What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-05 · 125 added, 158 removed, 249 unchanged (53% of the section changed)

6 unchanged sentences

1 to our Annual Report on Form 10-K for the year ended December 31, 2021 (collectively, our “2021 Form 10-K”), that was filed with the SEC .

We invest in climate solutions developed by the leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets.

We invest in climate solutions developed or sponsored by leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets.

We believe we are one of the first U.S.

public companies solely dedicated to such climate change investments.

Our goal is to generate attractive returns from a diversified portfolio of projects with long-term, predictable cash flows from proven technologies that reduce carbon emissions or increase resilience to climate change.

We are internally managed, and our management team has extensive relevant industry knowledge and experience, dating back more than 30 years.

We have long-standing relationships with the leading energy service companies (“ESCOs”), manufacturers, project developers, utilities, owners and operators.

Our origination strategy is to use these relationships to generate recurring, programmatic investment and fee-generating opportunities.

public companies solely dedicated to climate solutions.

Our goal is to generate attractive returns from a diversified portfolio of project company investments with long-term, predictable cash flows from proven technologies that reduce carbon emissions or increase resilience to climate change.

We are internally managed, and our management team has extensive relevant industry knowledge and experience.

We have long-standing relationships with the leading energy service companies (“ESCOs”), manufacturers, project developers, utilities, owners and operators that provide recurring, programmatic investment and fee-generating opportunities.

Additionally, we have relationships with leading banks, investment banks, and institutional investors from which we are referred additional investment and fee generating opportunities.

Our investments are focused on three areas:

Our investments are focused on three markets:

• Behind-the-Meter (“BTM”) :

distributed building or facility projects, which reduce energy usage or cost through the use of solar generation and energy storage or energy efficiency improvements, including heating, ventilation and air conditioning systems, lighting, energy controls, roofs, windows, building shells and/or combined heat and power systems;

distributed building or facility projects, which reduce energy usage or cost through the use of solar generation and energy storage or energy efficiency improvements including heating, ventilation and air conditioning systems (“HVAC”), lighting, energy controls, roofs, windows, building shells, and/or combined heat and power systems;

• Grid-Connected (“GC”) :

projects that deploy cleaner energy sources, such as solar and wind to generate power where the off-taker or counterparty is part of the wholesale electric power grid;

• Sustainable Infrastructure :

• Sustainable Infrastructure (“SI”) :

upgraded transmission and distribution systems, water and storm water infrastructure, and other projects that improve water or energy efficiency, increase resiliency, positively impact the environment or more efficiently use natural resources.

We prefer investments in which the assets use proven technology and have a long-term, creditworthy off-taker or counterparties.

For BTM assets, the off-taker or counterparty may be the building owner or occupant, and we may be secured by the installed improvements or other real estate rights.

For GC assets, the off-taker or counterparty may be a utility or electric user who has entered into a contractual commitment, such as a power purchase agreement (“PPA”), to purchase power produced by a renewable energy project at a minimum price with potential price escalators for a portion of the project’s estimated life.

We completed approximately $359 million and $1.1 billion of transactions during the three and nine months ended September 30, 2021, respectively, compared to approximately $716 million and $1.1 billion during the same period in 2020.

As of September 30, 2021, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $3.2 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of September 30, 2021, our Portfolio consisted of over 260 assets and we seek to manage the diversity of our Portfolio by, among other factors, project type, project operator, type of investment, type of technology, transaction size, geography, obligor and maturity.

For BTM assets, the off-taker or counterparty may be the building owner or occupant, and our investment may be secured by the installed improvements or other real estate rights.

For GC assets, the off-takers or counterparties may be utility or electric users who have entered into contractual commitments, such as power purchase agreements (“PPAs”), to purchase power produced by a renewable energy project at a specified price with potential price escalators for a portion of the project’s estimated life.

We completed approximately $331 million of transactions during the three months ended March 31, 2022 compared to approximately $188 million during the same period in 2021.

As of March 31, 2022, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $3.7 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of March 31, 2022, our Portfolio consisted of over 320 assets and we seek to manage the diversity of our Portfolio by, among other factors, project type, project operator, type of investment, type of technology, transaction size, geography, obligor and maturity.

For those transactions that we choose not to hold on our balance sheet, we transfer all or a portion of the economics of the transaction, typically using securitization trusts, to institutional investors in exchange for cash and/or residual interests in the assets and in some cases, ongoing fees.

As of September 30, 2021, we managed approximately $5.0 billion in assets in these securitization trusts or vehicles that are not consolidated on our balance sheet.

When combined with our Portfolio, as of September 30, 2021, we manage approximately $8.2 billion of assets which we refer to as our “Managed Assets”.

As of March 31, 2022, we managed approximately $5.3 billion in assets in these securitization trusts or vehicles that are not consolidated on our balance sheet.

When combined with our Portfolio, as of March 31, 2022, we manage approximately $9.0 billion of assets which we refer to as our “Managed Assets”.

We make our investments utilizing a variety of structures including:

• equity investments in either preferred or common structures in unconsolidated entities;

• equity investments in either preferred or common structures in unconsolidated entities that own renewable energy or energy efficiency projects;

• government and commercial receivables or securities, such as loans for renewable energy and energy efficiency projects;

4 unchanged sentences

Our debt investments in various renewable energy or other sustainable infrastructure projects or portfolios of projects are generally secured by the installed improvements or other real estate rights.

We also own, directly or through equity investments, or manage over 31,000 acres of land that are leased under long-term agreements to over 60 renewable energy projects, where our investment returns are typically senior to most project costs, debt, and equity.

We often make investments where we hold preferred or mezzanine position in a project that is subordinated to project debt and/or preferred forms of equity.

Investing greater than 10% of our assets in any individual project requires the approval of a majority of our independent directors.

We also own, directly or through equity investments, land which is leased under long-term agreements to renewable energy projects, where our investment returns are typically senior to most project costs, debt, and equity.

We often make investments where we hold a preferred or mezzanine position in a project company where we are subordinated to project debt and/or preferred forms of equity.

Investing greater than 10% of our assets in any individual project company requires the approval of a majority of our independent directors.

We may adjust the mix and duration of our assets over time in order to allow us to manage various aspects of our Portfolio, including expected risk-adjusted returns, macroeconomic conditions, liquidity, availability of adequate financing for our assets, and the maintenance of our REIT qualification and our exemption from registration as an investment company under the 1940 Act.

We believe we have available a broad range of financing sources as part of our strategy that are designed to increase potential returns to our stockholders.

We believe we have available a broad range of financing sources as part of our strategy to fund our investments in climate solutions.

We may finance our investments through the use of non-recourse debt, recourse debt or equity and may also decide to finance such transactions through the use of off-balance sheet securitization structures.

We often provide, and our sources of financing are increasingly interested in, the estimated carbon emission savings or environmental ratings associated with our financings.

We believe that certain debt we have issued meets the environmental eligibility criteria for green bonds as defined by the International Capital Markets Association’s Green Bond Principles, which we believe makes our debt more attractive for many investors compared to such offerings that do not qualify under these principles.

When issuing debt, we generally provide the estimated carbon emission savings using CarbonCount.

In addition, certain of our debt issuances meet the environmental eligibility criteria for green bonds as defined by the International Capital Markets Association’s Green Bond Principles, which we believe makes our debt more attractive for many investors compared to such offerings that do not qualify under these principles.

We have a large and active pipeline of potential new opportunities that are in various stages of our underwriting process.

We refer to potential opportunities as being part of our pipeline if we have determined that the project fits within our investment strategy and exhibits the appropriate risk and reward characteristics through an initial credit analysis, including a quantitative and qualitative assessment of the opportunity, as well as research on the market and sponsor.

We refer to potential opportunities as being part of our pipeline if we have determined that the project fits within our climate solutions investment strategy and exhibits the appropriate risk and reward characteristics through an initial credit analysis, including a quantitative and qualitative assessment of the opportunity, as well as research on the relevant market and sponsor.

Our pipeline of transactions that could potentially close in the next 12 months consists of opportunities in which we will be the lead originator as well as opportunities in which we may participate with other institutional investors.

As of September 30, 2021, our pipeline consisted of more than $3.0 billion in new equity, debt and real estate opportunities.

As of March 31, 2022, our pipeline consisted of more than $4.0 billion in new equity, debt and real estate opportunities.

Of our pipeline, 56% is related to BTM assets and 31% is related to GC assets, with the remainder related to other sustainable infrastructure.

8 unchanged sentences

Factors Impacting our Operating Results

We expect that our results of operations will be affected by a number of factors and will primarily depend on the size of our Portfolio, including the mix of transactions that we hold in our Portfolio, the income we receive from securitizations, syndications and other services, our Portfolio’s credit risk profile, changes in market interest rates, commodity prices, federal, state and/or municipal governmental policies, general market conditions in local, regional and national economies, our ability to qualify as a REIT and maintain our exemption from registration as an investment company under the 1940 Act, the impacts of climate change and the impact of the novel coronavirus (COVID-19).

We expect that our results of operations will be affected by a number of factors and will primarily depend on the size of our Portfolio, including the mix of transactions that we hold in our Portfolio, the income we receive from securitizations, syndications and other services, our Portfolio’s credit risk profile, changes in market interest rates, commodity prices, federal, state and/or municipal governmental policies, general market conditions in local, regional and national economies, our ability to qualify as a REIT and maintain our exemption from registration as an investment company under the 1940 Act and, the impact of climate change, and the impact of the novel coronavirus (COVID-19).

We provide a summary of the factors impacting our operating results in our 2021 Form 10-K under MD&A – Factors Impacting our Operating Results.

2 unchanged sentences

Understanding our accounting policies and the extent to which we make judgments and estimates in applying these policies is integral to understanding our financial statements.

We believe the estimates and assumptions used in preparing our financial statements and related footnotes are reasonable and supportable based on the best information available to us as of September 30, 2021.

Various uncertainties, including those surrounding COVID-19, may materially impact the accuracy of the estimates and assumptions used in the financial statements and related footnotes and, as a result, actual results may vary significantly from estimates.

We have identified the following accounting policies as critical because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition.

These critical accounting policies govern Variable Interest Entity Consolidation, Equity Method Investments, Impairment or the establishment of an allowance under Topic 326 for our Portfolio and Securitization of Financial Assets.

These critical accounting policies govern Consolidation, Equity Method Investments, Impairment or the establishment of an allowance under Topic 326 for our Portfolio and Securitization of Financial Assets.

We evaluate our critical accounting estimates and judgments on an ongoing basis and update them, as necessary, based on changing conditions.

3 unchanged sentences

Our Portfolio

Our Portfolio totaled approximately $3.2 billion as of September 30, 2021 and included approximately $1.7 billion of BTM assets and approximately $1.5 billion of GC assets.

Approximately 43% consisted of fixed-rate government and commercial receivables and debt securities, which are classified as investments, on our balance sheet.

Approximately 45% of our Portfolio consisted of unconsolidated equity investments in renewable energy related projects and approximately 12% of our Portfolio was real estate leased to renewable energy projects under lease agreements.

Our Portfolio consisted of over 260 transactions with an average size of $12 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 17 years as of September 30, 2021.

Our Portfolio included the following as of September 30, 2021:

• equity investments in either preferred or common structures in unconsolidated entities;

Our Portfolio totaled approximately $3.7 billion as of March 31, 2022 and included approximately $2.0 billion of BTM assets and approximately $1.7 billion of GC assets.

Approximately 49% of our Portfolio consisted of unconsolidated equity investments in renewable energy related projects.

Approximately 41% consisted of fixed-rate commercial and government receivables and debt securities, which are classified as investments, on our balance sheet, and 10% of our Portfolio was real estate leased to renewable energy projects under lease agreements.

Our Portfolio consisted of over 320 transactions with an average size of $12 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 18 years as of March 31, 2022.

Our Portfolio included the following as of March 31, 2022:

• equity investments in either preferred or common structures in unconsolidated entities that own renewable energy or energy efficiency projects;

• government and commercial receivables, such as loans for renewable energy and energy efficiency projects;

1 unchanged sentence

• investments in debt securities of renewable energy or energy efficiency projects.

The table below provides details on the interest rate and maturity of our receivables and debt securities as of September 30, 2021:

The table below provides details on the interest rate and maturity of our receivables and debt securities as of March 31, 2022:

Balance Maturity

2 unchanged sentences

Fixed-rate receivables, interest rates from 5.00% to 6.50% per annum 93 2024 to 2056

Fixed-rate receivables, interest rates from 6.50% to 8.00% per annum 649 2022 to 2069

Fixed-rate receivables, interest rates greater than 8.00% per annum 609 2024 to 2047

5 unchanged sentences

Total receivables and investments $ 1,453

The table below presents, for the debt investments and real estate related holdings of our Portfolio and our interest-bearing liabilities inclusive of our credit facilities, the average outstanding balances, income earned, the interest expense incurred, and average yield or cost.

(1) Excludes receivables held for sale of $66 million.

The table below presents, for the debt investments and real estate related holdings of our Portfolio and our interest-bearing liabilities inclusive of our short-term commercial paper issuances and our credit facilities, the average outstanding balances, income earned, the interest expense incurred, and average yield or cost.

Our earnings from our equity method investments are not included in this table.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

(dollars in millions)

12 unchanged sentences

Interest expense (1)

$ 27 $ 26 $ 79 $ 66

Average balance of debt $ 2,512 $ 2,190

1 unchanged sentence

(1) Excludes loss on debt modification or extinguishment included in interest expense in our income statement.

The following table provides a summary of our anticipated principal repayments for our receivables and investments as of September 30, 2021:

The following table provides a summary of our anticipated principal repayments for our receivables and investments as of March 31, 2022:

Payment due by Period

5 unchanged sentences

See Note 6 to our financial statements in this Form 10-Q for information on:

• the anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of September 30, 2021,

• the term of our leases and a schedule of our future minimum rental income under our land lease agreements as of September 30, 2021,

• the anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of March 31, 2022,

• the term of our leases and a schedule of our future minimum rental income under our land lease agreements as of March 31, 2022,

• the Performance Ratings of our Portfolio, and

• the receivables on non-accrual status.

For information on our residual assets relating to our securitization trusts, see Note 5 to our financial statements in this Form 10-Q.

The residual assets do not have a contractual maturity date and the underlying securitized assets have contractual maturity dates until 2056.

For information on our securitization assets relating to our securitization trusts, see Note 5 to our financial statements in this Form 10-Q.

The securitization assets do not have a contractual maturity date and the underlying securitized assets have contractual maturity dates until 2058.

Results of Operations

Comparison of the Three Months Ended September 30, 2021 vs.

Three Months Ended September 30, 2020

Three months ended September 30,

Comparison of the Three Months Ended March 31, 2022 vs.

Three Months Ended March 31, 2021

Three months ended March 31,

2022 2021 $ Change % Change

15 unchanged sentences

Net income (loss) $ 45,703 $ 51,216 $ (5,513) (11) %

• Net income decreased by $24 million due to a decrease in equity method investments income (loss) of $24 million and a $5 million increase in total expenses, offset by a $4 million change in income tax (expense) benefit.

• Net income decreased by $6 million due to a decrease in equity method investments income (loss) of $7 million, a $4 million increase in income tax expense, and a $1 million increase in total expenses, offset by a $7 million increase in revenue.

These results do not reflect the non-GAAP distributable earnings adjustments discussed in the non-GAAP financial measures section below.

• Total revenue was consistent period over period.

A $3 million increase in interest income, driven primarily by a higher average Portfolio balance and rate, was offset by lower gain on sale and fee income, driven by a change in the mix of assets being securitized and lower advisory fee generating opportunities.

• Interest expense increased by $1 million primarily due to a higher average outstanding debt balance.

• Total revenue increased by $7 million due to a $5 million increase in interest income, driven primarily by a higher average Portfolio balance and rate and by a $2 million increase in fee income, driven by additional fee generating opportunities in the current period.

• Interest expense decreased by $1 million primarily due to a debt extinguishment expense in the prior year which did not recur, partially offset by higher interest costs due to a higher average outstanding debt balance with a lower average interest rate.

We recorded a $1 million provision for loss on receivables as a result of loans and loan commitments made during the quarter.

• Compensation and benefits expense increased by $3 million as a result of an increase in our employee headcount and compensation.

General and administrative expenses increased by $1 million due to additional investment in corporate infrastructure.

• Income (loss) from equity method investments using HLBV allocations decreased by $24 million primarily due to the impact of increasing power prices and the resulting unrealized mark to market losses on economic hedges used by some of our projects to reduce the impact of power price fluctuations.

• Income tax (expense) benefit changed by $4 million primarily due to lower net income (loss) in the current period.

Comparison of the Nine Months Ended September 30, 2021 vs.

Nine Months Ended September 30, 2020

Nine months ended September 30, 2021

2021 2020 $ Change % Change

(dollars in thousands)

Interest income $ 76,352 $ 71,046 $ 5,306 7 %

Rental income 19,361 19,408 (47) — %

Gain on sale of receivables and investments 54,988 34,449 20,539 60 %

Fee income 8,769 13,115 (4,346) (33) %

Total Revenue 159,470 138,018 21,452 16 %

Interest expense 95,394 65,884 29,510 45 %

Provision for loss on receivables 2,896 5,629 (2,733) (49) %

Compensation and benefits 39,850 27,223 12,627 46 %

General and administrative 14,814 11,181 3,633 32 %

Total expenses 152,954 109,917 43,037 39 %

Income (loss) before equity method investments 6,516 28,101 (21,585) (77) %

Income (loss) from equity method investments 69,519 32,505 37,014 114 %

Income (loss) before income taxes 76,035 60,606 15,429 25 %

Income tax (expense) benefit ( 11,510 ) ( 2,860 ) (8,650) 302 %

Net income (loss) $ 64,525 $ 57,746 $ 6,779 12 %

• Net income increased by $7 million due to an increase of $21 million in total revenue and an increase in equity method investments income of $37 million, offset by a $43 million increase in total expenses and a $9 million increase in income tax expense.

These results do not reflect the non-GAAP distributable earnings adjustments discussed in the non-GAAP financial measures section below.

• Total revenue increased by $21 million due to a $5 million increase in interest income resulting from a higher average Portfolio balance and rate and a $16 million increase in gain on sale and fee income primarily from a change in mix of assets being securitized, partially offset by lower advisory fee generating opportunities.

• Interest expense increased by $30 million due to a one time loss on the redemption of senior unsecured notes, as well as additional expense from a larger average outstanding debt balance.

We recorded a provision for loss on receivables of $3 million due to loans and loan commitments made during the year.

• Compensation and benefits expense increased by $13 million as a result of an increase in our employee headcount, compensation and one-time employee-related costs.

General and administrative expenses increased by $4 million due to additional investment in corporate infrastructure and charitable donations.

• Income from equity method investments increased by $37 million primarily due to new investments which were not in the portfolio in the prior period offset by the impact of increasing power prices and the resulting unrealized mark to market losses on economic hedges used by some of our projects to reduce the impact of power price fluctuations.

• Income tax (expense) benefit increased by $9 million primarily due to the increased HLBV income described above.

• Compensation and benefits and general and administrative expenses increased by $2 million due to additional investment in corporate infrastructure.

• Income (loss) from equity method investments using HLBV allocations decreased by $7 million primarily due to fewer tax attributes recognized by our co-investors which decreases our HLBV allocation of earnings.

• Income tax expense increased by $4 million primarily due to an increase in our expected annual effective tax rate for 2022.

Non-GAAP Financial Measures

1 unchanged sentence

(1) distributable earnings, (2) distributable net investment income, and (3) managed assets.

These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as measures of our operating

These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as measures of our operating performance.

These non-GAAP financial measures, as calculated by us, may not be comparable to similarly named financial measures as reported by other companies that do not define such terms exactly as we define such terms.

17 unchanged sentences

The cash distributions for those equity method investments where we apply HLBV are segregated into a return on and return of capital on our cash flow statement based on the cumulative income (loss) that has been allocated using the HLBV method.

However, as a result of the application of the HLBV method, including the impact of tax allocations, the high levels of depreciation and other non-cash expenses that are common to renewable energy projects and the differences between the agreed upon profit and loss and the cash flow allocations, the distributions and thus the economic returns (i.e.

upon profit and loss and the cash flow allocations, the distributions and thus the economic returns (i.e.

return on capital) achieved from the investment are often significantly different from the income or loss that is allocated to us under the HLBV method.

Thus, in calculating distributable earnings, for certain of these investments where there are characteristics as described above, we further adjust GAAP net income (loss) to take into account our calculation of the return on capital (based upon the investment rate) from our renewable energy equity method investments, as adjusted to reflect the performance of the project and the cash distributed.

Thus, in calculating distributable earnings, for certain of these investments where there are characteristics as described above, we further adjust GAAP net income (loss) to take into account our calculation of the return on capital (based upon the underwritten investment rate) from our renewable energy equity method investments, as adjusted to reflect the performance of the project and the cash distributed.

We believe this equity method investment adjustment to our GAAP net income (loss) in calculating our distributable earnings measure is an important supplement to the HLBV income allocations determined under GAAP for an investor to understand the economic performance of these investments where HLBV income can differ substantially from the economic returns.

The following table provides results related to our equity method investments for the three and nine months ended September 30, 2021 and 2020.

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

In 2021, we acquired equity investments in portfolios of renewable energy projects which have the majority of the distributions payable to more senior investors in the first few years of the project.

The following table provides results related to our equity method investments for the three months ended March 31, 2022 and 2021.

Three months ended March 31,

(in millions)

4 unchanged sentences

Distributable earnings does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), or an indication of our cash flow from operating activities (determined in accordance with GAAP), or a measure of our liquidity, or an indication of funds available to fund our cash needs, including our ability to make cash distributions.

In addition, our methodology for calculating distributable earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures.

Accordingly, our reported distributable earnings may not be comparable to similar metrics reported by other companies.

The table below provides a reconciliation of our GAAP net income (loss) to distributable earnings for the three and nine months ended September 30, 2021 and 2020.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

In addition, our methodology for calculating distributable earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported distributable earnings may not be comparable to similar metrics reported by other companies.

The table below provides a reconciliation of our GAAP net income (loss) to distributable earnings for the three months ended March 31, 2022 and 2021.

Three Months Ended March 31,

(dollars in thousands, except per share amounts)

4 unchanged sentences

(47,566) (54,481)

Equity method investments earnings 25,898 13,258 76,570 40,361

Equity method investments earnings adjustment 31,598 23,837

Equity-based compensation charges 3,540 5,499

2 unchanged sentences

Amortization of intangibles

823 823 2,468 2,469

Non-cash provision (benefit) for income taxes

(1,250) 2,345 11,510 2,860

Current year earnings attributable to non-controlling interest

(261) 102 366 255

Distributable earnings (2)

$ 45,734 $ 0.52 $ 35,677 $ 0.43

(1) The per share data reflects GAAP diluted earnings per share and is the most comparable GAAP measure to our distributable earnings per share.

(2) Distributable earnings per share are based on 83,912,769 shares and 83,118,733 shares for the three and nine months ended September 30, 2021 and 77,041,509 shares and 73,819,517 shares for the three and nine months ended September 30, 2020, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership.

We include any potential common stock issuance in this calculation related to our convertible notes using the treasury stock method and any potential common stock issuances related to share based compensation units in the amount we believe is reasonably certain to vest.

To the extent a convertible note is converted during the period, we include its dilution using the treasury stock method until the date of conversion, after which we include the shares issued upon conversion.

We believe the use of the treasury stock method is an appropriate representation of the potential dilution when considering the economic behaviors of the holders of the instrument.

(1) The per share data reflects the GAAP diluted earnings per share and is the most comparable GAAP measure to our distributable earnings per share.

(2) Distributable earnings per share are based on 87,206,540 shares for the three months ended March 31, 2022 and 82,561,956 shares for the three months ended March 31, 2021, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership.

We include any potential common stock issuances related to share based compensation units in the amount we believe is reasonably certain to vest.

As it relates to convertible

notes, we will assess the market characteristics around the instrument to determine if it is more akin to debt or equity based on the value of the underlying shares upon conversion.

If the instrument is more debt-like then we will include any related interest expense and exclude the underlying shares issuable upon conversion of the instrument.

If the instrument is more equity-like and is more dilutive when treated as equity then we will exclude any related interest expense and include the weighted average shares underlying the instrument.

Distributable Net Investment Income

We have a portfolio of investments in climate solutions that we finance using a combination of debt and equity.

We calculate distributable net investment income by adjusting GAAP-based net investment income for those distributable earnings adjustments described above that impact investment income.

We calculate distributable net investment income as shown in the table below by adjusting GAAP-based net investment income for those distributable earnings adjustments that are applicable to distributable net investment income.

We believe that this measure is useful to investors as it shows the recurring income generated by our Portfolio after the associated interest cost of debt financing.

1 unchanged sentence

Our non-GAAP distributable net investment income measure may not be comparable to similarly titled measures used by other companies.

For further information, see the discussion above related to Distributable Earnings.

The following is a reconciliation of our GAAP-based net investment income to our distributable net investment income:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands)

15 unchanged sentences

The following is a reconciliation of our GAAP-based Portfolio to our Managed Assets:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

Equity method investments $ 1,871 $ 1,760

Government receivables 126 248

Commercial receivables, net of allowance 1,321 1,299

Government receivables 116 125

Receivables held-for sale 66 22

Real estate 360 356

10 unchanged sentences

Our management uses portfolio yield this way and we believe that our investors use it in a similar fashion to evaluate certain characteristics of our Portfolio compared to our peers, and as such, we believe that the disclosure of portfolio yield is useful to our investors.

Our Portfolio totaled approximately $3.2 billion as of September 30, 2021.

Unlevered portfolio yield was 7.6% as of both September 30, 2021 and December 31, 2020.

See Note 6 to our financial statements and MD&A - Our Business in this Form 10-Q for additional discussion of the characteristics of our portfolio as of September 30, 2021.

Our Portfolio totaled approximately $3.7 billion as of March 31, 2022.

Unlevered portfolio yield was 7.3% as of March 31, 2022 and 7.5% as of December 31, 2021.

Portfolio yield decreased primarily due to adjustments in the expected performance of certain of our assets as a result of grid congestion in the power market where those assets are located.

See Note 6 to our financial statements and MD&A - Our Business in this Form 10-Q for additional discussion of the characteristics of our portfolio as of March 31, 2022.

Environmental Metrics

As part of our investment process, we calculate the ratio of the estimated first year of metric tons of carbon emissions avoided by our investments divided by the capital invested to understand the impact our investments are having on climate change.

In this calculation, which we refer to as CarbonCount®, we apply emissions factor data from the U.S.

As a part of our investment process, we calculate the estimated metric tons of CO 2 equivalent emissions, or carbon emissions avoided by our investments by applying emissions factor data from the U.S.

Government or the International Energy Administration to an estimate of a project’s energy production or savings to compute an estimate of metric tons of carbon emissions avoided.

We estimate that our investments originated during the quarter ended September 30, 2021, will avoid annual carbon emissions by approximately 101,000 metric tons, equating to a CarbonCount® of 0.30.

We then determine the metric tons of carbon emissions avoided per thousand dollars of investments, in a calculation we refer to as CarbonCount, which enables us to measure the impact our investments have on reducing carbon emissions.

We estimate that our investments originated during the quarter ended March 31, 2022, will avoid annual carbon emissions by approximately 63,000 metric tons, equating to a CarbonCount® of 0.19.

We estimate that our investments made since 2013 have cumulatively avoided annual carbon emissions by over 23 million metric tons.

4 unchanged sentences

We finance our investments primarily with non-recourse or recourse debt, equity and off-balance sheet securitization structures.

We have adequate liquidity as of September 30, 2021, with unrestricted cash balances of $413 million, an unsecured revolving credit facility with an unused capacity of $375 million, and $75 million of available capacity in our secured revolving credit facilities.

During 2021, in addition to entering into our $400 million unsecured revolving credit facility, we have issued $152 million in equity, and issued $1 billion in senior unsecured notes, with $500 million being used to redeem our 2024 senior unsecured notes.

$136 million of our 2022 senior convertible notes were converted into equity in the third quarter, representing a non-cash settlement of those notes.

In the third quarter we established our $100 million CarbonCount (c) Green Commercial Paper Notes Program, offering us another potential short-term liquidity source.

As of September 30, 2021, we had $449 million of non-recourse borrowings.

We have $1.8 billion of senior unsecured notes and $158 million of convertible notes outstanding.

We have adequate liquidity as of March 31, 2022, with unrestricted cash balances of $133 million, an unsecured revolving credit facility with an unused capacity of $550 million, $24 million of available capacity in our secured revolving credit facilities, and $25 million available capacity in our green commercial paper program.

During 2022, we have issued $50 million

In March 2022, $8 million of our 2022 Senior Convertible Notes were converted into 282,678 shares of common stock, with the remaining notes redeemed for cash of $0.5 million.

As of March 31, 2022, we had $434 million of non-recourse borrowings, $1.8 billion of senior unsecured notes and $144 million of convertible notes outstanding.

In April 2022, we issued $200 million principal amount of senior convertible notes which mature in 2025, have a 0.00% coupon and accrete to a premium at maturity at an effective rate of 3.25% annually.

For further information, see Note 8 to our financial statements of this Form 10-Q.

We also continue to utilize off-balance sheet securitization transactions, where we transfer the loans or other assets we originate to securitization trusts or other bankruptcy remote special purpose funding vehicles that are not consolidated on our balance sheet.

We have continued to complete gain on sale securitization transactions with large institutional investors such as life insurance companies.

As of September 30, 2021, the outstanding principal balance of our assets financed through the use of these off-balance sheet transactions was approximately $5.0 billion.

In addition to general operational obligations, which are typically paid as incurred, and dividends, which are declared by our board of directors quarterly, we will have future cash needs related to the maturity of the non-amortizing balances of our Senior Unsecured Notes and the balances of our credit facilities.

We have continued to complete off-balance sheet securitization transactions with large institutional investors such as life insurance companies.

As of March 31, 2022, the outstanding balance of our assets financed through the use of these off-balance sheet transactions was approximately $5.3 billion.

We also have maturities related to our non-recourse debt and Senior Convertible Notes.

However, as it relates to the non-recourse debt, to the extent there are not sufficient cash flows received from those investments pledged as collateral, the investor has no recourse against other corporate assets to recover any shortfalls and corporate cash contributions would not be required.

As it relates to the Senior Convertible Notes, it is possible those obligations will be settled with the issuance of shares.

For further information on non-recourse debt and our Senior Convertible Notes, see Note 8 to our financial statements of this Form 10-Q.

As it relates to the Senior Convertible Notes, those obligations may be settled prior to maturity with the issuance of shares or a restructuring of the debt or at maturity with cash.

For further information on our long-term debt, see Note 8 to our financial statements of this Form 10-Q.

The maturity profile of these obligations are as follows (excluding non-recourse debt):

For further information on non-recourse debt and our convertible notes, see Note 8 to our financial statements of this Form 10-Q.

We plan to raise additional equity capital and continue to use fixed and floating rate borrowings, which may be in the form of additional bank credit facilities (including term loans and revolving facilities), warehouse facilities, repurchase agreements, and public and private debt issuances as a means of financing our business.

(1) Includes exchangeable notes issued in April 2022.

We plan to raise additional equity capital and continue to use fixed and floating rate borrowings, which may be in the form of short-term commercial paper issuances, revolving credit facilities, recourse or non-recourse debt, repurchase agreements, and public and private debt issuances as a means of financing our business.

We also expect to use both on-balance sheet and off-balance sheet securitizations.

We may also consider the use of separately funded special purpose entities or funds to allow us to expand the investments that we make or to manage the Portfolio diversification.

We may also consider the use of separately funded special purpose entities or funds to allow us to expand the investments that we make or to manage Portfolio diversification.

The decision on how we finance specific assets or groups of assets is largely driven by risk and portfolio and financial management considerations, including the potential for gain on sale or fee income, as well as the overall interest rate environment, prevailing credit spreads and the terms of available financing and market conditions.

During periods of market disruptions, certain sources of financing may be more readily accessible than others which may impact our financing decisions.

During periods of market

disruptions, certain sources of financing may be more readily accessible than others which may impact our financing decisions.

Over time, as market conditions change, we may use other forms of debt and equity in addition to these financing arrangements.

The amount of financial 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, the interest rate environment and the credit quality of our financing counterparties.

As shown in the table below, our debt to equity ratio was approximately 1.6 to 1 as of September 30, 2021, below our current board-approved leverage limit of 2.5 to 1.

Our percentage of fixed rate debt was approximately 99% as of September 30, 2021, which is within our targeted fixed rate debt percentage range of 75% to 100%.

As shown in the table below, our debt to equity ratio was approximately 1.6 to 1 as of March 31, 2022, below our current board-approved leverage limit of up to 2.5 to 1.

Our percentage of fixed rate debt was approximately 96% as of March 31, 2022, which is within our targeted fixed rate debt percentage range of 75% to 100%.

The calculation of our fixed-rate debt and financial leverage is shown in the chart below:

September 30, 2021 % of Total December 31, 2020 % of Total

March 31, 2022 % of Total December 31, 2021 % of Total

(dollars in millions) (dollars in millions)

15 unchanged sentences

Sources and Uses of Cash

We had approximately $439 million and $310 million of unrestricted cash, cash equivalents, and restricted cash as of September 30, 2021 and December 31, 2020, respectively.

We had approximately $155 million and $251 million of unrestricted cash, cash equivalents, and restricted cash as of March 31, 2022 and December 31, 2021, respectively.

Cash flows relating to operating activities

Net cash provided by operating activities was approximately $22 million for the nine months ended September 30, 2021, driven primarily by net income of $65 million offset by adjustments for non-cash and other items of $43 million.

The non-cash and other adjustments consisted of decreases of $46 million related to equity method investments, $38 million related to gains on securitizations, $10 million related to portfolio accrued interest, and $3 million related to other items.

These decreases were partially offset by a loss on debt extinguishment of $15 million and by increases of $14 million related to equity-based compensation, $11 million of depreciation and amortization, $11 million related to changes in accounts payable and accrued expenses, and $3 million related to provision for loss on receivables.

Net cash provided by operating activities was approximately $52 million for the nine months ended September 30, 2020, driven primarily by net income of $58 million and adjustments for non-cash and other items of $6 million.

The non-cash and other adjustments consisted of increases of $6 million related to provision for loss on receivables, $14 million related to equity method investments, $3 million of depreciation and amortization, $6 million of amortization of financing costs, $6 million in accounts payable and accrued expenses, and $12 million related to equity-based compensation.

These were offset by $28 million related to gains on securitizations and $25 million related to other items.

Net cash used in operating activities was approximately $32 million for the three months ended March 31, 2022, driven primarily by net income of $46 million offset by adjustments for non-cash and other items of $78 million.

The non-cash and other adjustments consisted of $43 million in changes in receivables held-for-sale, decreases of $39 million related to equity method investments, $5 million related to gains on securitizations, $3 million related to portfolio accrued interest, and $8 million related to other items.

These decreases were partially offset by increases of $4 million related to equity-based compensation, $4 million of depreciation and amortization, $11 million related to changes in accounts payable and accrued expenses, and $1 million related to provision for loss on receivables.

Net cash used in operating activities was approximately $18 million for the three months ended March 31, 2021, driven primarily by net income of $51 million offset by adjustments for non-cash and other items of $69 million.

The non-cash and other adjustments consisted of decreases of $43 million related to equity method investments, $24 million related to purchases of receivables held-for-sale which were sold in the second quarter of 2021, $8 million related to gains on securitizations, and $6 million related to other items.

These decreases were partially offset by of increases of $2 million related to accounts payable and accrued expenses, $5 million related to equity-based compensation, $4 million of depreciation and amortization, and $1 million related to provision for loss on receivables,

Cash flows relating to investing activities

Net cash used in investing activities was approximately $388 million for the nine months ended September 30, 2021.

We made $412 million of investments in receivables and fixed rate debt-securities, made $156 million of equity method investments, and funded escrow accounts for $12 million.

We collected $91 million from the sales of financial assets, $88 million of principal payments from receivables and fixed rate debt-securities, $11 million from equity method investments in excess of income recognized to date under GAAP and received $2 million from escrow accounts and other items.

Net cash used in investing activities was approximately $138 million for the nine months ended September 30, 2020.

We made $115 million of investments in receivables and fixed rate debt-securities, funded escrow accounts for $8 million and made

$323 million of equity method investments.

We collected $91 million from equity method investments representing the return of capital determined under GAAP, $97 million from receivables and fixed rate debt-securities, $110 million from the sales of financial assets, and received $10 million from escrow accounts and other items.

Net cash used in investing activities was approximately $95 million for the three months ended March 31, 2022.

We made $35 million of investments in receivables and fixed rate debt-securities, made $79 million of equity method investments, purchased $5 million of real estate, and had $2 million of other investing cash outflows.

We collected $20 million of principal payments from receivables and fixed rate debt-securities and $6 million from equity method investments in excess of income recognized to date under GAAP.

Net cash used in investing activities was approximately $95 million for the three months ended March 31, 2021.

We made $101 million of investments in receivables and fixed rate debt-securities, funded escrow accounts for $12 million and made $53 million of equity method investments.

We collected $26 million of principal payments from receivables and fixed rate debt-securities, $44 million from the sales of financial assets, and received $1 million from escrow accounts and other items.

Cash flows relating to financing activities

Net cash provided by financing activities was approximately $495 million for the nine months ended September 30, 2021.

We received $1 billion from the issuance of senior unsecured notes, $152 million of net proceeds from issuances of common stock, and $25 million of borrowings from credit facilities, which were offset by $500 million related to the redemption of senior unsecured notes, $30 million of principal prepayments on non-recourse debt, $23 million of principal payments on credit facilities, $18 million for debt issuance costs, $14 million for the payment of redemption premium on retirement of the senior unsecured notes, $14 million for withholding requirements resulting from the vesting of employee shares and paid $83 million of dividends, distributions and other items.

Net cash provided by financing activities was approximately $885 million for the nine months ended September 30, 2020.

We borrowed $126 million from our credit facilities, had non-recourse debt borrowings of $16 million, issued $771 million of senior unsecured notes and $144 million of convertible notes, and received $188 million of net proceeds from issuances of common stock.

We made $119 million of principal payments on non-recourse debt, $135 million of principal payments on credit facilities, paid $17 million for withholding requirements as a result of the vesting of employee shares and paid $89 million of dividends, distributions and other items.

Net cash provided by financing activities was approximately $32 million for the three months ended March 31, 2022.

We received $50 million of net proceeds from issuances of common stock and $25 million of net proceeds from the issuance of green commercial paper notes, which were offset by $6 million of principal prepayments on non-recourse debt, $3 million for financing costs, $2 million for withholding requirements resulting from the vesting of employee shares and paid $32 million of dividends, distributions and other items.

Net cash provided by financing activities was approximately $56 million for the three months ended March 31, 2021.

We received $103 million of net proceeds from issuances of common stock, which was offset by $5 million of principal payments on non-recourse debt, $3 million of principal payments on credit facilities, $10 million for withholding requirements as a result of the vesting of employee shares and paid $29 million of dividends, distributions and other items.

Off-Balance Sheet Arrangements

We have relationships with non-consolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, or special purpose or variable interest entities, established to facilitate the sale of securitized assets.

Other than our securitization assets (including any outstanding servicer advances) of approximately $204 million as of September 30, 2021, that may be at risk in the event of defaults or prepayments in our securitization trusts and as discussed below, and except as disclosed in Note 9 to our financial statements in this Form 10-Q, we have not guaranteed any obligations of non-consolidated entities or entered into any commitment or intent to provide additional funding to any such entities.

Other than our securitization assets (including any outstanding servicer advances) of approximately $201 million as of March 31, 2022, that may be at risk in the event of defaults or prepayments in our securitization trusts and as discussed below, and except as disclosed in Note 9 to our financial statements in this Form 10-Q, we have not guaranteed any obligations of non-consolidated entities or entered into any commitment or intent to provide additional funding to any such entities.

A more detailed description of our relations with non-consolidated entities can be found in Note 2 to our financial statements in this Form 10-Q.

4 unchanged sentences

The taxable income of the REIT can vary from our GAAP earnings due to a number of different factors, including the book to tax timing differences of income and expense recognition from our transactions as well as the amount of taxable income of our TRS distributed to the REIT.

See Note 10 to our financial statements in our Form 10-K regarding the amount of our distributions that have been taxed as ordinary income to our stockholders.

See Note 10 to our financial statements in our Form 10-K regarding the amount of our distributions that are treated as ordinary taxable income to our stockholders.

Any distributions we make will be at the discretion of our board of directors and will depend upon, among other things, our actual results of operations.

These results and our ability to pay distributions will be affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures.

These results and our ability to pay distributions will be affected by various factors, including the net interest and other income from our assets, our operating expenses and any other expenditures.

In the event that our board of directors determines to make 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.

10 unchanged sentences

Book Value Considerations

As of September 30, 2021, we carried only our investments and residual assets in securitized financial assets at fair value on our balance sheet.

As of March 31, 2022, we carried only our investments and residual assets in securitized financial assets at fair value on our balance sheet.

As a result, in reviewing our book value, there are a number of important factors and limitations to consider.

Other than our investments and the residual assets in securitized financial assets that are carried on our balance sheet at fair value as of September 30, 2021, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP.

Other than the allowance for current expected credit losses applied to our government and commercial receivables, our remaining assets and liabilities do not incorporate other factors that may have a significant impact on their value, most notably any impact of business activities, changes in estimates, or changes in general economic conditions, interest rates or commodity prices since the dates the assets or liabilities were initially recorded.

Other than our investments and the residual assets in securitized financial assets that are carried on our balance sheet at fair value as of March 31, 2022, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP.

Other than the allowance for current expected credit losses applied to our commercial and governmental receivables, our remaining assets and liabilities do not incorporate other factors that may have a significant impact on their value, most notably any impact of business activities, changes in estimates, or changes in general economic conditions, interest rates or commodity prices since the dates the assets or liabilities were initially recorded.

Accordingly, our book value does not necessarily represent an estimate of our net realizable value, liquidation value or our market value.

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.

What changed 10-Q

Item 2. Management’s Discussion and Analysis