What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-06 · 129 added, 80 removed, 294 unchanged (42% of the section changed)

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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.

We completed approximately $340 million and $671 million of transactions during the three and six months ended June 30, 2022, respectively, compared to approximately $509 million and $697 million during the same periods in 2021, respectively.

As of June 30, 2022, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $3.9 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of June 30, 2022, our Portfolio consisted of over 352 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 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”.

As of June 30, 2022, we managed approximately $5.4 billion in assets in these securitization trusts or vehicles that are not consolidated on our balance sheet.

When combined with our Portfolio, as of June 30, 2022, we manage approximately $9.3 billion of assets which we refer to as our “Managed Assets”.

We make our investments utilizing a variety of structures including:

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

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

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

As of June 30, 2022, our pipeline consisted of more than $4.0 billion in new equity, debt and real estate opportunities.

Of our pipeline, 54% is related to BTM assets and 30% is related to GC assets, with the remainder related to other sustainable infrastructure.

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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 March 31, 2022.

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.

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Our Portfolio

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.

Our Portfolio totaled approximately $3.9 billion as of June 30, 2022 and included approximately $2.3 billion of BTM assets and approximately $1.6 billion of GC assets.

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

Approximately 42% consisted of fixed-rate commercial and government receivables and debt securities, which are classified as investments, on our balance sheet, and 9% 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:

Our Portfolio consisted of over 352 transactions with an average size of $11 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 18 years as of June 30, 2022.

Our Portfolio included the following as of June 30, 2022:

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

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• 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 March 31, 2022:

The table below provides details on the interest rate and maturity of our receivables and debt securities as of June 30, 2022:

Balance Maturity

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(dollars in millions)

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Interest expense (1)

$ 29 $ 26 $ 55 $ 53

Average balance of debt $ 2,713 $ 2,068 $ 2,613 $ 2,129

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(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 March 31, 2022:

The following table provides a summary of our anticipated principal repayments for our receivables and investments as of June 30, 2022:

Payment due by Period

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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 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 anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of June 30, 2022,

• the term of our leases and a schedule of our future minimum rental income under our land lease agreements as of June 30, 2022,

• the Performance Ratings of our Portfolio, and

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Results of Operations

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

Three Months Ended March 31, 2021

Three months ended March 31,

Comparison of the Three Months Ended June 30, 2022 vs.

Three Months Ended June 30, 2021

Three months ended June 30,

2022 2021 $ Change % Change

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Net income (loss) $ (18,538) $ 16,408 $ (34,946) (213) %

• 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 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 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.

• Net income decreased by $35 million due to a decrease in equity method investments income (loss) of $42 million and an $8 million increase in total expenses, offset by a $4 million increase in revenue and an $11 million increase in income tax benefit (expense).

• Total revenue increased by $4 million due to a $8 million increase in interest income, driven primarily by a higher average Portfolio balance offset by a decrease in average interest rate and by a $5 million decrease in gain on sale income, driven by a change in the mix of assets being securitized.

• Interest expense decreased by $12 million primarily due to a one time loss on the redemption of senior unsecured notes in the prior period which did not recur, offset by additional expense from a larger average outstanding debt balance with a lower average interest rate.

We recorded an $8 million provision for loss on receivables as a result of loans and loan commitments made as well as certain loan specific reserves made during the quarter.

• Compensation and benefits increased by $10 million primarily due to the acceleration of share based compensation associated with the adoption of a new retirement policy.

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 $42 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 benefit (expense) increased by $11 million primarily due to the decrease in GAAP net income (loss).

Comparison of the Six Months Ended June 30, 2022 vs.

Six Months Ended June 30, 2021

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Interest income $ 63,601 $ 50,117 $ 13,484 27 %

Rental income 13,108 12,931 177 1 %

Gain on sale of receivables and investments 36,762 41,916 (5,154) (12) %

Fee income 7,809 5,625 2,184 39 %

Total Revenue 121,280 110,589 10,691 10 %

Interest expense 55,479 68,045 (12,566) (18) %

Provision for loss on receivables 8,685 1,411 7,274 516 %

Compensation and benefits 37,176 27,633 9,543 35 %

General and administrative 14,546 9,850 4,696 48 %

Total expenses 115,886 106,939 8,947 8 %

Income (loss) before equity method investments 5,394 3,650 1,744 48 %

Income (loss) from equity method investments 27,981 76,734 (48,753) (64) %

Income (loss) before income taxes 33,375 80,384 (47,009) (58) %

Income tax (expense) benefit (6,209) (12,760) 6,551 (51) %

Net income (loss) $ 27,166 $ 67,624 $ (40,458) (60) %

• Net income decreased by $40 million due to a decrease in equity method investment income of $49 million and an increase in total expenses of $9 million, offset by an increase in total revenue of $11 million and an increase in income tax (expense) benefit of $7 million.

• Total revenue increased by $11 million due to a $13 million increase in interest income resulting from a higher average Portfolio balance and a $2 million increase in fee income due to additional advisory fee opportunities, offset partially by a decrease in gain on sale revenue of $5 million due to a change in the mix of assets being securitized.

• Interest expense decreased by $13 million due to a one time loss on the redemption of senior unsecured notes in the prior period which did not recur, as well as additional expense from a larger average outstanding debt balance with a lower average rate.

We recorded a provision for loss on receivables of $9 million as a result of loans and loan commitments made as well as certain loan specific reserves made during the quarter.

• Compensation and benefits expense increased by $10 million primarily due to the acceleration of share based compensation associated with the adoption of a new retirement policy.

General and administrative expenses increased by $5 million due to additional investment in corporate infrastructure and charitable contributions.

• Income from equity method investments decreased by $49 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 increased by $7 million primarily due to the decrease in GAAP net income (loss).

Non-GAAP Financial Measures

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In the future, distributable earnings may also exclude one-time events pursuant to changes in GAAP and certain other adjustments as approved by a majority of our independent directors.

We believe a non-GAAP measure, such as distributable earnings, that adjusts for the items discussed above is and has been a meaningful indicator of our economic performance and is useful to our investors as well as management in evaluating our performance as it relates to expected dividend payments over time.

We believe a non-GAAP measure, such as distributable earnings, that adjusts for the items discussed above is and has been a meaningful indicator of our economic performance in any one period and is useful to our investors as well as management in evaluating our performance as it relates to expected dividend payments over time.

As a REIT, we are required to distribute substantially all of our taxable income to investors in the form of dividends, which is a principal focus of our investors.

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We have made investments in both the preferred and common equity of these structures.

Regardless of the nature of our equity interest, we typically negotiate the purchase prices of our equity investments, which have a finite expected life, based on our assessment of the expected cash flows we will receive from these projects discounted back to the net present value, based on a target investment rate, with the expected cash flows to be received in the future reflecting both a return on the capital (at the investment rate) and a return of the capital we have committed to the project.

Regardless of the nature of our equity interest, we typically negotiate the purchase prices of our equity investments, which have a finite expected life, based on our underwritten cash flows discounted back to the net present value, based on a target investment rate, with the cash flows to be received in the future reflecting both a return on the capital (at the investment rate) and a return of the capital we have committed to the project.

We use a similar approach in the underwriting of our receivables.

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The HLBV allocations of income or loss may be impacted by the receipt of tax attributes, as tax equity investors are allocated losses in proportion to the tax benefits received, while the sponsors of the project are allocated gains of a similar amount.

The investment tax credit typically used in solar projects is a one-time credit realized in the quarter when the project is considered operational for tax purposes and is fully allocated under HLBV in that quarter (subject to an impairment test), while the production tax credit used in wind is a ten year credit and thus is allocated under HLBV over a ten year period.

In addition, the agreed upon allocations of the project’s cash flows may differ materially from the profit and loss allocation used for the HLBV calculations.

We also consider the impact of any OTTI in determining our income from equity method investments.

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.

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.

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.

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 in any one period.

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.

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 in any one period.

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,

The following table provides results related to our equity method investments for the three and six months ended June 30, 2022 and 2021.

Three months ended June 30, Six months ended June 30,

2022 2021 2022 2021

(in millions)

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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,

The table below provides a reconciliation of our GAAP net income (loss) to distributable earnings for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(dollars in thousands, except per share amounts)

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Provision for loss on receivables (2)

8,064 906 8,685 1,411

Loss (gain) on debt modification or extinguishment — 14,584 — 16,083

Amortization of intangibles

761 823 1,600 1,645

Non-cash provision (benefit) for income taxes

(4,789) 5,981 6,209 12,760

Current year earnings attributable to non-controlling interest

(89) 434 270 626

Distributable earnings (3)

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(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.

(2) In addition to these provisions, in the second quarter of 2022 we wrote-off two commercial receivables with a combined total carrying value of approximately $8 million which represented assignments of land lease payments from two wind projects that we had originated in 2014 as a part of an acquisition of a large land portfolio.

In 2017, the operator of the projects terminated the lease, at which time we filed a legal claim and placed these assets on non-accrual status.

In 2019, we received a court decision indicating that the owners of the projects were within their rights under the contract terms to terminate the lease which impacts the land lease assignments to us, at which time we reserved the receivables for their full carrying amount.

In the second quarter of 2022, we received a court decision indicating that our appeal was not successful, and accordingly wrote off the full amount of

the receivable.

We have excluded the write off from Distributable earnings due to the infrequent occurrence of credit losses as well as the unique nature of the receivables, as the assignment of land lease payments from wind projects represent a small portion of our total portfolio.

(3) Distributable earnings per share are based on 88,994,421 and 88,100,480 shares for the three and six months ended June 30, 2022, respectively, and 82,832,735 and 82,723,380 shares for the three and six months ended June 30, 2021, 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 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.

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.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in thousands)

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

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We calculate portfolio yield as the weighted average underwritten yield of the investments in our Portfolio as of the end of the period.

Underwritten yield is the rate at which we discount the expected cash flows from the assets in our Portfolio to determine our purchase price.

Underwritten yield is the rate at which we discount the underwritten cash flows from the assets in our Portfolio to determine our purchase price.

In calculating underwritten yield, we make certain assumptions, including the timing and amounts of cash flows generated by our investments, which may differ from actual results, and may update this yield to reflect our most current estimates of project performance.

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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 $3.7 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.

Our Portfolio totaled approximately $3.9 billion as of June 30, 2022.

Unlevered portfolio yield was 7.4% as of June 30, 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.

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 June 30, 2022.

Environmental Metrics

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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 originated during the quarter ended June 30, 2022, will avoid annual carbon emissions by approximately 81,000 metric tons, equating to a CarbonCount® of 0.24.

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

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential short term (within one year) and long term cash requirements, including ongoing commitments to repay borrowings, fund and maintain our current and future assets, make distributions to our stockholders and other general business needs.

We will use significant cash to make investments in climate solutions, repay principal and interest on our borrowings, make distributions to our stockholders and fund our operations.

We use borrowings as part of our financing strategy to increase potential returns to our stockholders and have available to us a broad range of financing sources.

Liquidity is a measure of our ability to meet potential short term (within one year) and long term cash requirements.

We carefully manage and forecast our liquidity sources and uses on a frequent basis.

Our sources of liquidity typically include collections from our Portfolio, proceeds from sales and securitizations (including gains-on-sale), fee revenue, proceeds from debt transactions, and proceeds from equity transactions.

Our uses of liquidity typically include operating expenses (including cash compensation), interest and principal payments on our debt, shareholder dividends, and funding investments.

We maintain sufficiently available liquidity in the form of unrestricted cash and immediately available capacity on our credit facilities to manage our net cash flow.

We typically pay our operating expenses, including interest on our debt, and dividends from collections on our Portfolio and proceeds from sales of Portfolio investments.

We use borrowings as part of our financing strategy to increase potential

returns to our stockholders and have available to us a broad range of financing sources.

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

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

We have adequate liquidity as of June 30, 2022, with unrestricted cash balances of $279 million, an unsecured revolving credit facility with an unused capacity of $450 million, and $16 million of available capacity in our secured revolving credit facilities.

As of June 30, 2022, we had used the available $100 million capacity in our green commercial paper program.

During 2022, we have issued $78 million in equity.

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.

In April 2022, we issued $200 million principal amount of Senior Exchangeable 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.

As of June 30, 2022, we had $426 million of non-recourse borrowings, $1.8 billion of senior unsecured notes and $344 million of Convertible Notes outstanding.

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

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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.

As of June 30, 2022, the outstanding balance of our assets financed through the use of these off-balance sheet transactions was approximately $5.4 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 short-term commercial paper issuances and revolving credit facilities.

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

We also have maturities related to our non-recourse debt and 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, those obligations may be settled prior to maturity with the issuance of shares or a restructuring of the debt or at maturity with cash.

As it relates to the Convertible Notes, those obligations may be settled prior to maturity with the issuance of shares 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):

(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 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, convertible securities, 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.

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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, and the interest rate environment.

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%.

As shown in the table below, our debt to equity ratio was approximately 1.8 to 1 as of June 30, 2022, below our current board-approved leverage limit of up to 2.5 to 1.

Our percentage of fixed rate debt was approximately 93% as of June 30, 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:

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

June 30, 2022 % of Total December 31, 2021 % of Total

(dollars in millions) (dollars in millions)

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Sources and Uses of Cash

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.

We had approximately $304 million and $251 million of unrestricted cash, cash equivalents, and restricted cash as of June 30, 2022 and December 31, 2021, respectively.

Cash flows relating to operating activities

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.

Net cash used in operating activities was approximately $27 million for the six months ended June 30, 2022, driven primarily by net income of $27 million offset by adjustments for non-cash and other items of $54 million.

The non-cash and other adjustments consisted of $52 million in changes in receivables held-for-sale, decreases of $12 million related to equity method investments, $15 million related to gains on securitizations, $7 million related to portfolio accrued interest, and $4 million related to other items.

These decreases were partially offset by increases of $16 million related to equity-based compensation, $8 million of depreciation and amortization, $3 million related to changes in accounts payable and accrued expenses, and $9 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,

Net cash used in operating activities was approximately $2 million for the six months ended June 30, 2021, driven primarily by net income of $68 million offset by adjustments for non-cash and other items of $70 million.

The non-cash and other adjustments consisted of decreases of $63 million related to equity method investments, $9 million related to purchases of receivables held-for-sale, $27 million related to gains on securitizations, and $4 million related to other items.

These decreases

were partially offset by a loss on debt extinguishment of $15 million and by increases of $10 million related to equity-based compensation, $7 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 $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.

Net cash used in investing activities was approximately $256 million for the six months ended June 30, 2022.

We made $267 million of investments in receivables and fixed rate debt-securities, made $137 million of equity method investments and purchased $5 million of real estate.

We collected $88 million of principal payments from receivables and fixed rate debt-securities, $38 million from equity method investments in excess of income recognized to date under GAAP, and $12 million from the sale of receivables and investments, and withdrew $15 million from escrow accounts.

Net cash used in investing activities was approximately $199 million for the six months ended June 30, 2021.

We made $202 million of investments in receivables and fixed rate debt-securities, funded escrow accounts for $12 million and made $137 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.

We collected $51 million of principal payments from receivables and fixed rate debt-securities, $91 million from the sales of financial assets, $8 million from equity method investments in excess of income recognized to date under GAAP and received $2 million from escrow accounts and other items.

Cash flows relating to financing activities

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.

Net cash provided by financing activities was approximately $336 million for the six months ended June 30, 2022.

We received $200 million from the issuance of Convertible Notes, $100 million from our credit facilities, $78 million of net proceeds from issuances of common stock and $50 million of net proceeds from the issuance of green commercial paper notes, which were offset by $14 million of principal prepayments on non-recourse debt, $8 million for financing costs, $3 million for withholding requirements resulting from the vesting of employee shares and payments of $67 million of dividends, distributions and other items.

Net cash provided by financing activities was approximately $500 million for the six months ended June 30, 2021.

We received $1 billion from the issuance of senior unsecured notes, $103 million of net proceeds from issuances of common stock, and $25 million of borrowings from credit facilities, which were offset by $514 million related to the redemption of senior unsecured notes, $26 million of principal prepayments on non-recourse debt, $15 million for debt issuance costs, $3 million of principal payments on credit facilities, $14 million for withholding requirements resulting from the vesting of employee shares and payments of $56 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 $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.

Other than our securitization assets (including any outstanding servicer advances) of approximately $183 million as of June 30, 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.

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Book Value Considerations

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 of June 30, 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 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 our investments and the residual assets in securitized financial assets that are carried on our balance sheet at fair value as of June 30, 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.

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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.

What changed 10-Q

Item 2. Management’s Discussion and Analysis