In addition, our charter provides that our Board may authorize us to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interests to qualify as a REIT.
These changes could adversely affect our business, financial condition, results of operations and our ability to make distributions to our stockholders.
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A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources.
−Removed: These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information,
−Removed: corrupting data or causing operational disruption.
+Added: These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
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Our failure to manage these risks successfully could harm our international projects, reduce our international income or increase our costs, thus adversely affecting our business, financial condition and operating results.
−Removed: We may seek to expand our business in part through future acquisitions or other similar investments.
+Added: We grow our business in part through future acquisitions or other similar investments.
As we grow our business, we have used, and will continue to use, acquisitions of, or other types of transactions such as equity or convertible debt investments in, companies or assets to invest in new or different projects or markets, expand our project skill-sets and capabilities, expand our geographic markets, add experienced management and increase our product and service offerings.
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Treasury, the SEC, U.S.
−Removed: Congress and other governmental and regulatory bodies have taken, are taking or may in the future take, various actions to address the financial crisis or other areas of regulatory concern, such as the Dodd—Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
+Added: Congress and other governmental and regulatory bodies have taken, are taking or may in the future take, various actions to address financial crises or other areas of regulatory concern.
Such actions could have a dramatic impact on our business, results of operations and financial condition, and the cost of complying with any additional laws and regulations or the elimination or reduction in scope of various existing laws and regulations could have a material adverse effect on our financial condition and results of operations.
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The inability to evaluate the potential impacts could have a material adverse effect on the operations of our business.
−Removed: Loss of our 1940 Act exemption would adversely affect us, the market price of shares of our common stock and our ability to distribute dividends.
+Added: Loss of our 1940 Act exemptions would adversely affect us, the market price of shares of our common stock and our ability to distribute dividends.
We conduct our operations so that we are not required to register as an investment company under the 1940 Act.
Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.
−Removed: Section 3(a)(1)(C) of the 1940 Act defines an
−Removed: investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S.
+Added: Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S.
Government securities and cash items) on a non-consolidated basis, which we refer to as the 40% test.
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These exemptions generally require that at least 55% of such subsidiaries’ portfolios must be comprised of qualifying assets that meet the requirements of the exemption.
−Removed: We intend to treat energy efficiency loans where the loan proceeds are specifically provided to finance equipment, services and structural improvements to properties and other facilities and renewable energy and other sustainable infrastructure projects or improvements as qualifying assets for purposes of these exemptions.
+Added: We intend to treat energy efficiency loans where the loan proceeds are specifically provided to finance equipment, services and structural improvements to properties and other facilities and renewable energy and other climate solutions projects or improvements as qualifying assets for purposes of these exemptions.
In general, we also expect, with regard to our subsidiaries relying on Section 3(c)(5)(A) or (B), to rely on guidance published by the SEC or its staff, including reliance on a no-action letter obtained in connection with Sections 3(c)(5)(A) and 3(c)(5)(B) of the 1940 Act, or on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying assets under the exemptions.
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If additional funds are not available to us, we could be forced to curtail or cease new asset originations and acquisitions, which could have a material adverse effect on our business and financial condition.
−Removed: The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate.
−Removed: Financial statements prepared in accordance with GAAP require the use of estimates, judgments and assumptions that affect the reported amounts.
−Removed: Different estimates, judgments and assumptions reasonably could be used that would have a material effect on the financial statements, and changes in these estimates, judgments and assumptions are likely to occur from period to period in the future.
−Removed: Significant areas of accounting requiring the application of management’s judgment include but are not limited to determining the fair value of our assets.
−Removed: These estimates, judgments and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required.
−Removed: Any charges could significantly harm our business, financial condition, results of operations and the price of our securities.
−Removed: See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our business, financial condition and results of operations.
−Removed: Risks Related to Borrowings
+Added: Risks Related to our Borrowings and Hedging
We use financial leverage in executing our business strategy, which may adversely affect the returns on our assets and may reduce cash available for distribution to our stockholders, as well as increase losses when economic conditions are unfavorable.
−Removed: We use debt to finance our assets, including credit facilities, recourse and non-recourse debt as well as securitizations and syndications.
+Added: We use debt to finance our assets, including credit facilities, recourse and non-recourse debt, securitizations, and syndications.
Changes in the financial markets and the economy generally could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders, potential lenders or institutional investors to be unwilling or unable to provide us with financing or participate in securitizations or could increase the costs of that financing or securitization.
+Added: Some of our borrowings will have a remaining balance when they come due.
If we are unable to repay or refinance the remaining balance of this debt, or if the terms of any available refinancing are not favorable, we may be forced to liquidate assets or incur higher costs which may significantly harm our business, financial condition, results of operations, and our ability to make distributions, which could cause the value of our common stock to decline.
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In addition, any increases in the federal funds rate announced by the Federal Reserve Board of Governors is likely to increase shorter-term interest rates and may lower the difference between shorter-term interest rates and longer-term interest rates which would result in a flattening or inversion of the yield curve.
+Added: The Federal Reserve Board of Governors raised the federal funds rate nine times during the period between December 2015 and December 2018 and has announced its intention to determine what future adjustments are appropriate to the federal funds rate over time, including as a result of increased concerns over inflation, but such changes in fiscal and monetary policies are beyond our control and are difficult to predict.
Our credit facilities have rates that adjust on a frequent basis based on prevailing short-term interest rates.
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This change in interest rates would adversely affect our earnings and, in turn, cash available for distribution to our stockholders.
−Removed: In addition, as we may use short-term borrowings including repurchase agreements and warehouse facilities that are generally short-term commitments of capital, lenders may respond to market conditions making it more difficult for us to secure continued financing.
+Added: In addition, as we may use short-term borrowings including repurchase agreements and warehouse facilities that are generally short-term commitments of capital, lenders may respond to market conditions making it more difficult for us to obtain continued financing.
If we are not able to renew our then existing facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under any of these facilities, we may have to curtail entering into new transactions and/or dispose of assets.
We will face these risks given that a number of our borrowings have a shorter duration than the assets they finance.
−Removed: We do not have a formal policy limiting the amount of debt we may incur.
−Removed: Our board of directors may change our leverage limits without stockholder approval.
−Removed: Although we are not restricted by any regulatory requirements to maintain our leverage ratio at or below any particular level, the amount of leverage we may deploy for particular assets will depend upon the availability of particular types of financing and our assessment of the credit, liquidity, price volatility and other risks of those assets and the credit quality of our financing counterparties.
+Added: While we have an established Board-approved leverage limit, our Board may change our leverage limits without stockholder approval.
+Added: We are not restricted by any regulatory requirements to maintain our leverage ratio at or below any particular level.
+Added: The amount of leverage we may deploy for particular assets will depend upon the availability of particular types of financing and our assessment of the credit, liquidity, price volatility and other risks of those assets and the credit quality of our financing counterparties.
We have established leverage limits which are discussed in Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources.
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We utilize non-recourse facilities on certain types of assets that have significantly higher leverage.
−Removed: On these facilities, the lenders’ primary recourse is to the pledged assets and if the value of the pledged assets is below the value of the debt or if we default on a facility, the lender would be able to foreclose on all the pledged assets, which would result in losses and reduce our assets and the cash available for distributions to stockholders.
+Added: On these facilities, the lenders’ primary recourse is to the pledged assets.
+Added: If the value of the pledged assets is below the value of the debt or if we default on a facility, the lender would be able to foreclose on all the pledged assets, which would result in losses and reduce our assets and the cash available for distributions to stockholders.
We may apply too much leverage to our assets or may employ an inefficient financing strategy to our assets.
−Removed: The use of securitizations and special purpose entities would expose us to additional risks.
−Removed: We presently hold, and to the extent that we securitize loans in the future, we anticipate that we will often hold the most junior certificates or the residual value associated with a securitization.
−Removed: We may also establish other funds or special purpose entities, where we would hold only a partial or subordinate interest or a residual value after taking into account our non-recourse debt facilities or a right to participate in the profits of such entity once it achieves a predefined threshold.
+Added: The use of securitizations and special purpose entities exposes us to additional risks.
+Added: We hold securitized loans and often hold the most junior certificates or the residual value associated with a securitization.
+Added: We have also established funds and special purpose entities through which we hold only a partial or subordinate interest or a residual value after taking into account our non-recourse debt facilities or a right to participate in the profits of such entity once it achieves a predefined threshold.
As a holder of the residual value or other such interests, we are more exposed to losses on the underlying collateral because the interest we retain in the securitization vehicle or other entity would be subordinate to the more senior notes or interests issued to investors and we would, therefore, absorb all of the losses, up to the value of our interests, sustained with respect to the underlying assets before the owners of the notes or other interests experience any losses.
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We also use various special purpose entities to own and finance our assets.
−Removed: These subsidiaries incur various types of debt, which can be used to finance one or more of our assets.
+Added: These subsidiaries incur various types of debt, that can be used to finance one or more of our assets.
This debt is typically structured as non-recourse debt, which means it is repayable solely from the revenue from the investment financed by the debt and is secured by the related physical assets, major contracts, cash accounts and in some cases, a pledge of our ownership interests in the subsidiaries involved in the projects.
Although this subsidiary debt is typically non-recourse to us, we make certain representations and warranties or enter into certain guaranties of our subsidiary’s obligations or covenants to the non-recourse debt holder, the breach of which may require us to make payments to the lender.
−Removed: We may also from time to time determine to provide financial support to the subsidiary in order to maintain rights to the project or otherwise avoid the adverse consequences of a default.
+Added: We may also from time to time determine to provide financial support to the subsidiary in
+Added: order to maintain rights to the project or otherwise avoid the adverse consequences of a default.
In the event a subsidiary defaults on its indebtedness, its creditors may foreclose on the collateral securing the indebtedness, which may result in us losing our ownership interest in some or all of the subsidiary’s assets.
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These restrictions, as well as any other covenants contained in any future financings, may interfere with our ability to obtain financing, or to engage in other business activities, which may significantly limit or harm our business, financial condition, liquidity and results of operations.
−Removed: Our financing agreements may contain cross-default provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.
+Added: Certain financing agreements also contain cross-default provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.
A default and resulting repayment acceleration could significantly reduce our liquidity, which could require us to sell our assets to repay amounts due and outstanding.
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In the event of our insolvency or bankruptcy, certain repurchase agreements may qualify for special treatment under the Bankruptcy Code, the effect of which, among other things, would be to allow the lender under the applicable repurchase agreement to avoid the automatic stay provisions of the Bankruptcy Code and to foreclose on the collateral agreement without delay, which could ultimately reduce the amounts we could otherwise recover.
−Removed: The expected discontinuance of the London interbank offered rate (“LIBOR”) and transition to alternative reference rates may adversely impact our borrowings and assets.
−Removed: In July 2017, the U.K.
−Removed: Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“IBA”) announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021.
−Removed: Such announcement indicates that market participants cannot rely on LIBOR being published after 2021.
−Removed: On December 4, 2020, the IBA published a consultation on its intention to cease the publication of LIBOR.
−Removed: For the most commonly used tenors (overnight and one, three, six and 12 months) of U.S.
−Removed: dollar LIBOR, the IBA is proposing to cease publication immediately after June 30, 2023, anticipating continued rate submissions from panel banks for these tenors of U.S.
+Added: The discontinuation of U.S.
+Added: dollar London Interbank Offered Rate (“LIBOR”) may adversely affect our borrowing costs and the costs of any related hedging transactions.
+Added: The terms of certain of our revolving credit facilities and interest rate hedge agreements refer to U.S.
dollar LIBOR.
−Removed: The IBA’s consultation also proposes to cease publication of all other U.S.
−Removed: dollar LIBOR tenors, and of all non-U.S.
−Removed: dollar LIBOR rates, after December 31, 2021.
−Removed: The FCA and U.S.
−Removed: bank regulators have welcomed the IBA’s proposal to continue publishing certain tenors for U.S.
−Removed: dollar LIBOR through June 30, 2023 because it would allow many legacy U.S.
−Removed: dollar LIBOR contracts that lack effective fallback provisions and are difficult to amend to mature before such LIBOR rates experience disruptions.
−Removed: bank regulators are, however, encouraging banks to cease entering into new financial contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.
−Removed: Given consumer protection, litigation, and reputation risks, U.S.
−Removed: bank regulators believe entering into new financial contracts that use LIBOR as a reference rate after December 31, 2021 would create safety and soundness risks.
−Removed: In addition, they expect new financial contracts to either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation.
−Removed: Although the foregoing may provide some sense of timing, there is no assurance that LIBOR, of any particular currency and tenor, will continue to be published or be representative of the underlying market until any particular date, and it appears highly likely that LIBOR will be discontinued or modified after December 31, 2021 or June 30, 2023, depending on the currency and tenor.
−Removed: The Alternative Reference Rates Committee, a group of private-market participants convened by the U.S.
−Removed: Federal Reserve Board and the New York Federal Reserve, has recommended the Secured Overnight Financing Rate (“SOFR”) as a more robust reference rate alternative to U.S.
+Added: As announced on March 5, 2021 by the ICE Benchmark Administration Limited (“IBA”) and the U.K.
+Added: Financial Conduct Authority, the IBA will cease publishing the overnight, 1-month, 3-month, 6-month and 12-month settings of U.S.
+Added: dollar LIBOR rates immediately after June 30, 2023.
+Added: The Alternative Reference Rates Committee (“ARCC”), which was convened by the Federal Reserve Board and the New York Federal Reserve Bank, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended risk-free alternative rate for U.S.
dollar LIBOR.
−Removed: The use of SOFR as a substitute for U.S.
−Removed: dollar LIBOR is voluntary and may not be suitable for all market participants.
−Removed: SOFR is calculated based on overnight transactions under repurchase agreements, backed by Treasury securities.
−Removed: SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.
−Removed: Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR).
−Removed: SOFR is therefore likely to be lower than U.S.
−Removed: dollar LIBOR and is less likely to correlate with the funding costs of financial institutions.
−Removed: To approximate economic equivalence to LIBOR, SOFR can be compounded over a relevant term and a spread adjustment may be added.
−Removed: Market practices related to SOFR calculation conventions continue to develop and may vary, and inconsistent calculation conventions may develop among financial products.
−Removed: The debt drawn from our credit facilities is linked to U.S.
+Added: Some of our financing arrangements may not include robust fallback language that would facilitate replacing U.S.
+Added: dollar LIBOR with a clearly defined alternative reference rate.
+Added: We may not able to amend or refinance these credit facilities and interest rate hedge agreements prior to the discontinuation of U.S.
+Added: dollar LIBOR, or applicable legislation or regulations may provide a benchmark replacement rate based on SOFR, a spread adjustment and conforming changes.
+Added: Even when robust fallback language is included in financing arrangements, there can be no assurance that the benchmark replacement rate plus any spread adjustment will be economically equivalent to U.S.
dollar LIBOR.
−Removed: These facilities mature in July 2023.
−Removed: We expect similar financing arrangements, including new debt and interest rate hedge agreements, will be in place at the time at which the IBA ceases to publish LIBOR.
−Removed: It is not possible to predict all consequences of the IBA’s proposals to cease publishing LIBOR, any related regulatory actions and the expected discontinuance of the use of LIBOR as a reference rate for financial contracts.
−Removed: Some of our LIBOR linked financing arrangements may not include robust fallback language that would facilitate replacing LIBOR with a clearly defined alternative reference rate after LIBOR’s discontinuation, and we may need to amend these before the IBA ceases to publish LIBOR.
−Removed: If such arrangements mature after LIBOR ceases to be published, our counterparties may disagree with us about how to calculate or replace LIBOR.
−Removed: Even when robust fallback language is included, there can be no assurance that the replacement rate plus any spread adjustment will be economically equivalent to LIBOR, which could result in a change in our interest rate.
−Removed: Modifications to any debt or interest rate hedging transactions or other contracts to replace LIBOR with an alternative reference rate could result in adverse tax consequences.
−Removed: In addition, any resulting differences in interest rate standards among our financing arrangements may result in interest rate mismatches between our assets and the borrowings used to fund such assets.
−Removed: Furthermore, the transition away from LIBOR may adversely impact our ability to manage and hedge exposures to fluctuations in interest rates using derivative instruments.
−Removed: There is no guarantee that a transition from LIBOR to alternative reference rates will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have an adverse effect on our business, results of operations, financial condition, and the market price of our common stock.
−Removed: We expect LIBOR to be available in substantially its current form until the end of 2021.
−Removed: However, if a significant number of panel banks decline to provide LIBOR submissions to the IBA, it is possible that LIBOR will become unrepresentative of the underlying market and subject to increased volatility prior to such date.
−Removed: Should that occur, the risks associated with the transition to alternative reference rates will be accelerated and magnified.
−Removed: Risks Related to Hedging
+Added: In addition, market practices related to calculation conventions for replacement benchmark rates continue to develop and may vary, and inconsistent conventions may develop among financial products.
+Added: Inconsistent use of replacement rates or calculation conventions among financial products could expose us to additional financial risks and increase the cost of any related hedging transactions.
+Added: It is not possible to predict all consequences of the IBA’s plans to cease publishing LIBOR, any related regulatory actions and the expected discontinuance of the use of LIBOR as a reference rate for financial contracts.
+Added: Any transition from LIBOR to alternative reference rates could result in financial market disruptions or significant increases in our borrowing costs or the costs of any related hedging, any of which could have an adverse effect on our business, results of operations, financial condition, and the market price of our common stock.
+Added: Borrowings under our CarbonCount®-Based Revolving Credit Facility bear interest at a variable rate that is based on the SOFR, which may have consequences for us that cannot be reasonably predicted and may adversely affect our liquidity, financial condition, and results of operations.
+Added: Borrowings under our CarbonCount®-Based Revolving Credit Facility may bear interest at a rate per annum that is based upon SOFR.
+Added: Although SOFR has been endorsed by the Alternative Reference Rates Committee as its preferred replacement for LIBOR, it remains uncertain whether or when SOFR or other alternative reference rates will be widely accepted by lenders as
+Added: the replacement for LIBOR.
+Added: This may, in turn, impact the liquidity of the SOFR loan market, and SOFR itself.
+Added: Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily changes in comparable benchmark or market rates, and SOFR over time may bear little or no relation to the historical actual or historical indicative data and use of SOFR may result in interest rates and/or payments that are higher or lower than the rates and payments that we might have experienced using LIBOR.
+Added: Also, the use of SOFR based rates is relatively new, and there could be unanticipated difficulties or disruptions with the calculation and publication of SOFR based rates.
+Added: In particular, if the agent under the CarbonCount®-Based Revolving Credit Facility determines that SOFR based rates cannot be determined or the agent or the lenders determine that SOFR based rates do not adequately reflect the cost of funding the SOFR loans, outstanding SOFR loans will be converted into ABR Loans (as defined in the CarbonCount®-Based Revolving Credit Facility).
+Added: The possible volatility of and uncertainty around SOFR as a LIBOR replacement rate and the potential conversion to ABR Loans could result in higher borrowing costs for us, which would adversely affect our liquidity, financial condition, and results of operations.
We, or the projects in which we invest, enter into hedging transactions that could expose us to contingent liabilities or additional credit risk in the future and adversely impact our financial condition.
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and foreign regulators to strengthen the oversight of swaps, and any further actions taken by such regulators could constrain our strategy or increase our costs, either of which could materially and adversely impact our results of operations.
−Removed: In addition, the Dodd-Frank Act requires certain derivatives, including certain interest rate swaps, to be executed on a regulated market and cleared through a central counterparty.
+Added: Additionally, applicable regulations require certain derivatives, including certain interest rate swaps, to be executed on a regulated market and cleared through a central counterparty.
Unlike over-the-counter swaps, the counterparty for the cleared swaps is the clearing house, which reduces counterparty risk.
−Removed: However, cleared swaps require us to appoint clearing brokers and to post margin in accordance with the clearing house’s rules, which has resulted in increased costs for cleared swaps
−Removed: compared to over-the-counter swaps.
−Removed: Our over-the-counter hedges with swap dealers became subject to margin regulations promulgated by U.S.
−Removed: regulators on March 1, 2017, which regulations increased the required margin, and the cost to us of over-the-counter swaps.
−Removed: The margin requirements for both cleared and uncleared swaps also limit eligible margin to cash and specified types of securities, which may further increase the costs of hedging and induce us to change or reduce the use of hedging transactions.
−Removed: The margin regulations generally do not apply to any over-the-counter swaps that were entered into prior to the effective date of such regulations.
−Removed: In addition, any mortgage real estate investment trust that trades in swaps may be considered a "commodity pool," which would cause its operator to be regulated as a "commodity pool operator" (a "CPO").
−Removed: In December 2012, the Commodity Futures Trading Commission ("CFTC"), issued a no-action letter giving relief to operators of mortgage REITs from any applicable CPO registration requirement.
−Removed: In order for us to qualify for the no-action relief, we must, among other non-operation requirements:
−Removed: (1) limit our initial margin and premiums for commodity interests (swaps and exchange-traded derivatives subject to the jurisdiction of the CFTC) to no more than 5% of the fair market value of our total assets;
−Removed: and (2) limit our net income from commodity interests that are not "qualifying hedging transactions" to less than 5% of its gross income.
+Added: However, cleared swaps require us to appoint clearing brokers and to post margin in accordance with the clearing house’s rules, which has resulted in increased costs for cleared swaps compared to over-the-counter swaps.
+Added: Our over-the-counter hedges with swap dealers are subject to margin regulations which prescribe the required margin, limit eligible margin to cash and specified types of securities.
+Added: These margin regulations have the effect, therefore, of increasing the costs of hedging and could induce us to limit our use of certain hedging transactions.
+Added: Also, any mortgage real estate investment trust that trades in swaps may be considered a "commodity pool," which would cause its operator to be regulated as a “commodity pool operator” (a “CPO”).
+Added: Operators of mortgage REITs are currently exempt from CPO registration requirements, subject to certain qualification parameters.
The need to operate within these parameters could limit the use of swaps and other commodity interests by us below the level that we would otherwise consider optimal or may lead to the registration of our company, our management team or our directors as commodity pool operators, which will subject us to additional regulatory oversight, compliance and costs.
−Removed: In addition, the projects in which we invest, may enter into various forms of hedging including interest rate and power price hedging.
+Added: Moreover, the projects in which we invest, may enter into various forms of hedging including interest rate and power price hedging.
To the extent they enter into such hedges, the financial results of the project will be exposed to similar risks as described above which could adversely impact our results of operations.
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Risks Related to Our Common Stock
−Removed: There can be no assurance that an active trading market for our common stock will continue, which could cause our common stock to trade at a discount and make it difficult for holders of our common stock to sell their shares.
+Added: An active trading market for our common stock may not continue, which could cause our common stock to trade at a discount and make it difficult for holders of our common stock to sell their shares.
Our common stock is listed on the New York Stock Exchange (“NYSE”).
−Removed: However, there can be no assurance that an active trading market for our common stock will continue, which could cause our common stock to trade at a discount to historical prices.
−Removed: Accordingly, no assurance can be given as to the ability of our stockholders to sell their common stock or the price that our stockholders may obtain for their common stock.
−Removed: Some of the factors that could negatively affect the market price of our common stock include:
+Added: However, an active trading market for our common stock may not continue, which could cause our common stock to trade at a discount to historical prices.
+Added: Some of the factors that have or in the future could negatively affect the market price of our common stock include:
• our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects;
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• actual or anticipated accounting problems;
−Removed: • publication of research reports about us or the sustainable infrastructure industry;
+Added: • publication of research reports about us or the climate solutions industry;
• changes in market valuations of similar companies;
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• general market and economic conditions, including the current state of the credit and capital markets.
−Removed: Market factors unrelated to our performance could also negatively impact the market price of our common stock.
+Added: Market factors unrelated to our performance also have, and could in the future, negatively impact the market price of our common stock.
One of the factors that investors may consider in deciding whether to buy or sell our common stock is our distribution rate as a percentage of our stock price relative to market interest rates.
If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest.
−Removed: As a result, interest rate fluctuations and conditions in capital markets can affect the market value of our common stock.
+Added: interest rate fluctuations and conditions in capital markets have, or in the future could, affect the market value of our common stock.
Common stock and preferred stock eligible for future sale may have adverse effects on our share price.
−Removed: Subject to applicable law, our board of directors, without stockholder approval, may authorize us to issue additional authorized and unissued shares of common stock and preferred stock on the terms and for the consideration it deems appropriate.
+Added: Subject to applicable law, our Board, without stockholder approval, may authorize us to issue additional authorized and unissued shares of common stock and preferred stock on the terms and for the consideration it deems appropriate.
We cannot predict the effect, if any, of future sales of our common stock or the availability of shares for future sales, on the market price of our common stock.
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Our current policy is to pay quarterly distributions, which on an annual basis is expected to equal or substantially exceed 90% or more of our REIT taxable income.
−Removed: In the event that our board of directors authorizes distributions in excess of the income or cash flow generated from our assets, we may make such distributions from the proceeds of future offerings of equity or debt securities or other forms of debt financing or the sale of assets.
+Added: In the event that our Board authorizes distributions in excess of the income or cash flow generated from our assets, we may make such distributions from the proceeds of future offerings of equity or debt securities or other forms of debt financing or the sale of assets.
Our ability to make distributions may be adversely affected by a number of factors.
−Removed: Therefore, although we anticipate making quarterly distributions to our stockholders, our board of directors has the sole discretion to determine the timing, form and amount of any distributions to our stockholders.
+Added: Therefore, although we anticipate making quarterly distributions to our stockholders, our Board has the sole discretion to determine the timing, form and amount of any distributions to our stockholders.
If our portfolio of assets fails to generate sufficient income and cash flow, we could be required to sell assets, borrow funds, raise additional equity or make a portion of our distributions in the form of a taxable stock distribution or distribution of debt securities.
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If we raise additional equity, our stock price could be materially and adversely affected.
−Removed: Our board of directors will make determinations regarding distributions based upon various factors, including our earnings, our financial condition, our liquidity, our debt covenants, maintenance of our REIT qualification, applicable provisions of the MGCL and other factors as our board of directors may deem relevant from time to time.
+Added: Our Board will make determinations regarding distributions based upon various factors, including our earnings, our financial condition, our liquidity, our debt covenants, maintenance of our REIT qualification, applicable provisions of the MGCL and other factors as our Board may deem relevant from time to time.
We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to make distributions to our stockholders:
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As a result, no assurance can be given that we will be able to make distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect us.
−Removed: In addition, all or a portion of the distributions that we make to our stockholders will be taxable as ordinary income, subject to a deduction equal to 20% of the amount of such dividends for taxable years beginning in 2018 and ending in 2025, which generally reduces the effective U.S.
+Added: In addition, all or a portion of the distributions that we make to our stockholders will be taxable as ordinary income, subject to a potential deduction equal to 20% of the amount of such dividends for taxable years beginning in 2018 and ending in 2025, which generally reduces the effective U.S.
federal income tax rate applicable to such dividends.
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Additionally, the partnership agreement of our Operating Partnership expressly limits our liability by providing that neither we, as the general partner of the Operating Partnership, nor any of our directors or officers, will be liable or accountable in damages to our Operating Partnership, its limited partners or their assignees for errors in judgment, mistakes of fact or law or for any act or omission if the general partner, director or officer, acted in good faith.
−Removed: In addition, our Operating Partnership is required to indemnify us, our affiliates and each of our and their respective officers, directors, employees and agents to the fullest extent permitted by applicable law against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Operating Partnership, provided that our Operating Partnership will not indemnify any such person for (1) willful misconduct or a knowing violation of the law, (2) any transaction for which such
−Removed: person received an improper personal benefit in violation or breach of any provision of the partnership agreement of our Operating Partnership, or (3) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful.
+Added: In addition, our Operating Partnership is required to indemnify us, our affiliates and each of our and their respective officers, directors, employees and agents to the fullest extent permitted by applicable law against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Operating Partnership, provided that our Operating Partnership will not indemnify any such person for (1) willful misconduct or a knowing violation of the law, (2) any transaction for which such person received an improper personal benefit in violation or breach of any provision of the partnership agreement of our Operating Partnership, or (3) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful.
Certain provisions of Maryland law could inhibit changes in control.
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The “control share” provisions of the MGCL provide that, subject to certain exemptions, a holder of “control shares” of a Maryland corporation (defined as shares which, when aggregated with all other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) has no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our directors who are also our employees.
−Removed: The “unsolicited takeover” provisions of Title 3, Subtitle 8 of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, some of which (for example, a classified board) we do not yet have.
−Removed: As permitted by the MGCL, our board of directors has by resolution exempted from the “business combination” provision of the MGC business combinations (1) between us and any other person, provided, that such business combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such person), (2) the Predecessor and its affiliates and associates as part of our formation transactions and (3) persons acting in concert with any of the foregoing.
+Added: The “unsolicited takeover” provisions of Title 3, Subtitle 8 of the MGCL permit our Board, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, some of which (for example, a classified board) we do not yet have.
+Added: As permitted by the MGCL, our Board has by resolution exempted from the “business combination” provision of the MGC business combinations (1) between us and any other person, provided, that such business combination is first approved by our Board (including a majority of our directors who are not affiliates or associates of such person), (2) the Predecessor and its affiliates and associates as part of our formation transactions and (3) persons acting in concert with any of the foregoing.
Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock.
−Removed: There can be no assurance that our board of directors will not amend or revoke the exemption at any time.
+Added: There can be no assurance that our Board will not amend or revoke the exemption at any time.
Our authorized but unissued shares of common and preferred stock may prevent a change in our control.
−Removed: Our charter permits our board of directors to authorize us to issue additional shares of our authorized but unissued common or preferred stock.
−Removed: In addition, our board of directors may, without common stockholder approval, amend our charter to increase the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have the authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the terms of the classified or reclassified shares.
−Removed: As a result, our board of directors may establish a series of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.
+Added: Our charter permits our Board to authorize us to issue additional shares of our authorized but unissued common or preferred stock.
+Added: In addition, our Board may, without common stockholder approval, amend our charter to increase the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have the authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the terms of the classified or reclassified shares.
+Added: As a result, our Board may establish a series of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.
Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit stockholder recourse in the event of actions not in our stockholders’ best interests.
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These ownership limits could have the effect of discouraging a takeover or other transaction in which holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.
−Removed: Our board of directors has established exemptions from these ownership limits that permit certain institutional investors and their clients to hold shares of our common stock in excess of these ownership limits.
+Added: Our Board has established exemptions from these ownership limits that permit certain institutional investors and their clients to hold shares of our common stock in excess of these ownership limits.
Risks Related to Our Taxation as a REIT
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federal income tax and applicable state and local tax, which would negatively impact the results of our operations and reduce the amount of cash available for distribution to our stockholders.
−Removed: We elected and qualified as a REIT for U.S.
−Removed: federal income tax purposes commencing with our taxable year ended December 31, 2013.
+Added: We have elected to be treated, and qualify, as a REIT for U.S.
+Added: federal income tax purposes.
federal income tax laws governing REITs are complex, and judicial and administrative interpretations of the U.S.
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As a result, no assurance can be given that we will always be able to rely on this Ruling.
−Removed: In August of 2016, the Treasury Department and the IRS published regulations which we refer to as the Real Property Regulations relating to the definition of “real property” for purposes of the REIT income and asset tests which apply to us with respect to our taxable years beginning after December 31, 2016.
+Added: In August of 2016, the Treasury Department and the IRS published regulations which we refer to as the Real Property Regulations relating to the definition of “real property” for purposes of the REIT income and asset tests with respect to our taxable years beginning after December 31, 2016.
Among other things, the Real Property Regulations provide that an obligation secured by a structural component of a building or other inherently permanent structure qualifies as a real estate asset for REIT qualification purposes only if such obligation is also secured by a real property interest in the inherently permanent structure served by such structural component.
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By way of example only, Section 9-604(b) of the UCC, which has been adopted in all but two states in the United States, permits a lender secured by fixtures, upon a default, to enforce its rights under the UCC or under applicable real property laws.
−Removed: Although there is limited authority directly on point, given the nature of, and the extent to which, the structural improvements securing our receivables are integrated into and serve the related buildings, we believe that the better view is that
−Removed: the nature and scope of our rights in such buildings that inure to us as a result of our receivables are sufficient to satisfy the requirements of the Real Property Regulations described above.
+Added: Although there is limited authority directly on point, given the nature of, and the extent to which, the structural improvements securing our receivables are integrated into and serve the related buildings, we believe that the better view is that the nature and scope of our rights in such buildings that inure to us as a result of our receivables are sufficient to satisfy the requirements of the Real Property Regulations described above.
In addition to the limited authority directly on point, two other important caveats apply in this regard.
First, the Real Property Regulations do not define what is required for an obligation secured by a lien on a structural component to also be secured by a real property interest in the building served by such structural component.
−Removed: However, the initial proposed version of the Real Property Regulations, which never became effective, included a requirement that the interest in the real property held by a REIT be “equivalent” to the interest in a structural component held by the REIT in order for the structural component to be treated as a real estate asset.
+Added: However, the initial proposed version of the Real Property Regulations, which never became effective,
+Added: included a requirement that the interest in the real property held by a REIT be “equivalent” to the interest in a structural component held by the REIT in order for the structural component to be treated as a real estate asset.
This requirement was ultimately not included in the final Real Property Regulations, in part in response to comments that such requirement may negatively affect investment in energy efficiency and renewable energy assets.
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While a number of cases have addressed the rights of fixture lien holders generally, there are limited judicial interpretations in only a few jurisdictions that directly address the rights and remedies available to a fixture lien holder in the real property in which the fixtures have been installed.
−Removed: Such rights have been addressed in some cases which support our position and, in factual circumstances distinguishable from our own, in some cases where the courts have found these rights to be more limited.
+Added: Such rights have been addressed in some cases that support our position and, in factual circumstances distinguishable from our own, in some cases where the courts have found these rights to be more limited.
The resolution of these issues in many jurisdictions therefore remains uncertain.
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Thus, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year.
+Added: Further, differences in timing between the recognition of taxable income, our GAAP income and the actual receipt of cash may occur.
+Added: For example, we may be required to accrue interest and discount income on debt securities or interests in debt securities before we receive any payments of interest or principal on such assets, and there may be timing differences in the accrual of such interest and discount income for tax purposes and for GAAP purposes.
If we fail to qualify as a REIT in any taxable year, and we do not qualify for certain statutory relief provisions, we would be required to pay U.S.
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Our payment of income tax would negatively impact the results of our operations and decrease the amount of our income available for distribution to our stockholders.
−Removed: Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required to distribute substantially all of our taxable income to our stockholders, which would leave our board of directors with more discretion over our future distribution levels.
−Removed: In addition, unless we were eligible for certain statutory
−Removed: relief provisions, we could not re-elect to qualify as a REIT for the subsequent four taxable years following the year in which we failed to qualify.
−Removed: Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments.
+Added: Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required to distribute substantially all of our taxable income to our stockholders, which would leave our Board with more discretion over our future distribution levels.
+Added: In addition, unless we were eligible for certain statutory relief provisions, we could not re-elect to qualify as a REIT for the subsequent four taxable years following the year in which we failed to qualify.
+Added: Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments, incur debt, or sell assets at inopportune times.
To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that, at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, government securities, shares in REITs and other qualifying real estate assets.
−Removed: The remainder of our investment in securities (other than government securities and REIT qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.
−Removed: In addition, in general, no more than 5% of the value of our total assets (other than government securities, securities of a taxable REIT subsidiary (a “TRS”) and securities that are qualifying real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by securities of one or more TRSs, and no more than 25% of the value of our assets can consist of debt instruments issued by publicly offered REITs that are not otherwise secured by real property.
+Added: In addition, certain other limitations apply to the asset we may hold, which generally limit the concentration we may hold in assets that are not qualifying real estate assets.
If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
−Removed: As a result, we may be required to liquidate from our portfolio, or contribute to a TRS, otherwise attractive investments, and may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT.
−Removed: These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
−Removed: REIT distribution requirements could adversely affect our ability to execute our business plan and may require us to incur debt or sell assets to make such distributions.
−Removed: In order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.
+Added: In addition, in order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.
To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S.
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We intend to distribute our taxable income to our stockholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid the 4% non-deductible excise tax.
−Removed: In addition, differences in timing between the recognition of taxable income, our GAAP income and the actual receipt of cash may occur.
−Removed: For example, we may be required to accrue interest and discount income on debt securities or interests in debt securities before we receive any payments of interest or principal on such assets, and there may be timing differences in the accrual of such interest and discount income for tax purposes and for GAAP purposes.
−Removed: As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and find it difficult or impossible to meet the REIT distribution requirements in certain circumstances.
−Removed: In such circumstances, we may be required to:
+Added: These requirements may require us to liquidate from our portfolio, or contribute to a taxable REIT subsidiary (a “TRS”), otherwise attractive investments, and we may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT.
+Added: These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
+Added: In addition, if we are compelled to liquidate our assets, such as to repay obligations to our lenders, this could impact our qualification with the REIT requirements, and we may be required to take actions to satisfy the REIT income, asset, or distribution tests, or else fail to qualify as a REIT.
+Added: No assurance can be provided that we will satisfy these requirements under all circumstances.
+Added: Furthermore, in order to meet the REIT distribution requirements, we may be required to:
(i) sell assets in adverse market conditions, (ii) raise debt or equity on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, (iv) make a taxable distribution of our shares as part of a distribution in which stockholders may elect to receive shares or (subject to a limit measured as a percentage of the total distribution) cash or (v) use cash reserves, in order to comply with the REIT distribution requirements and to avoid U.S.
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We believe that we will be treated for U.S.
−Removed: federal income tax purposes as the owner of the assets that are the subject of any such agreements and that the repurchase agreements will be treated as secured lending transactions notwithstanding that such agreements may transfer record ownership of the assets to the
−Removed: counterparty during the term of the agreement.
+Added: federal income tax purposes as the owner of the assets that are the subject of any such agreements and that the repurchase agreements will be treated as secured lending transactions notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement.
It is possible, however, that the IRS could assert that we did not own the assets during the term of the repurchase agreement, in which case our REIT asset test could be adversely affected.
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In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests, and if such a challenge were sustained, we could fail to qualify as a REIT.
−Removed: Further, we invest in assets such as C-PACE bonds and assessments, which we believe are secured by real property for purposes of the REIT income and asset tests but with respect to which no authority is directly on point.
+Added: Further, we invest in
+Added: assets such as C-PACE bonds and assessments, that we believe are secured by real property for purposes of the REIT income and asset tests but with respect to which no authority is directly on point.
If the IRS were to successfully assert that such C-PACE assets are not qualifying assets for purposes of the REIT gross asset tests or do not generate qualifying income for purposes of the 75% gross income test, our REIT qualification could be adversely affected.
+Added: Further, under certain circumstances, interest from debt instruments that are secured by real property and other property is required to be apportioned between qualifying real estate interest and nonqualifying interest based on the principal amount of the debt instrument and the fair market value of the underlying real property.
+Added: If debt instruments that we hold were to generate a greater amount of nonqualifying interest than we anticipate, we could fail to satisfy the REIT gross income test, and could lose our REIT qualification or be required to pay a penalty tax to preserve our REIT compliance.
We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them.
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If such amendments are “significant modifications” under the applicable Treasury Regulations, we may be required to recognize taxable income as a result of such amendments.
−Removed: Finally, we may be required under the terms of indebtedness that we incur with private lenders to use cash received from interest payments to make principal payments on that indebtedness, with the effect of recognizing income but not having a corresponding amount of cash available for distribution to our stockholders.
−Removed: Public law no.
−Removed: 115-97, signed into law on December 22, 2017 and commonly referred to as the Tax Cuts and Jobs Act of 2017 (“TCJA”) implements various changes to the U.S.
−Removed: federal income tax laws that impacts the taxation of us and our shareholders.
−Removed: Among these changes, the TCJA may accelerate our accrual for U.S.
+Added: In addition, we may be required to accelerate our accrual for U.S.
federal income tax purposes of certain items of income to the extent that we would otherwise recognize such items of income for U.S.
federal income tax purposes later than we would report such items on our financial statements.
−Removed: This provision of the TCJA could increase our taxable income in certain taxable years, which could impact our ability to satisfy the REIT distribution requirements.
−Removed: The interest apportionment rules under Treasury Regulation Section 1.856-5(c) provide that, if a loan is secured by both real property and other property, a REIT is required to apportion its annual interest income to the real property securing the loan based on a fraction, the numerator of which is the value of such real property, determined when the REIT commits to acquire the loan, and the denominator of which is the highest “principal amount” of the loan during the year.
−Removed: If a mortgage loan is secured by both real property and personal property and the value of the personal property does not exceed 15% of the aggregate value of the property securing the mortgage loan, the mortgage loan is treated as secured solely by real property for this purpose.
−Removed: IRS Revenue Procedure 2014-51 interprets the “principal amount” of the loan to be the face amount of the loan, despite the Internal Revenue Code requiring taxpayers to treat any market discount, that is the difference between the purchase price of the loan and its face amount, for all purposes (other than certain withholding and information reporting purposes) as interest rather than principal.
−Removed: The interest apportionment regulations apply only if the loan in question is secured by both real
−Removed: property and other property and the value of personal property securing the mortgage exceeds 15% of the aggregate value of the property securing the mortgage.
−Removed: If the IRS were to assert successfully that our loans were secured by property other than real estate, the interest apportionment rules applied for purposes of our REIT testing, and that the position taken in IRS Revenue Procedure 2014-51 should be applied to certain loans in our portfolio, then depending upon the value of the real property securing our loans and their face amount, and the sources of our gross income generally, we may fail to meet the 75% REIT gross income test.
−Removed: If we do not meet this test, we could potentially lose our REIT qualification or be required to pay a penalty to the IRS.
+Added: Finally, we may be required under the terms of indebtedness that we incur with private lenders to use cash received from interest payments to make principal payments on that indebtedness, with the effect of recognizing income but not having a corresponding amount of cash available for distribution to our stockholders.
+Added: These circumstances could affect our ability to satisfy the REIT distribution requirements.
The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur and may limit the way we effect future securitizations.
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Finally, if we were to fail to qualify as a REIT, any taxable mortgage pool securitizations would be treated as separate taxable corporations for U.S.
−Removed: federal income tax purposes that could not be included in any consolidated U.S.
+Added: federal income tax purposes that could not be included in any consolidated
federal corporate income tax return.
These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.
−Removed: Although our use of TRSs may be able to partially mitigate the impact of meeting the requirements necessary to maintain our qualification as a REIT, our ownership of and relationship with our TRSs is limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
−Removed: A REIT may own up to 100% of the stock of one or more TRSs.
−Removed: Subject to certain exemptions, a TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT.
−Removed: Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS.
−Removed: A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS.
−Removed: The TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation.
−Removed: The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.
−Removed: Our TRSs will pay U.S.
−Removed: federal, state and local income or franchise tax on their taxable income, and their after-tax net income will be available for distribution to us but will not be required to be distributed to us, unless necessary to maintain our REIT qualification.
+Added: Our ownership of and relationship with our TRSs is limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
Overall, no more than 20% of the value of a REIT’s total assets may consist of stock or securities of one or more TRSs.
In order to satisfy the TRS limitation, we may make loans to our TRSs that meet the requirements to be treated as qualifying investments of new capital, which are generally treated as real estate assets under the Internal Revenue Code.
−Removed: Because such loans are treated as real estate assets for purposes of the REIT requirements, we do not treat these loans as TRS securities for purposes of the TRS asset limitation, which is consistent with private rulings issued by the IRS.
+Added: Because such loans are treated as real estate assets for purposes of the REIT requirements, we do not treat these loans as TRS securities for purposes of the TRS asset limitation.
However, no assurance can be provided that the IRS may not successfully assert that such loans should be treated as securities of our TRSs, which could adversely impact our qualification as a REIT.
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While we will be monitoring the aggregate value of the securities of our TRSs and intend to conduct our affairs so that such securities will represent less than 20% of the value of our total assets, there can be no assurance that we will be able to comply with the TRS limitation in all market conditions.
+Added: Further, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation.
+Added: The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.
The tax on prohibited transactions limits our ability to engage in certain types of transactions, including certain methods of securitizing loans, which would be treated as sales for U.S.
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federal income tax laws and regulations governing REITs and their stockholders, as well as the administrative interpretations of those laws and regulations, are constantly under review and may be changed at any time, possibly with retroactive effect.
+Added: Recently, the Biden administration has indicated an intention to enact tax legislation that could impact the taxation of an investment in our common stock.
No assurance can be given as to whether, when, or in what form, the U.S.
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federal tax laws could adversely affect an investment in our common stock.
−Removed: The TCJA, which was signed into law on December 22, 2017, significantly changes U.S.
−Removed: federal income tax laws applicable to businesses and their owners, including REITs and their stockholders, and may lessen the relative competitive advantage of operating as a REIT rather than as a C corporation.
−Removed: Liquidation of our assets may jeopardize our REIT qualification.
−Removed: To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income.
−Removed: If we are compelled to liquidate our assets to repay obligations to our lenders, we may be unable to comply with these requirements, thereby jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as inventory or property held primarily for sale to customers in the ordinary course of business.
Your investment has various U.S.
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and global economies and financial markets and create widespread business continuity and viability issues.
−Removed: In recent years the outbreaks of a number of diseases, including Avian Bird Flu, H1N1, and various other “super bugs,” have increased the risk of a pandemic.
−Removed: In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China.
−Removed: COVID-19 has since spread to over 100 countries, including the United States.
−Removed: COVID-19 has also spread to every state in the United States and in regions where we have our executive offices and principal operations, and in regions where our projects and other investments are located or where they are managed.
−Removed: On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
−Removed: Since March 13, 2020, there have been a number of federal, state and local government initiatives to manage the spread of the virus and its impact on the economy, financial markets and continuity of businesses of all sizes and industries.
−Removed: The impact and duration of COVID-19 or another pandemic, is having and could in the future have significant repercussions across regional, national and global economies and financial markets, and could trigger a period of regional, national and global economic slowdown or regional, national or global recessions.
−Removed: The outbreak of COVID-19 in many countries continues to adversely impact regional, national and global economic activity and has contributed to significant volatility and negative pressure in financial markets.
−Removed: The impact of the outbreak has been rapidly evolving and, as cases of the virus have continued to increase around the world, many countries, including the United States, have reacted by instituting, among other things, quarantines and restrictions on travel.
−Removed: Since March, in an attempt to control COVID-19 the Federal government and most states and/or local governments, including where we have our office (Maryland) and in regions where our projects and other investments are located or where they are managed, have implemented various restrictions, rules, or guidelines including quarantines, restrictions on travel, “shelter in place”, “stay at home””, or "safer at home" rules, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects allowed.
+Added: COVID-19 is having significant repercussions across regional, national and global economies and financial markets, and could trigger further periods of regional, national and global economic slowdown or regional, national or global recessions.
+Added: COVID-19 continues to adversely impact regional, national and global economic activity and has contributed to significant volatility and negative pressure in financial markets.
+Added: The impact of the outbreak continues to rapidly evolve.
+Added: In an attempt to control COVID-19 the Federal government and most states and/or local governments, including the state in which we are headquartered and in regions where our projects and other investments are located or where they are managed, have implemented various restrictions, rules, or guidelines including quarantines, restrictions on travel, “shelter in place”, “stay at home”, or “safer at home” rules, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects allowed.
While some of these restrictions have been relaxed or phased out, many of these or similar restrictions remain in place, continue to be implemented, or additional restrictions are being considered.
Although, in certain cases, exceptions may be available for certain essential operations and businesses which generally include the renewable energy projects in which we invest, there is no assurance that such exceptions will enable us to avoid adverse effects to our results of operations and business.
−Removed: Further, such actions create disruption in energy efficiency, renewable energy, real estate and other sustainable infrastructure markets and adversely impact a number of industries.
+Added: Further, such actions create disruption in energy efficiency, renewable energy, real estate and other climate solutions markets and adversely impact a number of industries.
We believe that our ability to operate and our level of business activity has been, and will in all likelihood continue to be, impacted by effects of COVID-19 and could in the future be impacted by another pandemic and that such impacts could adversely affect the profitability of our business, as well as the values of, and the cash flows from, the assets we own.
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• interrupted service and availability of personnel, including our executive officers and other employees that are part of our management team and an inability to recruit, attract and retain skilled personnel-to the extent our management or personnel are impacted by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work, our business and operating results may be negatively impacted;
−Removed: • difficulty accessing debt and equity capital on attractive terms, or at all, and severe disruption or instability in the global financial markets or deterioration in credit and financing conditions may affect our ability or the ability of our sustainable infrastructure projects and our ultimate off-taker or project users to make regular payments of principal, interest or project revenue (e.g., due to unemployment, underemployment, or reduced income or revenues) or to access savings or capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities, any of which could result in the inability to make payments under our borrowing facilities or notes, affect our or our projects’ ability to meet liquidity, net worth, and leverage covenants under borrowing facilities or have a material adverse effect on the value of investments we hold or on our business, financial condition, results of operations and cash flows;
−Removed: • temporary or lasting changes involving the status, practices and procedures of our or our projects or our projects’ sponsors’ operations, including with respect to new originations of investments - to the extent we elect or are required to limit or be more selective in making new originations of investments, we may strain our relationships with business partners, customers and counterparties, breach actual or perceived obligations to them, and be subject to litigation and claims from such partners, customers and counterparties, any of which could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows;
−Removed: moreover, some of our ultimate off-taker or project users’ operations, or our operations, the sustainable infrastructure markets or projects and our ultimate off-taker or project users have not been able to and others may not be able to function effectively because of, among other factors, disruptions in the normal operation of sustainable infrastructure markets or projects, any inability to access short-term or long-term financing, a disruption in the market for securitization transactions, or the inability to access these markets or execute securitization transactions due to negative impacts to our, our projects or our ultimate off-taker or project users financial condition or operating capabilities resulting from the COVID-19 pandemic;
+Added: • difficulty accessing debt and equity capital on attractive terms, or at all, and severe disruption or instability in the global financial markets or deterioration in credit and financing conditions may affect our ability or the ability of our climate solutions projects and our ultimate off-taker or project users to make regular payments of principal, interest or project revenue (e.g., due to unemployment, underemployment, or reduced income or revenues) or to access savings or capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities, any of which could result in the inability to make payments under our borrowing facilities or notes, affect our or our projects’ ability to meet liquidity, net worth, and leverage covenants under borrowing facilities or have a material adverse effect on the value of investments we hold or on our business, financial condition, results of operations and cash flows;
+Added: • temporary or lasting changes involving the status, practices and procedures of our operations or our projects or our projects’ sponsors’ operations, including with respect to new originations of investments - to the extent we elect or are required to limit or be more selective in making new originations of investments, we may strain our relationships with business partners, customers and counterparties, breach actual or perceived obligations to them, and be subject to litigation and claims from such partners, customers and counterparties, any of which could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows;
+Added: moreover, some of our ultimate off-taker or project users’ operations, or our operations, the climate solutions markets or projects and our ultimate off-taker or project users have not been able to and others may not be able to function effectively because of, among other factors, disruptions in the normal operation of climate solutions markets or projects, any inability to access short-term or long-term financing, a disruption in the market for securitization transactions, or the inability to access these markets or execute securitization transactions due to negative impacts to our, our projects or our ultimate off-taker or project users financial condition or operating capabilities resulting from the COVID-19 pandemic or future pandemics;
any or all of these impacts could result in reduced net investment income and cash flow, as well as an impairment of our investments which reductions and impairments could be material;
−Removed: • to the extent ultimate off-taker or other project users that have been negatively impacted by the COVID-19 pandemic do not timely remit payments of principal, interest or other payments (whether due to an inability to make such payments, an unwillingness to make such payments, or a waiver of the requirement to make such payments on a timely basis or at all, including under the terms of any applicable forbearance, modification, or maturity extension agreement or program (which forbearance, waiver, or maturity extension may be available as a result of a government-sponsored or -imposed program or under any such agreement or program we or our project sponsors may otherwise offer)), then the value of our investments will likely be impaired, potentially materially;
−Removed: moreover, to the extent any such pandemic
−Removed: impacts local, regional or national economic conditions, the value of a sustainable infrastructure project is likely to decline, which would likely negatively impact the value of our investments, potentially materially;
−Removed: • some of our sustainable infrastructure projects are being constructed and others are subject to ongoing maintenance;
−Removed: planned construction or maintenance of some of these projects have not been able to proceed on a timely basis or at all and others may be similarly affected as a result of being negatively impacted by the COVID-19 pandemic, including due to operating disruptions or government mandated moratoriums on construction, development or redevelopment or the inability to source the necessary construction personnel, equipment or parts;
+Added: • to the extent ultimate off-taker or other project users that have been negatively impacted by the COVID-19 or other pandemics do not timely remit payments of principal, interest or other payments (whether due to an inability to make such payments, an unwillingness to make such payments, or a waiver of the requirement to make such payments on a timely basis or at all, including under the terms of any applicable forbearance, modification, or maturity extension agreement or program (which forbearance, waiver, or maturity extension may be available as a result of a government-
+Added: sponsored or -imposed program or under any such agreement or program we or our project sponsors may otherwise offer)), then the value of our investments will likely be impaired, potentially materially;
+Added: moreover, to the extent any such pandemic impacts local, regional or national economic conditions, the value of a climate solutions project is likely to decline, which would likely negatively impact the value of our investments, potentially materially;
+Added: • some of our climate solutions projects are being constructed and others are subject to ongoing maintenance;
+Added: planned construction or maintenance of some of these projects have not been able to proceed on a timely basis or at all and others may be similarly affected as a result of being negatively impacted by the COVID-19 pandemic and could be similarly affected by a future pandemic, including due to operating disruptions or government mandated moratoriums on construction, development or redevelopment or the inability to source the necessary construction personnel, equipment or parts;
all of the foregoing factors would likely negatively impact the value of our investments, potentially materially;
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• our ability to ensure operational continuity in the event our business continuity plan is not effective or ineffectually implemented or deployed during a disruption.
−Removed: The rapid development and fluidity of the circumstances resulting from this pandemic preclude any prediction as to the ultimate adverse impact of COVID-19.
−Removed: Nevertheless, COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows.
−Removed: To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, as well as the Risk Factors in the Form 10-K, such as those relating to changes in interest rates, declining demand for our projects due to declining costs of traditionally-sourced energy, the lack of liquidity of our assets and investments, changes in the fair value of our assets, negative market conditions, our dependence on third-party contractual arrangements, our dependence on the availability of capital, changes in credit ratings assigned to our assets, counterparties to repurchase transactions’ defaulting on their obligations and our investments’ subjectivity to delinquency, foreclosure and loss.
−Removed: Our results could be adversely affected by counterparty credit risk.
−Removed: The economic impact of COVID-19 and the associated volatility in the financial markets has triggered a period of economic slowdown or recession and could jeopardize the solvency and financial wherewithal of counterparties with whom we do business.
−Removed: In the event a counterparty to us or one of our sustainable infrastructure projects becomes insolvent or unable to make payments, we may fail to recover the full value of our investment or realize the value from the counterparty’s contract, thus reducing our earnings and liquidity.
−Removed: In addition, the insolvency of one or more of our, or one of our sustainable infrastructure projects’, counterparties could reduce the amount of financing available to us, which would make it more difficult for us to leverage the value of our assets and obtain substitute financing on attractive terms or at all.
−Removed: A material reduction in our financing sources or an adverse change in the terms of our financings could have a material adverse effect on our financial condition and results of operations.
+Added: COVID-19 or a future pandemic and the impacts thereof on the current financial, economic and capital markets environments and other areas are difficult to predict and could present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows.
+Added: To the extent the COVID-19 or a future pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, as well as the Risk Factors in the Form 10-K, such as those relating to changes in interest rates, declining demand for our projects due to declining costs of traditionally-sourced energy, the lack of liquidity of our assets and investments, changes in the fair value of our assets, negative market conditions, our dependence on third-party contractual arrangements, our dependence on the availability of capital, changes in credit ratings assigned to our assets, counterparties to repurchase transactions’ defaulting on their obligations and our investments’ subjectivity to delinquency, foreclosure and loss.
Unresolved Staff Comments
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.