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We are exposed to credit risk in our other projects that do not benefit from governments as the obligor such as on balance sheet financing of projects undertaken by universities, schools and hospitals, as well as privately owned commercial projects.
−Removed: Our level of credit risk has increased, and is expected to continue to increase, as our strategy contemplates additional investments in mezzanine debt and equity.
+Added: We have invested in mezzanine loans and, as a result, we are exposed to additional credit risk.
We seek to manage credit risk through thorough due diligence and underwriting processes, strong structural protections in our transaction agreements with customers and continual, active asset management and portfolio monitoring.
−Removed: Nevertheless, unanticipated credit losses could occur and 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: Nevertheless, unanticipated credit losses could occur and during periods of economic downturn in the global economy, our exposure to credit
+Added: risks from obligors increases, and our efforts to monitor and mitigate the associated risks may not be effective in reducing our credit risks.
We utilize a risk rating system to evaluate projects that we target.
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We also review the performance of each investment, including through, as appropriate, a review of project performance, monthly payment activity and active compliance monitoring, regular communications with project management and, as applicable, its obligors, sponsors and owners, monitoring the financial performance of the collateral, periodic property visits and monitoring cash management and reserve accounts.
−Removed: The results of our
−Removed: reviews are used to update the project’s risk rating as necessary.
+Added: The results of our reviews are used to update the project’s risk rating as necessary.
Additional detail of the credit risks surrounding our Portfolio can be found in Note 6 to our financial statements in this Form 10-Q.
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Increasing interest rates may reduce the demand for our investments while declining interest rates may increase the demand.
−Removed: Both our current and future credit facilities and other borrowings may be of limited duration and are periodically refinanced at then current market rates.
+Added: Both our current and future revolving credit facilities and other borrowings may be of limited duration and are periodically refinanced at then current market rates.
We attempt to reduce interest rate risks and to minimize exposure to interest rate fluctuations through the use of fixed rate financing structures, when appropriate, whereby we seek to (1) match the maturities of our debt obligations with the maturities of our assets, (2) borrow at fixed rates for a period of time or (3) match the interest rates on our assets with like-kind debt (i.e., we may finance floating rate assets with floating rate debt and fixed-rate assets with fixed-rate debt), directly or through the use of interest rate swap agreements, interest rate cap agreements or other financial instruments, or through a combination of these strategies.
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See Note 3 to our financial statements in this Form 10-Q for the estimated fair value of our fixed rate long-term debt, which is based on having the same debt service requirements that could have been borrowed at the date presented, at prevailing current market interest rates.
−Removed: Our credit facilities are variable rate lines of credit with approximately $25 million outstanding as of September 30, 2021.
+Added: Our revolving credit facilities are variable rate lines of credit with approximately $100 million outstanding as of March 31, 2022.
Increases in interest rates would result in higher interest expense while decreases in interest rates would result in lower interest expense.
As described above, we may use various financing techniques including interest rate swap agreements, interest rate cap agreements or other financial instruments, or a combination of these strategies to mitigate the variable interest nature of these facilities.
−Removed: A 50 basis point increase in LIBOR would increase the quarterly interest expense related to the $25 million in variable rate borrowings by $31 thousand.
+Added: A 50 basis point increase in benchmark interest rates would increase the quarterly interest expense related to the $100 million in variable rate borrowings by $126 thousand.
Such hypothetical impact of interest rates on our variable rate borrowings does not consider the effect of any change in overall economic activity that could occur in a rising interest rate environment.
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A portion of these assets may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities.
−Removed: The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions.
+Added: The illiquidity of
+Added: our assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions.
Certain of the projects in which we invest have one obligor and thus we are subject to concentration risk for these investments and could incur significant losses if any of these projects perform poorly or if we are required to write down the value of any of these projects.
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When we make equity or debt investments for a renewable energy project that acts as a substitute for an underlying commodity, we may be exposed to volatility in prices for that commodity.
−Removed: The performance of renewable energy projects that
−Removed: produce electricity can be impacted by volatility in the market prices of various forms of energy, including electricity, coal and natural gas.
−Removed: This is especially true for utility scale projects that sell power on a wholesale basis such as many of our GC projects as opposed to BTM projects which compete against the retail or delivered costs of electricity which includes the cost of transmitting and distributing the electricity to the end user.
−Removed: Although we generally focus on renewable energy projects that have the majority of their operating cash flow supported by long-term PPAs or leases, many of our projects have shorter term contracts (which may have the potential of producing higher current returns) or sell their power in the open market on a merchant basis, the cash flows of such projects, and thus the repayment of, or the returns available for, our assets, are subject to risk if energy prices change.
+Added: The performance of renewable energy projects that produce electricity can be impacted by volatility in the market prices of various forms of energy, including electricity, coal and natural gas.
+Added: This is especially true for GC utility scale projects that sell power on a wholesale basis as opposed to BTM projects which compete against the retail or delivered costs of electricity which includes the cost of transmitting and distributing the electricity to the end user.
+Added: Although we generally focus on renewable energy projects that have the majority of their operating cash flow supported by long-term PPAs or leases, many of our projects have shorter term contracts (which may have the potential of producing higher current returns) or sell their power in the open market on a merchant basis.
+Added: The cash flows of such projects, and thus the repayment of, or the returns available for, our assets, are subject to risk if energy prices change.
We also attempt to mitigate our exposure through structural protections.
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When structuring and underwriting these transactions, we evaluate these transactions using a variety of scenarios, including natural gas prices remaining low for an extended period of time.
−Removed: Despite these protections, as low natural gas prices continue or PPAs expire, the cash flows from certain of our projects are exposed to these market conditions and we work with the projects sponsors to minimize any impact as part of our on-going active asset management and portfolio monitoring.
−Removed: In the case of utility scale solar projects, we focus on owning the land under the project where our rent is paid out of project operational costs before the debt or equity in the project receives any payments.
+Added: Despite these protections, as natural gas price volatility continues or PPAs expire, the cash flows from certain of our projects are exposed to these market conditions and we work with the projects sponsors to minimize any impact as part of our on-going active asset management and portfolio monitoring.
+Added: We often invest in utility scale solar project by owning the land under the project where our rent is paid out of project operational costs before the debt or equity in the project receives any payments.
Certain of the projects in which we invest may also be obligated to physically deliver energy under PPAs or related agreements, and to the extent they are unable to do so may be negatively impacted.
−Removed: We believe the current low prices in natural gas will increase demand for some types of our projects, such as combined heat and power, but may reduce the demand for other projects such as renewable energy that may be a substitute for natural gas.
+Added: We believe that low prices in natural gas will increase demand for some types of our projects, such as combined heat and power, and high prices in natural gas may increase the demand for other projects such as renewable energy that may be a substitute for natural gas.
We seek to structure our energy efficiency investments so that we typically avoid exposure to commodity price risk.
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Environmental Risks
−Removed: Our business is impacted by the effects of climate change, including extreme weather events, and various related regulatory responses.
+Added: Our business is impacted by the effects of climate change and various related regulatory responses.
We discuss the risks and opportunities associated with the impacts of climate change in our Form 10-K Item 7.
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We seek to manage credit risk using thorough due diligence and underwriting processes, strong structural protections in our loan agreements with customers and continual, active asset management and portfolio monitoring.
−Removed: Additionally, we have a Finance and Risk Committee of our board of directors which discusses and reviews policies and guidelines with respect to our risk assessment and risk management for various risks, including, but not limited to, our interest rate, counter party, credit, capital availability, and refinancing risks.
+Added: Additionally, we have a Finance and Risk Committee of our board of directors which discusses and reviews policies and guidelines with respect to our risk assessment and risk management for various risks, including, but not limited to, our interest
+Added: rate, counter party, credit, capital availability, and refinancing risks.
As it relates to environmental risks, when we underwrite and structure our investments the environmental risks and opportunities are an integral consideration to our investment parameters.
While we cannot fully protect our investments, we seek to mitigate these risks by using third-party experts to conduct engineering and weather analysis and insurance reviews as appropriate.
+Added: Weather related risks are at times managed in cooperation with our clients where they buy offsetting power positions to mitigate power market disruptions or operational impacts.
Once a transaction has closed we continue to monitor the environmental risks to the portfolio.
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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.