What changed in this filing

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Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 134 added, 114 removed, 940 unchanged (21% of the section changed)

3 unchanged sentences

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

June 30, 2022 (unaudited) December 31, 2021

September 30, 2022 (unaudited) December 31, 2021

Cash and cash equivalents $ 272,808 $ 226,204

31 unchanged sentences

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2022 2021 2022 2021

25 unchanged sentences

(DOLLARS IN THOUSANDS)

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

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

2022 2021 2022 2021

Net income (loss) $ 34,941 $ ( 3,099 ) $ 62,107 $ 64,525

Unrealized gain (loss) on available-for-sale securities, net of tax benefit (provision) of $ 0.6 million and $ 1.5 million for the three and six months ended June 30, 2022 and $( 0.6 ) million and $ 0.2 million for the three and six months ended June 30, 2021

Unrealized gain (loss) on available-for-sale securities, net of tax benefit (provision) of $ 0.8 million and $ 2.3 million for the three and nine months ended September 30, 2022 and $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2021

( 12,697 ) ( 900 ) ( 56,855 ) ( 8,268 )

Unrealized gain (loss) on interest rate swaps, net of tax benefit (provision) of $( 3.5 ) million and $( 3.6 ) million for the three and six months ended June 30, 2022 and $( 1.5 ) million and $( 1.9 ) million for the three and six months ended June 30, 2021

Unrealized gain (loss) on interest rate swaps, net of tax benefit (provision) of $( 6.1 ) million and $( 9.7 ) million for the three and nine months ended September 30, 2022 and $ 0.9 million and $( 1.0 ) million for the three and nine months ended September 30, 2021

20,109 ( 2,703 ) 31,910 3,351

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Shares Amount

Balance at March 31, 2022 86,720 $ 867 $ 1,783,938 $ ( 181,282 ) $ ( 12,341 ) $ 22,812 $ 1,613,994

Balance at June 30, 2022 87,490 $ 875 $ 1,811,889 $ ( 232,590 ) $ ( 22,132 ) $ 33,473 $ 1,591,515

Net income (loss) — — — 34,534 — 407 34,941

5 unchanged sentences

Dividends and distributions — — — ( 33,361 ) — ( 525 ) ( 33,886 )

Balance at September 30, 2022 88,839 $ 888 $ 1,861,466 $ ( 231,417 ) $ ( 14,769 ) $ 34,858 $ 1,651,026

Balance at June 30, 2021 78,419 $ 784 $ 1,487,103 $ ( 193,530 ) $ 11,335 $ 16,855 $ 1,322,547

Balance at March 31, 2021 78,319 $ 783 $ 1,489,168 $ ( 181,992 ) $ ( 5,360 ) $ 8,721 $ 1,311,320

Net income (loss) — — — ( 2,838 ) — ( 261 ) ( 3,099 )

3 unchanged sentences

Equity-based compensation — — 985 — — 2,730 3,715

Issuance (repurchase) of vested equity-based compensation shares 100 1 ( 3,630 ) — — — ( 3,629 )

Conversion of Convertible Notes 4,999 50 134,856 — — — 134,906

Dividends and distributions — — — ( 29,565 ) — ( 328 ) ( 29,893 )

Balance at June 30, 2021 78,419 $ 784 $ 1,487,103 $ ( 193,530 ) $ 11,336 $ 16,856 $ 1,322,549

Balance at September 30, 2021 84,275 $ 843 $ 1,671,747 $ ( 225,933 ) $ 7,746 $ 18,982 $ 1,473,385

See accompanying notes.

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Dividends and distributions — — — ( 99,142 ) — ( 2,792 ) ( 101,934 )

Balance at June 30, 2022 87,490 $ 875 $ 1,811,889 $ ( 232,590 ) $ ( 22,132 ) $ 33,473 $ 1,591,515

Balance at September 30, 2022 88,839 $ 888 $ 1,861,466 $ ( 231,417 ) $ ( 14,769 ) $ 34,858 $ 1,651,026

Balance at December 31, 2020 76,457 $ 765 $ 1,394,009 $ ( 204,112 ) $ 12,634 $ 6,853 $ 1,210,149

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Dividends and distributions — — — ( 85,980 ) — ( 947 ) ( 86,927 )

Balance at June 30, 2021 78,419 $ 784 $ 1,487,103 $ ( 193,530 ) $ 11,336 $ 16,856 $ 1,322,549

Balance at September 30, 2021 84,275 $ 843 $ 1,671,747 $ ( 225,933 ) $ 7,746 $ 18,982 $ 1,473,385

See accompanying notes.

2 unchanged sentences

(DOLLARS IN THOUSANDS)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

September 30, 2022

Hannon Armstrong Sustainable Infrastructure Capital, Inc.

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In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations and cash flows have been included.

Our results of operations for the three- and six- month periods ended June 30, 2022 and 2021, are not necessarily indicative of the results to be expected for the full year or any other future period.

Our results of operations for the three- and nine- month periods ended September 30, 2022 and 2021, are not necessarily indicative of the results to be expected for the full year or any other future period.

Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted.

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Equity Method Investments

We have made equity investments in various renewable energy and energy efficiency projects.

We have made equity investments in various climate solutions projects, typically in structures where we have a preferred return position.

These investments are typically owned in holding companies (using limited liability companies (“LLCs”) taxed as partnerships) where we partner with either the operator of the project or other institutional investors.

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Once the preferred return, if applicable, is achieved, the partnership “flips” and common equity investors, often the operator of the project, receive a larger portion of the cash flows, with the previously preferred investors retaining an on-going residual interest.

Our equity investments in renewable energy or energy efficiency projects are accounted for under the equity method of accounting.

Our equity investments in climate solutions projects are accounted for under the equity method of accounting.

Under the equity method of accounting, the carrying value of these equity method investments is determined based on amounts we invested, adjusted for the equity in earnings or losses of the investee allocated based on the LLC agreement, less distributions received.

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Our exposure to loss in these investments is limited to the amount of our equity investment, as well as receivables from or guarantees made to the same investee.

Any difference between the amount of our investment and the amount of underlying equity in net assets is generally amortized over the life of the assets and liabilities to which the difference relates.

Any difference between the amount of our investment and the amount of underlying equity in net assets at the time of our investment is generally amortized over the life of the assets and liabilities to which the difference relates.

Cash distributions received from each equity method investment are classified as operating activities to the extent of cumulative earnings for each investment in our consolidated statements of cash flows.

1 unchanged sentence

We typically recognize earnings one quarter in arrears for certain of these investments to allow for the receipt of financial information.

We evaluate on a quarterly basis whether our investments accounted for using the equity method have an other than temporary impairment (“OTTI”).

An OTTI occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be recoverable.

We evaluate on a quarterly basis whether the current carrying value of our investments accounted for using the equity method have an other than temporary impairment (“OTTI”).

An OTTI occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be recoverable in the near term.

First, we consider both qualitative and quantitative indicators whether there may be loss in investment value below carrying value.

After considering the weight of available evidence, if it is determined that there is a indication of loss in investment value, we will perform a fair value analysis.

If the resulting fair value is less than the carrying value, we will determine if this loss in value is OTTI.

After considering the weight of available evidence, if it is determined that there is an indication of loss in investment value, we will perform a fair value analysis.

If the resulting fair value is less than the carrying value, we will determine if this loss in value is OTTI, with any OTTI recognized through the income statement as an impairment.

This evaluation requires significant judgment regarding, but not limited to, the severity and duration of the impairment;

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We generally accrue this paid-in-kind (“PIK”) interest when collection is expected, and cease accruing PIK interest if there is insufficient value to support the accrual or we expect that any portion of the principal or interest due is not collectible.

The change in PIK in any period is included in the Change in accrued interest line in the operating section of our statement of cash flows.

The change in PIK in any period is included in the Change in accrued interest on receivables and investments line in the operating section of our statement of cash flows.

We evaluate our receivables for an allowance as determined under ASC Topic 326 Financial Instruments- Credit Losses (“Topic 326”) and for our internally derived asset performance categories included in Note 6 to our financial statements in this Form 10-Q on at least a quarterly basis and more frequently when economic or other conditions warrant such an evaluation.

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Recently Issued Accounting Pronouncements

Accounting standards updates issued before August 9, 2022, and effective after June 30, 2022, are not expected to have a material effect on our consolidated financial statements and related disclosures.

Accounting standards updates issued before November 8, 2022, and effective after September 30, 2022, are not expected to have a material effect on our consolidated financial statements and related disclosures.

Fair Value Measurements

4 unchanged sentences

We use our judgment and consider factors specific to the financial assets and liabilities in determining the significance of an input to the fair value measurements.

As of June 30, 2022 and December 31, 2021, only our residual assets related to our securitization trusts and investments were carried at fair value on the consolidated balance sheets on a recurring basis.

As of September 30, 2022 and December 31, 2021, only our residual assets related to our securitization trusts and investments were carried at fair value on the consolidated balance sheets on a recurring basis.

The three levels of the fair value hierarchy are described below:

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The receivables held-for-sale, if any, are carried at the lower of cost or fair value.

As of June 30, 2022

As of September 30, 2022

Fair Value Carrying

16 unchanged sentences

Total Convertible Notes 309 347

(1) The amortized cost of our investments as of June 30, 2022, was $ 12 million.

(1) The amortized cost of our investments as of September 30, 2022, was $ 12 million.

(2) Included in securitization assets on the consolidated balance sheet.

The amortized cost of our securitization residual assets as of June 30, 2022 was $ 206 million.

The amortized cost of our securitization residual assets as of September 30, 2022 was $ 218 million.

(3) Fair value and carrying value exclude unamortized financing costs.

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The following table reconciles the beginning and ending balances for our Level 3 investments that are carried at fair value on a recurring basis:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2022 2021 2022 2021

3 unchanged sentences

Sale of investments — — ( 7 ) ( 38 )

Realized gains on investments recorded in gain on sale of receivables and investments — 1 — —

Unrealized gains (losses) on investments recorded in OCI ( 1 ) — ( 2 ) ( 4 )

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(in millions)

June 30, 2022 $ 5 $ 7 $ 0.3 $ 0.4

September 30, 2022 $ 5 $ 6 $ 0.6 $ 0.9

December 31, 2021 7 — 0.1 —

1 unchanged sentence

We have the intent and ability to hold these investments until a recovery of fair value.

In determining the fair value of our investments we used a risk-free rate and add a range of interest rate spreads based upon transactions involving similar assets of approximately 1 % to 3 % as of June 30, 2022, and 1 % to 4 % as of December 31, 2021.

The weighted average discount rates used to determine the fair value of our investments as of June 30, 2022 and December 31, 2021 were 5.3 % and 3.6 %, respectively.

In determining the fair value of our investments we used a risk-free rate and add a range of interest rate spreads based upon transactions involving similar assets of approximately 1 % to 3 % as of September 30, 2022, and 1 % to 4 % as of December 31, 2021.

The weighted average discount rates used to determine the fair value of our investments as of September 30, 2022 and December 31, 2021 were 6.1 % and 3.6 %, respectively.

Securitization residual assets

The following table reconciles the beginning and ending balances for our Level 3 securitization residual assets that are carried at fair value on a recurring basis, with changes in fair value recorded through AOCI:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2022 2021 2022 2021

6 unchanged sentences

Balance, end of period $ 178 $ 198 $ 178 $ 198

In determining the fair value of our securitization residual assets, we used a risk-free rate and add a range of interest rate spreads of approximately 1 % to 6 % based upon transactions involving similar assets as of June 30, 2022 and December 31, 2021.

The weighted average discount rates used to determine the fair value of our securitization residual assets as of June 30, 2022 and December 31, 2021 were 6.0 % and 4.3 %, respectively.

The difference between fair value and amortized cost is due to interest rate movements, and no securitization residual assets have been in a material loss position for more than 12 months or has a loss which is individually material.

We have the intent and ability to hold these assets until a recovery of fair value.

The weighted average discount rates used to determine the fair value of our securitization residual assets as of September 30, 2022 and December 31, 2021 were 6.8 % and 4.3 %, respectively.

The difference between fair value and amortized cost is due to interest rate movements, and no securitization residual assets have been in a material loss position for more than 12 months.

Losses are due to interest rate movements, and we have the intent and ability to hold these assets until a recovery of fair value.

Non-recurring Fair Value Measurements

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Commercial and governmental receivables, real estate leases and debt investments consist primarily of receivables from various projects, U.S.

federal government-backed receivables, and investment grade state and local government receivables and do not, in our view, represent a significant concentration of credit risk.

federal government-backed receivables, and investment grade state and local government receivables and do not, in our view, represent a significant concentration of credit risk given the large number of diverse offtakers and other obligors of the projects.

Certain of our investments are collateralized by projects concentrated in certain geographic regions throughout the United States.

1 unchanged sentence

We had cash deposits that are subject to credit risk as shown below:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

6 unchanged sentences

The non-controlling interest holders are generally allocated their pro rata share of income, other comprehensive income and equity transactions.

The outstanding OP units held by outside limited partners represent less than 1 % of our outstanding OP units and are redeemable by the limited partners for cash, or at our option, for a like number of shares of our common stock.

No OP units were redeemed by non-controlling interest holders during the six months ended June 30, 2022 and June 30, 2021.

The outstanding OP units not held by us represent approximately 1 % of our outstanding OP units and are redeemable by the limited partners for cash, or at our option, for a like number of shares of our common stock.

No OP units were redeemed by non-controlling interest holders during the nine months ended September 30, 2022 or September 30, 2021.

We have also granted to members of our leadership team and directors LTIP Units pursuant to our equity incentive plans.

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The following summarizes certain transactions with securitization trusts:

As of and for the six months ended June 30,

As of and for the nine months ended September 30,

(in millions)

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In computing gains and losses on securitizations, we use discount rates based on a review of comparable market transactions including Level 3 unobservable inputs, which consist of base interest rates and spreads over these base rates.

Depending on the nature of the transaction risks, the all-in discount rate ranged from 4 % to 5 % for the six months ended June 30, 2022.

As of June 30, 2022 and December 31, 2021, our managed assets totaled $ 9.3 billion and $ 8.8 billion, respectively, of which $ 5.4 billion and $ 5.2 billion, respectively, were securitized assets held in unconsolidated securitization trusts.

There were no securitization credit losses in the six months ended June 30, 2022 or June 30, 2021.

As of June 30, 2022, there were no material payments from debtors to the securitization trusts that were greater than 90 days past due.

Depending on the nature of the transaction risks, the all-in discount rate ranged from 4 % to 6 % for the nine months ended September 30, 2022.

As of September 30, 2022 and December 31, 2021, our managed assets totaled $ 9.4 billion and $ 8.8 billion, respectively, of which $ 5.5 billion and $ 5.2 billion, respectively, were securitized assets held in unconsolidated securitization trusts.

There were no securitization credit losses in the nine months ended September 30, 2022 or September 30, 2021.

As of September 30, 2022, there were no material payments from debtors to the securitization trusts that were greater than 90 days past due.

Receivables from contracts for the installation of energy efficiency and other technologies are the source of cash flows of $ 95 million of our securitization residual assets.

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Our Portfolio

As of June 30, 2022, our Portfolio included approximately $ 3.9 billion of equity method investments, receivables, real estate and investments on our balance sheet.

As of September 30, 2022, our Portfolio included approximately $ 3.9 billion of equity method investments, receivables, real estate and investments on our balance sheet.

The equity method investments represent our non-controlling equity investments in renewable energy and energy efficiency projects and land.

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In addition, we consider the overall economic environment, the climate solutions sector, the effect of local, industry and broader economic factors, the impact of any variation in weather and the historical and anticipated trends in interest rates, defaults and loss severities for similar transactions.

The following is an analysis of the Performance Ratings of our Portfolio as of June 30, 2022, which is assessed quarterly:

The following is an analysis of the Performance Ratings of our Portfolio as of September 30, 2022, which is assessed quarterly:

Portfolio Performance

Government Commercial Commercial Commercial

Receivable vintage (dollars in millions)

Receivable vintage (4)

(dollars in millions)

2022 $ — $ 270 $ — $ — $ 270

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

(4) Receivable vintage refers to the period in which in which the relevant loan agreement is signed, and a given vintage may contain loan advances made in subsequent periods to the loan agreement.

(5) Total reconciles to the total of the government receivables and commercial receivables lines of the consolidated balance sheets.

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(7) Average remaining balance is calculated gross of allowance for loss on receivables and excludes approximately 227 transactions each with outstanding balances that are less than $ 1 million and that in the aggregate total $ 67 million.

As of June 30, 2022, our allowance for loan losses was $ 37 million based on our expectation of credit losses over the lives of the receivables in our portfolio.

During the three and six months ended June 30, 2022, we increased our reserve by approximately $ 8 million, due to loans and loan commitments made during the period as well as an incremental reserve recorded on the loans moved into Portfolio Performance Category 3 discussed above.

Below is a summary of the carrying value, loan funding commitments, and allowance by type of receivable or “Portfolio Segment”, as defined by Topic 326, as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

As of September 30, 2022, our allowance for loan losses was $ 34 million based on our expectation of credit losses over the lives of the receivables in our portfolio.

During the three months ended September 30, 2022, we decreased our reserve by approximately $ 3 million due to improved outlook on loans in our portfolio, offset partially by reserves on new loans and loan commitments made during the period.

During the nine months ended September 30, 2022, we recorded a provision of $ 6 million driven primarily by reserves on new loans and loan commitments made during the period, as well as an incremental reserve recorded on existing loans.

Below is a summary of the carrying value, loan funding commitments, and allowance by type of receivable or “Portfolio Segment”, as defined by Topic 326, as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

Gross Carrying Value Loan Funding Commitments Allowance Gross Carrying Value Loan Funding Commitments Allowance

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Total $ 1,648 $ 166 $ 34 $ 1,460 $ 184 $ 36

(1) As of June 30, 2022, this category of assets includes $ 1.0 billion of mezzanine loans made on a non-recourse basis to special purpose subsidiaries of residential solar companies which are secured by residential solar assets where we rely on certain limited indemnities, warranties, and other obligations of the residential solar companies or their other subsidiaries.

(1) As of September 30, 2022, this category of assets includes $ 1.0 billion of mezzanine loans made on a non-recourse basis to special purpose subsidiaries of residential solar companies which are secured by residential solar assets where we rely on certain limited indemnities, warranties, and other obligations of the residential solar companies or their other subsidiaries.

This total also includes $ 47 million of lease agreements where we hold legal title to the underlying real estate which are treated under GAAP as receivables since they were deemed to be failed sale/leaseback transactions as described in Note 2 to our financial statements in this Form 10-Q.

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For those assets in Performance Rating 1, the credit worthiness of the obligor combined with the various structural protections of our assets cause us to believe we have a low risk we will not receive our invested capital, however we recorded a $ 29 million allowance on these $ 1.5 billion in assets as a result of lower probability assumptions utilized in our allowance methodology.

(2) As of June 30, 2022, our government receivables include $ 16 million of U.S.

(2) As of September 30, 2022, our government receivables include $ 13 million of U.S.

federal government transactions and $ 90 million of transactions where the ultimate obligors are state or local governments.

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The following table reconciles our beginning and ending allowance for loss on receivables by Portfolio Segment:

Three months ended June 30, 2022 Three months ended June 30, 2021

Three months ended September 30, 2022 Three months ended September 30, 2021

Government Commercial Government Commercial

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Ending balance $ — $ 34 $ — $ 39

Six months ended June 30, 2022 Six months ended June 30, 2021

Nine months ended September 30, 2022 Nine months ended September 30, 2021

Government Commercial Government Commercial

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Other than the $ 11 million of receivables discussed above with a Performance Rating of 3, we have no receivables which are on non-accrual status.

The following table provides a summary of our anticipated maturity dates of our receivables and the weighted average yield for each range of maturities as of June 30, 2022:

The following table provides a summary of our anticipated maturity dates of our receivables and the weighted average yield for each range of maturities as of September 30, 2022:

Total Less than 1

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Weighted average yield by period 8.1 % 3.3 % 5.2 % 8.2 % 8.1 %

The following table provides a summary of our anticipated maturity dates of our investments and the weighted average yield for each range of maturities as of June 30, 2022:

The following table provides a summary of our anticipated maturity dates of our investments and the weighted average yield for each range of maturities as of September 30, 2022:

Total Less than 1

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Weighted average yield by period 4.7 % — % — % — % 4.7 %

We had no investments that were impaired or on non-accrual status as of June 30, 2022 or December 31, 2021, and no allowances associated with our investments.

We had no investments that were impaired or on non-accrual status as of September 30, 2022 or December 31, 2021, and no allowances associated with our investments.

Our real estate is leased to renewable energy projects, typically under long-term triple net leases with expiration dates that range between the years 2033 and 2058 under the initial terms and 2047 and 2080 if all renewals are exercised.

The components of our real estate portfolio as of June 30, 2022 and December 31, 2021, were as follows:

June 30, 2022 December 31, 2021

The components of our real estate portfolio as of September 30, 2022 and December 31, 2021, were as follows:

September 30, 2022 December 31, 2021

(in millions)

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Real estate $ 358 $ 356

As of June 30, 2022, the future amortization expense of the intangible assets and the future minimum rental income payments under our land lease agreements are as follows:

As of September 30, 2022, the future amortization expense of the intangible assets and the future minimum rental income payments under our land lease agreements are as follows:

Future Amortization Expense Minimum Rental Income Payments

(in millions)

From July 1, 2022 to December 31, 2022 $ 2 $ 12

From October 1, 2022 to December 31, 2022 $ 1 $ 5

Thereafter 67 713

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Equity Method Investments

We have made non-controlling equity investments in a number of renewable energy and energy efficiency projects as well as in a joint venture that owns land with long-term triple net lease agreements to several solar projects that we account for as equity method investments.

As of June 30, 2022, we held the following equity method investments:

We have made non-controlling equity investments in a number of climate solutions projects as well as in a joint venture that owns land with long-term triple net lease agreements to several solar projects that we account for as equity method investments.

As of September 30, 2022, we held the following equity method investments:

Investment Date Investee Carrying Value

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We have a preferred equity interest in Jupiter Equity Holdings LLC (“Jupiter”) that owns nine operating onshore wind projects and four operating utility-scale solar projects with an aggregate capacity of approximately 2.3 gigawatts.

As of June 30, 2022, we have made capital contributions to Jupiter of approximately $ 536 million related to these projects reflecting final funding true-ups after all projects reached substantial completion.

As of September 30, 2022, we have made capital contributions to Jupiter of approximately $ 536 million related to these projects reflecting final funding true-ups after all projects reached substantial completion.

The projects feature cash flows from fixed-price power purchase agreements and financial hedges with a weighted average contract life of 13 years, contracted with highly creditworthy off-takers and counterparties.

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We have entered into certain agreements relating to the acquisition, ownership and management of approximately $ 870 million in preferred cash equity investments in four partnerships (the “Lighthouse Partnerships”) that expect to own cash equity interests in an approximately 1.6 gigawatt portfolio of onshore wind, utility-scale solar and solar-plus-storage projects (the “Renewables Portfolio”) developed and managed by the project sponsor.

We have made initial investments in the preferred cash equity interests of the Lighthouse Partnerships of approximately $ 423 million through June 30, 2022, and additional investments are expected to be made as the projects become commercially operational.

We have made initial investments in the preferred cash equity interests of the Lighthouse Partnerships of approximately $ 423 million through September 30, 2022, and additional investments are expected to be made as the projects become commercially operational.

The Renewables Portfolio currently has contracted cash flows with a combined weighted average contract life of greater than 14 years with a diversified group of predominately investment grade corporate, utility, university and municipal offtakers.

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Because the loans made to these entities are typically subordinate to senior debt and tax equity investors in the projects, these loans, which have maturities of over ten years , may accrue PIK interest in the early years of the project until sufficient cash flow is available for our interest payments.

Any change in PIK interest is included in Change in Accrued Interest in the operating section of our statement of cash flows.

Any change in PIK interest is included in Change in accrued interest on receivables and investments in the operating section of our statement of cash flows.

On a quarterly basis, we assess these loans for any impairment inclusive of any PIK interest accrued under CECL as discussed above under Receivables.

We recorded approximately $ 15 million and $ 30 million in interest income inclusive of any PIK interest related to these loans in the three and six months ended June 30, 2022, respectively, compared to $ 13 million and $ 24 million in the three and six months ended June 30, 2021, respectively.

In the six months ended June 30, 2022 and 2021, we made $ 50 million and $ 179 million, respectively, of investments in these loans to related parties, and we collected $ 69 million and $ 14 million, respectively, of principal payments related to these loans.

For the six months ended June 30, 2022 and 2021, we collected $ 35 million and $ 27 million of cash related to interest income, including cash collections of amounts accrued in prior periods, respectively, which are reflected in cash flows from operating activities.

In the six months ended June 30, 2022, as part of a purchase and sale agreement with an equity investee, we exchanged three performing loans for equity interests in the same project companies.

We recorded approximately $ 14 million and $ 45 million in interest income inclusive of any PIK interest related to these loans in the three and nine months ended September 30, 2022, respectively, compared to $ 15 million and $ 39 million in the three and nine months ended September 30, 2021, respectively.

In the nine months ended September 30, 2022 and 2021, we made $ 113 million and $ 237 million, respectively, of investments in these loans to related parties, and we collected $ 76 million and $ 38 million, respectively, of principal payments related to these loans.

For the nine months ended September 30, 2022 and 2021, we collected $ 49 million and $ 38 million of cash related to interest income, including cash collections of amounts accrued in prior periods, respectively, which are reflected in cash flows from operating activities.

In the second quarter of 2022, as part of a purchase and sale agreement with an equity investee, we exchanged three performing loans for equity interests in the same project companies.

The GAAP carrying value of the loans was $ 55 million, which were exchanged in a non-cash transaction for equity method investments with no gain or loss recognized at the time of exchange as calculated using discounted cash flows at a market interest rate.

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The Rep-Based Facility is a secured revolving limited-recourse credit facility which has a maximum outstanding principal amount of $ 100 million, and the Approval-Based Facility is a secured revolving recourse credit facility with a maximum outstanding principal amount of $ 200 million.

The following table provides additional detail on our Secured Credit Facilities as of June 30, 2022:

The following table provides additional detail on our Secured Credit Facilities as of September 30, 2022:

Facility Approval-Based Facility

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The Secured Credit Facilities contain terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases.

We were in compliance with our covenants as of June 30, 2022.

We were in compliance with our covenants as of September 30, 2022.

The Secured Credit Facilities also include customary events of default, including the existence of a default in more than 50 % of the value of underlying financings.

2 unchanged sentences

In February 2022, we entered into a new $ 600 million unsecured revolving credit facility pursuant to a revolving credit agreement with a syndicate of lenders which matures in February 2025, replacing our then-existing $ 400 million unsecured revolving credit facility entered into in April 2021.

As of June 30, 2022, the outstanding balance on this facility was $ 151 million, and it currently bears interest at a weighted average rate of 3.381 %.

As of September 30, 2022, the outstanding balance on this facility was $ 50 million, and it currently bears interest at a weighted average rate of 4.959 %.

We have approximately $ 3 million of remaining unamortized financing costs associated with the unsecured credit facility that have been capitalized and included in other assets on our balance sheet and are being amortized on a straight-line basis over the term of the unsecured revolving credit facility.

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An amount equal to the proceeds of our commercial paper notes are allocated to either the acquisition or refinance of, in whole or in part, eligible green projects, including assets that are neutral to negative on incremental carbon emissions.

As of June 30, 2022, we have $ 100 million of commercial paper notes outstanding, maturing in 2022, which together bear an average total borrowing rate of 2.76 %.

As of September 30, 2022, we have $ 100 million of commercial paper notes outstanding, maturing in the fourth quarter of 2022, which together bear an average total borrowing rate of 4.05 %.

An amount equal to the proceeds of these notes were allocated to the refinance of commercial paper notes issued in December 2021 as well as to additional investments in eligible green projects.

2 unchanged sentences

Fees paid on the drawn letters of credit may be reduced by up to 0.05 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance as measured by our CarbonCount metric.

As of June 30, 2022, we have less than $ 1 million of remaining unamortized financing costs associated with the commercial paper program and associated letter of credit that have been capitalized and included in other assets on our balance sheet and are being amortized on a straight-line basis over the term of the commercial paper program.

As of September 30, 2022, we have less than $ 1 million of remaining unamortized financing costs associated with the commercial paper program and associated letter of credit that have been capitalized and included in other assets on our balance sheet and are being amortized on a straight-line basis over the term of the commercial paper program.

The associated letter of credit contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases and dividends we declare.

6 unchanged sentences

Maturity Carrying Value of Assets Pledged as of

June 30, 2022 December 31, 2021 Interest

Rate Maturity Date June 30, 2022 December 31, 2021 Description

September 30, 2022 December 31, 2021 Interest

Rate Maturity Date September 30, 2022 December 31, 2021 Description

of Assets Pledged

11 unchanged sentences

Scheduled debt service payment requirements are equal to or less than the cash flows received from the underlying receivables.

(2) The total collateral pledged against our non-recourse debt was $ 553 million and $ 573 million as of June 30, 2022 and December 31, 2021, respectively.

In addition, $ 23 million and $ 24 million of our restricted cash balance was pledged as collateral to various non-recourse loans as of June 30, 2022 and December 31, 2021, respectively.

(2) The total collateral pledged against our non-recourse debt was $ 606 million and $ 592 million as of September 30, 2022 and December 31, 2021, respectively.

These amounts include $ 24 million and $ 19 million of restricted cash pledged for debt service payments as of September 30, 2022 and December 31, 2021, respectively.

We have pledged the financed assets, and typically our interests in one or more parents or subsidiaries of the borrower that are legally separate bankruptcy remote special purpose entities as security for the non-recourse debt.

5 unchanged sentences

We typically act as servicer for the debt transactions.

We were in compliance with all covenants as of June 30, 2022 and December 31, 2021.

We were in compliance with all covenants as of September 30, 2022 and December 31, 2021.

We have guaranteed the accuracy of certain of the representations and warranties and other obligations of certain of our subsidiaries under certain of the debt agreements and provided an indemnity against certain losses from “bad acts” of such subsidiaries including fraud, failure to disclose a material fact, theft, misappropriation, voluntary bankruptcy or unauthorized transfers.

The stated minimum maturities of non-recourse debt as of June 30, 2022, were as follows:

The stated minimum maturities of non-recourse debt as of September 30, 2022, were as follows:

Future minimum maturities

(in millions)

July 1, 2022 to December 31, 2022 $ 15

October 1, 2022 to December 31, 2022 $ 11

Thereafter 272

10 unchanged sentences

These covenants will terminate on any date at which the Senior Unsecured Notes have been rated investment grade by two of the three major credit rating agencies and no event of default has occurred.

We are in compliance with all of our covenants as of June 30, 2022 and December 31, 2021.

We are in compliance with all of our covenants as of September 30, 2022 and December 31, 2021.

The Senior Unsecured Notes impose certain requirements in the event that we merge with or sell substantially all of our assets to another entity.

16 unchanged sentences

The following table presents a summary of the components of the Senior Unsecured Notes:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

4 unchanged sentences

Carrying value of Senior Unsecured Notes $ 1,777 $ 1,763

We recorded approximately $ 19 million and $ 38 million in interest expense related to the Senior Unsecured Notes in the three and six months ended June 30, 2022, respectively, compared to approximately $ 17 million and $ 34 million in the three and six months ended June 30, 2021, respectively.

We recorded approximately $ 19 million and $ 58 million in interest expense related to the Senior Unsecured Notes in the three and nine months ended September 30, 2022, respectively, compared to approximately $ 19 million and $ 53 million in the three and nine months ended September 30, 2021, respectively.

Convertible Notes

1 unchanged sentence

Holders may convert or exchange any of their Convertible Notes into shares of our common stock at the applicable conversion or exchange ratio at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, unless the Convertible Notes have been previously redeemed or repurchased by us.

The following are summarized terms of the Convertible Notes as of June 30, 2022:

The following are summarized terms of the Convertible Notes as of September 30, 2022:

Outstanding Principal Amount Maturity Date Stated Interest Rate Interest Payment Dates Conversion/Exchange Ratio Conversion/Exchange Price Issuable Shares Dividend Threshold Amount (1)

7 unchanged sentences

(1) The conversion or exchange ratio is subject to adjustment for dividends declared above these amounts per share per quarter and certain other events that may be dilutive to the holder.

(2) During the six months ended June 30, 2022, the remaining $ 8 million in principal amount of 2022 Convertible Senior Notes were converted into 282,678 shares of common stock.

(2) During the nine months ended September 30, 2022, the $ 8 million in principal amount of 2022 Convertible Senior Notes which were outstanding as of December 31, 2021 were converted into 282,678 shares of common stock.

(3) The 2025 Exchangeable Senior Notes accrete to a premium at maturity equal to 3.25 % per annum.

The current balance including accreted premium is $ 203 million.

In March 2022, we exercised a redemption option to call the remaining outstanding $ 8.1 million principal amount of 2022 Convertible Senior Notes.

9 unchanged sentences

The following table presents a summary of the components of our Convertible Notes:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

3 unchanged sentences

Carrying value of Convertible Notes

We recorded approximately $ 2 million and $ 3 million in interest expense related to our Convertible Notes in the three and six months ended June 30, 2022, respectively, compared to $ 2 million and $ 4 million for the three and six months ended June 30, 2021, respectively.

We recorded approximately $ 2 million and $ 5 million in interest expense related to our Convertible Notes in the three and nine months ended September 30, 2022, respectively, compared to $ 2 million and $ 6 million for the three and nine months ended September 30, 2021, respectively.

CarbonCount Delayed Draw Term Loan Facility

On November 1, 2022, we entered into an unsecured term loan facility with a syndicate of banks that has aggregate lending commitments of $ 383 million, on which we can draw during the 90 days following the effective date of the facility.

Drawn amounts under the term loan facility will bear interest at a rate of Term SOFR plus applicable margins based on our current credit rating, which may be adjusted downward up to 0.10 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance, as measured by our CarbonCount © metric.

As of the inception of the term loan facility, the applicable margin is 2.225 %.

The coupon on any drawn amounts will be reset at monthly, quarterly, or semi-annual intervals at our election.

Interest is due and payable quarterly.

Beginning six months after the effective date of the facility, 1.25 % of the outstanding principal balance will be due quarterly.

The term loan facility has a maturity date of October 31, 2025, and loans under the facility can be prepaid without penalty.

We intend to allocate an amount equal to the net proceeds of this offering to the acquisition or refinancing of, in whole or in part, new and/or existing eligible green projects, which include assets that are neutral to negative on incremental carbon emissions.

The term loan facility contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases and dividends we declare.

The term loan facility also includes customary events of default and remedies.

Commitments and Contingencies

3 unchanged sentences

In connection with some of our transactions, we have provided certain limited representations, warranties, covenants and/or provided an indemnity against certain losses resulting from our own actions, including related to certain investment tax credits.

As of June 30, 2022, there have been no such actions resulting in claims against the Company.

As of September 30, 2022, there have been no such actions resulting in claims against the Company.

In the three months ended September 30, 2022, we made a guarantee related to the financing of three of our joint venture entities that owns debt securities of energy efficiency projects.

We received $ 64 million of the proceeds of this financing arrangement, and in turn have guaranteed the obligations of the entity related to this financing, which includes collateral posting requirements as well as repayment of the financing at maturity in February 2023.

As of September 30, 2022, our maximum obligation under this guarantee is approximately $ 80 million.

We believe the likelihood of having to perform under the guarantee is remote, have recorded no liability associated with this guarantee, and presently have not been required to post collateral as the assets of the joint venture entities are enough to support the financing obligation.

We have executed a separate agreement with our joint venture partner pursuant to which it is liable for 15 % of this obligation repayable to us.

The COVID-19 global pandemic has brought forth uncertainty and disruption to the global economy.

As of June 30, 2022, we have not recorded any contingencies on our balance sheet related to COVID-19 with the exception of any allowances related to our receivables described in Note 6 to our financial statements in this Form 10-Q.

As of September 30, 2022, we have not recorded any contingencies on our balance sheet related to COVID-19 with the exception of any allowances related to our receivables described in Note 6 to our financial statements in this Form 10-Q.

To the extent COVID-19 continues to cause dislocations in the global economy, our financial condition, results of operations, and cash flows may be adversely impacted.

We recorded an income tax (expense) benefit of approximately $ 5 million and $( 6 ) million for the three and six months ended June 30, 2022, respectively, compared to a $( 6 ) million and $( 13 ) million income tax (expense) benefit in the three and six months ended June 30, 2021, respectively.

For the three and six months ended June 30, 2022 and 2021, our income tax (expense) benefit was determined using the federal tax rate of 21%, and combined state tax rates, net of federal benefit, of approximately 3 % for 2022 and 2021.

We recorded an income tax (expense) benefit of approximately $( 8 ) million and $( 14 ) million for the three and nine months ended September 30, 2022, respectively, compared to a $ 1 million and $( 12 ) million income tax (expense) benefit in the three and nine months ended September 30, 2021, respectively.

For the three and nine months ended September 30, 2022 and 2021, our income tax (expense) benefit was determined using the federal tax rate of 21%, and combined state tax rates, net of federal benefit, of approximately 3 % for 2022 and 2021.

Dividends and Distributions

9 unchanged sentences

8/4/2022 10/4/2022 10/11/2022 $ 0.375

11/3/2022 12/28/2022 01/6/2023 $ 0.375

(1) This dividend was treated as a distribution in 2022 for tax purposes.

12 unchanged sentences

Q2 2022 ATM 0.731 38.91 28

Q3 2022 ATM 1.346 36.85 49

(1) Net proceeds from the offerings are shown after deducting underwriting discounts and commissions.

2 unchanged sentences

We have issued equity awards that vest from 2023 to 2026 subject to service, performance and market conditions.

During the six months ended June 30, 2022, our board of directors awarded employees and directors 332,322 shares of restricted stock, restricted stock units and LTIP Units that vest from 2023 to 2026.

As of June 30, 2022, we have concluded that it is probable that the performance conditions will be met for previously issued restricted stock awards with performance conditions.

During the nine months ended September 30, 2022, our board of directors awarded employees and directors 342,598 shares of restricted stock, restricted stock units and LTIP Units that vest from 2023 to 2026.

Refer to Note 4 to our financial statements in this Form 10-Q for background on the LTIP Units.

For the three and six months ended June 30, 2022 we recorded $ 12 million and $ 16 million of stock based compensation, respectively, compared to $ 4 million and $ 10 million during the three and six months ended June 30, 2021.

$ 9 million of the current period expense is due to the acceleration of expense upon adoption of a retirement policy.

For the three and nine months ended September 30, 2022 we recorded $ 2 million and $ 18 million of stock based compensation, respectively, compared to $ 4 million and $ 14 million during the three and nine months ended September 30, 2021.

$ 9 million of the expense for the nine months ended September 30, 2022 is due to the acceleration of expense upon adoption of a retirement policy in the second quarter of 2022.

The retirement policy provides for full vesting at retirement of any time-based awards that were granted prior to the date of retirement and permits the vesting of performance-based awards that were granted prior to the date of retirement according to the original vesting schedule of the award, subject to the achievement of the applicable performance measures.

1 unchanged sentence

Upon adoption of the policy, we recognized any remaining unrecognized share based compensation expense for awards to employees who met the retirement criteria at the time of adoption and accelerated the recognition of expense for employees who will meet the criteria prior to the vesting of their existing awards.

Of the prior-year six-month period expense, $ 2 million is related to the acceleration of compensation expense related to an employee with a change in employment status that occurred in the first quarter of 2021.

The total unrecognized compensation expense related to awards of shares of restricted stock and restricted stock units was approximately $ 16 million as of June 30, 2022.

Of the prior-year nine-month period expense, $ 2 million is related to the acceleration of compensation expense related to an employee with a change in employment status that occurred in the first quarter of 2021.

The total unrecognized compensation expense related to awards of shares of restricted stock and restricted stock units was approximately $ 14 million as of September 30, 2022.

We expect to recognize compensation expense related to our equity awards over a weighted-average term of approximately 2 years.

10 unchanged sentences

Forfeited ( 1,985 ) 46.24 ( 0.1 )

Ending Balance — June 30, 2022 130,642 $ 35.48 $ 4.6

Ending Balance — September 30, 2022 128,829 $ 34.76 $ 4.5

A summary of the unvested shares of restricted stock units that have market-based vesting conditions that have been issued is as follows:

12 unchanged sentences

Forfeited ( 3,024 ) 47.46 ( 0.1 )

Ending Balance — June 30, 2022 62,920 $ 50.82 $ 3.2

Ending Balance — September 30, 2022 60,402 $ 51.05 $ 3.1

(1) As discussed in Note 2 to our financial statements in this Form 10-Q, restricted stock units with market-based vesting conditions can vest between 0 % and 200 % subject to both the absolute performance of the Company's common stock as well as relative performance compared to a group of peers.

12 unchanged sentences

Forfeited ( 2,497 ) 46.08 ( 0.1 )

Ending Balance — June 30, 2022 256,544 $ 43.26 $ 11.1

Ending Balance — September 30, 2022 263,773 $ 42.97 $ 11.3

(1) See Note 4 to our financial statements in this Form 10-Q for information on the vesting of LTIP Units.

13 unchanged sentences

Forfeited — — —

Ending Balance — June 30, 2022 324,028 $ 42.84 $ 13.9

Ending Balance — September 30, 2022 324,028 $ 42.84 $ 13.9

(1) See Note 4 to our financial statements in this Form 10-Q for information on the vesting of LTIP Units.

7 unchanged sentences

The computation of basic and diluted earnings per common share of common stock is as follows:

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

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

2022 2021 2022 2021

15 unchanged sentences

Weighted-average number of OP units 1,136,809 559,686 955,574 459,848

As of June 30, 2022 As of June 30, 2021

As of September 30, 2022 As of September 30, 2021

Participating securities:

8 unchanged sentences

We have non-controlling unconsolidated equity investments in renewable energy and energy efficiency projects as well as in a joint venture that owns land with long-term triple net lease agreements to several solar projects.

We recognized income (loss) from our equity method investments of approximately $( 20 ) million and $ 28 million during the three and six months ended June 30, 2022, respectively, compared to $ 22 million and $ 77 million during the three and six months ended June 30, 2021, respectively.

In the three months ended June 30, 2022, the loss from our equity method investments was due to the unrealized mark-to-market losses on energy hedges at the project level that do not qualify for hedge accounting.

We recognized income (loss) from our equity method investments of approximately $ 31 million and $ 59 million during the three and nine months ended September 30, 2022, respectively, compared to $( 7 ) million and $ 70 million during the three and nine months ended September 30, 2021, respectively.

Certain of our projects have incurred unrealized mark-to-market losses on energy hedges at the project level that do not qualify for hedge accounting.

These unrealized mark-to-market losses, which resulted from rising energy prices, are recorded in the revenue line of the projects’ statements of operations.

4 unchanged sentences

As described in Note 2, any difference between the amount of our investment and the amount of our share of underlying equity is generally amortized over the life of the assets and liabilities to which the differences relate.

Empower Clean Energies Infrastructure LLC Lighthouse Renewable HoldCo LLC Lighthouse Renewable HoldCo 2 LLC Jupiter Equity Holdings LLC Phase V Class A LLC Vivint Solar Asset 3 Holdco Parent LLC Other Investments (1)

Lighthouse Renewable HoldCo LLC Lighthouse Renewable HoldCo 2 LLC Phase V Class A LLC Vivint Solar Asset 3 Holdco Parent LLC Other Investments (1)

(in millions)

Balance Sheet

As of March 31, 2022

As of June 30, 2022

Current assets $ 39 $ 20 $ 63 $ 21 $ 596 $ 739

10 unchanged sentences

Income Statement

For the three months ended March 31, 2022

For the six months ended June 30, 2022

Revenue ( 30 ) ( 33 ) 4 20 130 91

1 unchanged sentence

Net income (loss) ( 53 ) ( 51 ) ( 1 ) — ( 237 ) ( 342 )

For the three months ended March 31, 2021

For the six months ended June 30, 2021

Revenue ( 71 ) — 1 11 48 ( 11 )

3 unchanged sentences

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 1. Financial Statements