What changed in this filing

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Item 1. Financial Statements

2023-05-05 compared with 2022-11-09 · 218 added, 248 removed, 826 unchanged (36% of the section changed)

3 unchanged sentences

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

September 30, 2022 (unaudited) December 31, 2021

March 31, 2023 (unaudited) December 31, 2022

Cash and cash equivalents $ 142,489 $ 155,714

13 unchanged sentences

Commercial paper notes 99,899 192

Term loan facility 380,102 379,742

Non-recourse debt (secured by assets of $ 602 million and $ 632 million, respectively)

16 unchanged sentences

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

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

2022 2021 2022 2021

For the Three Months Ended March 31,

Interest income $ 43,108 $ 30,242

1 unchanged sentence

Gain on sale of receivables and investments 15,719 17,099

Fee income 4,748 3,144 12,557 8,769

Securitization income 3,432 2,741

Other income 355 1,895

Total revenue 69,101 58,476

10 unchanged sentences

Net income (loss) attributable to non-controlling interest holders

407 ( 261 ) 676 366

Net income (loss) attributable to controlling stockholders $ 24,106 $ 45,346

7 unchanged sentences

(DOLLARS IN THOUSANDS)

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

2022 2021 2022 2021

Three Months Ended March 31,

Net income (loss) $ 24,598 $ 45,703

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

Unrealized gain (loss) on available-for-sale securities, net of tax benefit (provision) of $( 0.3 ) million for the three months ended March 31, 2023 and $ 1.0 million for the three months ended March 31, 2022

8,875 ( 22,709 )

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

Unrealized gain (loss) on interest rate swaps, net of tax benefit (provision) of $ 0.3 million for the three months ended March 31, 2023 and $( 0.1 ) million for the three months ended March 31, 2022

( 31,768 ) 289

1 unchanged sentence

Comprehensive income (loss) attributable to non-controlling interest holders

456 ( 274 ) 405 337

Comprehensive income (loss) attributable to controlling stockholders $ 1,683 $ 23,101

5 unchanged sentences

Shares Amount

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

Unrealized gain (loss) on available-for-sale securities — — — — ( 12,516 ) ( 181 ) ( 12,697 )

Unrealized gain (loss) on interest rate swaps — — — — 19,879 230 20,109

Issued shares of common stock 1,346 13 49,020 — — — 49,033

Equity-based compensation — — 606 — — 1,454 2,060

Issuance (repurchase) of vested equity-based compensation shares 3 — ( 49 ) — — — ( 49 )

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

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

Unrealized gain (loss) on available-for-sale securities — — — — ( 896 ) ( 4 ) ( 900 )

Unrealized gain (loss) on interest rate swaps — — — — ( 2,693 ) ( 10 ) ( 2,703 )

Issued shares of common stock 857 9 48,803 — — — 48,812

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

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

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

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

See accompanying notes.

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Non-controlling interests Total

Shares Amount

Balance at December 31, 2022 90,837 $ 908 $ 1,924,200 $ ( 285,474 ) $ ( 10,397 ) $ 35,509 $ 1,664,746

Net income (loss) — — — 24,106 — 492 24,598

— — — 61,431 — 676 62,107

Unrealized gain (loss) on available-for-sale securities — — — — 8,760 115 8,875

— — — — ( 56,236 ) ( 619 ) ( 56,855 )

Unrealized gain (loss) on interest rate swaps — — — — ( 31,183 ) ( 585 ) ( 31,768 )

2 unchanged sentences

Issuance (repurchase) of vested equity-based compensation shares 58 1 ( 1,318 ) — — — ( 1,317 )

Conversion of Convertible Notes 283 3 7,671 — — — 7,674

Dividends and distributions — — — ( 36,340 ) — ( 1,133 ) ( 37,473 )

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

Balance at March 31, 2023 91,658 $ 917 $ 1,946,904 $ ( 297,708 ) $ ( 32,820 ) $ 41,522 $ 1,658,815

Balance at December 31, 2021 85,327 $ 853 $ 1,727,667 $ ( 193,706 ) $ 9,904 $ 21,797 $ 1,566,515

Net income (loss) — — — 45,346 — 357 45,703

— — — 64,159 — 366 64,525

Unrealized gain (loss) on available-for-sale securities — — — — ( 22,532 ) ( 177 ) ( 22,709 )

— — — — ( 8,219 ) ( 49 ) ( 8,268 )

Unrealized gain (loss) on interest rate swaps — — — — 287 2 289

2 unchanged sentences

Issuance (repurchase) of vested equity-based compensation shares 60 1 ( 2,212 ) — — — ( 2,211 )

Conversion of Convertible Notes 283 3 7,671 — — — 7,674

Dividends and distributions — — — ( 32,922 ) — ( 1,746 ) ( 34,668 )

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

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

See accompanying notes.

2 unchanged sentences

(DOLLARS IN THOUSANDS)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

9 unchanged sentences

(Gain) loss on sale of receivables and investments 1,305 29

Loss on debt extinguishment — 14,584

Changes in receivables held-for-sale 37,249 ( 43,482 )

11 unchanged sentences

Purchases of real estate — ( 4,550 )

Purchases of investments ( 2,329 ) ( 4,830 )

Proceeds from sales of investments and securitization assets 7,020 15,197

Funding of escrow accounts ( 228 ) ( 12,069 )

Withdrawal from escrow accounts 15,156 1,538

Posting of hedge collateral ( 20,350 ) —

Other ( 548 ) ( 2,975 )

6 unchanged sentences

( 5,140 ) ( 5,577 )

Proceeds from issuance of senior unsecured notes — 1,000,000

Proceeds from issuance of convertible notes 200,000 —

Redemption of senior unsecured notes — ( 514,101 )

Net proceeds of common stock issuances 23,256 50,011

10 unchanged sentences

Residual assets retained from securitization transactions $ 5,330 $ 4,532

Right-of-use asset obtained in exchange for lease liability — 4,628

Issuance of common stock from conversion of Convertible Notes — 7,674

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

March 31, 2023

Hannon Armstrong Sustainable Infrastructure Capital, Inc.

(the “Company”) invests in climate solutions by providing capital to leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets.

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

The Company and its subsidiaries are hereafter referred to as “we,” “us” or “our.” Our investments take various forms, including equity, joint ventures, real estate ownership, or lending or other financing transactions, and typically benefit from contractually committed high credit quality obligors.

(the “Company”) actively partners with clients to deploy real assets that facilitate the energy transition.

Our investments take many forms, including equity, joint ventures, land ownership, lending, and other financing transactions.

We also generate on-going fees through off-balance sheet securitization transactions, advisory services and asset management.

We refer to the income producing assets that we hold on our balance sheet as our “Portfolio.” Our Portfolio includes:

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

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

• real estate, such as land or other assets leased for use by climate solutions projects typically under long-term leases;

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

We finance our business through cash on hand, short-term commercial paper issuances, revolving credit facilities, issuances of unsecured debt, asset-backed securitization transactions, convertible securities, and equity issuances.

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

• commercial and government receivables;

• real estate;

• investments in debt securities.

We finance our business through cash on hand, 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.

We also generate fee income through securitizations and syndications, by providing broker/dealer services and by managing and servicing assets owned by third parties.

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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 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.

Our results of operations for the three- month periods ended March 31, 2023 and 2022, 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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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.

Our initial investment and additional cash distributions beyond that which are classified as operating activities are classified as investing activities in our consolidated statements of cash flows.

Our initial investment and additional cash distributions beyond the amounts that are classified as operating activities are classified as investing activities in our consolidated statements of cash flows.

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

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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.

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

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.

If the resulting fair value is less than the carrying value, we will determine if this loss in value is OTTI, and we will recognize any OTTI in 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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Interest collected is classified as an operating activity in our consolidated statements of cash flows.

Certain of our receivables are subordinate to preferred investors in a project who are allocated the majority of the project’s cash in the early years of the investment, so accordingly these investments may include the ability to defer scheduled interest payments in exchange for increasing the receivable balance.

Receivables from certain projects are subordinate to preferred investors in a project who are allocated the majority of such project’s cash in the early years of the investment.

According, such receivables may include the ability to defer scheduled interest payments in exchange for increasing the receivable balance.

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 on receivables and investments line in the operating section of our statement of cash flows.

The change in PIK in any period is included in 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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If the amortized cost of servicing assets is greater than the estimated fair value, we will recognize an impairment in net income.

Our other retained interest in securitized assets, the residual assets, are accounted for similar to available-for-sale debt securities and carried at fair value.

Changes in fair value are recorded in AOCI.

Income related to the residual assets is recognized using the effective interest rate method and included in fee income in our income statement.

Our residual assets are evaluated for impairment on a quarterly basis.

Our other retained interest in securitized assets, the residual assets, are accounted for similar to available-for-sale debt securities and carried at fair value, with changes in fair value recorded in AOCI.

Income related to the residual assets is recognized using the effective interest rate method and included in securitization income in our income statement.

Our residual assets are evaluated for impairment on a quarterly basis under Topic 326.

A residual asset is impaired if its fair value is less than its carrying value.

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Since our conversion and exchange options are both indexed to our equity and can only be settled in our common stock, we have met the scope exemption, and therefore, we are not separately accounting for the embedded conversion or exchange options.

The initial issuance and any principal repayments are classified as financing activities and interest payments are classified as operating activities in our consolidated statements of cash flows.

The initial issuance and any principal repayments are

classified as financing activities and interest payments are classified as operating activities in our consolidated statements of cash flows.

If converted or exchanged, the carrying value of each Convertible Note is reclassified into stockholders’ equity.

Derivative Financial Instruments

We use derivative financial instruments, primarily interest rate swaps, to manage, or hedge, our interest rate risk exposures associated with new debt issuances and anticipated refinancings of existing debt, to manage our exposure to fluctuations in interest rates on floating-rate debt, and to optimize the mix of our fixed and floating-rate debt.

Our objective is to reduce the impact of changes in interest rates on our results of operations and cash flows.

The fair values of our interest rate swaps designated and qualifying as effective cash flow hedges are reflected in our consolidated balance sheets as a component of other assets (if in an unrealized asset position) or accounts payable, accrued expenses and other (if in an unrealized liability position) and in net unrealized gains and losses in AOCI.

The cash settlements of our interest rate swaps, if any, are classified as operating activities in our consolidated statements of cash flows.

The interest rate swaps we use are intended to be designated as cash flow hedges and are considered highly effective in reducing our exposure to the interest rate risk that they are designated to hedge.

This effectiveness is required in order to qualify for hedge accounting.

Instruments that meet the required hedging criteria are formally designated as hedging instruments at the inception of the derivative contract.

Derivatives are recorded at fair value.

If a derivative is designated as a cash flow hedge and meets the highly effective threshold, the change in the fair value of the derivative is recorded in AOCI, net of associated deferred income tax effects and is recognized in earnings at the same time as the hedged item.

For any derivative instruments not designated as hedging instruments, changes in fair value would be recognized in earnings in the period that the change occurs.

We assess, both at the inception of the hedge and on an ongoing basis, whether the derivatives designated as cash flow hedges are highly effective in offsetting the changes in cash flows of the hedged items.

We do not hold derivatives for trading purposes.

Any collateral posted or received as credit support against derivative positions are netted against those derivatives in our balance sheets.

Interest rate swap contracts contain a credit risk that counterparties may be unable to fulfill the terms of the agreement.

We attempt to minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and do not anticipate nonperformance by the counterparties.

We elected and qualified to be taxed as a REIT for U.S.

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Equity Incentive Plan, which provides for grants of stock options, stock appreciation rights, restricted stock units, shares of restricted common stock, phantom shares, dividend equivalent rights, long-term incentive-plan units (“LTIP Units”) and other restricted limited partnership units issued by our Operating Partnership and other equity-based awards.

In 2022, our board of directors approved the 2022 Hannon Armstrong Sustainable Infrastructure Capital, Inc.

In 2022, our board of directors approved

the 2022 Hannon Armstrong Sustainable Infrastructure Capital, Inc.

Equity Incentive Plan (“the 2022 Plan”), which was subsequently approved by shareholders at our 2022 annual meeting of stockholders, for the purpose of continuing to provide equity-based incentive compensation to members of our senior management team, our independent directors, employees, advisers, consultants and other personnel.

2 unchanged sentences

In addition to performance targets, income or gain must be allocated by our Operating Partnership to certain LTIP Units issued by our Operating Partnership so that the capital accounts of such units are equalized with the capital accounts of other holders of OP units before parity is reached and LTIP Units can be converted to limited partnership units.

We record compensation expense for grants made under the plans in accordance with ASC 718, Compensation-Stock Compensation .

We record compensation expense for grants made in accordance with ASC 718, Compensation-Stock Compensation .

We record compensation expense for unvested grants that vest solely based on service conditions on a straight-line basis over the vesting period of the entire award based upon the fair market value of the grant on the date of grant.

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The grant date fair value of these awards was developed by an independent appraiser using a Monte Carlo simulation.

In the second quarter of 2022, our Board approved a retirement policy that 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 and without the requirement for continued employment.

Forfeitures of unvested awards are recognized as they occur.

We have a retirement policy that 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 and without the requirement for continued employment.

Employees are eligible for the retirement policy upon meeting age and years of service criteria.

We record compensation expense for unvested grants through

the date in which an employee meets the retirement criteria.

At implementation of this policy, we recorded compensation expense of $ 9 million to reflect unvested grants of employees who meet the retirement eligibility criteria.

We record compensation expense for unvested grants through the date in which an employee meets the retirement criteria.

Earnings Per Share

9 unchanged sentences

Segment Reporting

We make equity and debt investments in the climate solutions markets.

We manage our business as a single portfolio and report all of our activities as one business segment.

We manage our business as a single portfolio, and accordingly report all of our activities as one business segment.

Recently Issued Accounting Pronouncements

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.

Accounting standards updates issued before May 5, 2023, and effective after March 31, 2023, 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 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.

As of March 31, 2023 and December 31, 2022, only our residual assets related to our securitization trusts, our derivatives, and our 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:

3 unchanged sentences

The tables below illustrate the estimated fair value of our financial instruments on our balance sheet.

Unless otherwise discussed below, fair values for our Level 3 measurements are measured using a discounted cash flow model, contractual terms and inputs which consist of base interest rates and spreads over base rates which are based upon market observation and recent comparable transactions.

Unless otherwise discussed below, fair values for our Level 2 and Level 3 measurements are measured using a discounted cash flow model, contractual terms and inputs which consist of base interest rates and spreads over base rates which are based upon market observation and recent comparable transactions.

An increase in these inputs would result in a lower fair value and a decline would result in a higher fair value.

1 unchanged sentence

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

As of September 30, 2022

As of March 31, 2023

Fair Value Carrying

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Commercial paper notes 100 100 Level 3

Term loan facility 384 384 Level 3

Non-recourse debt 373 404 Level 3

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Total Convertible Notes 329 350

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

Derivative liabilities 32 32 Level 2

(1) The amortized cost of our investments as of March 31, 2023, was $ 12 million.

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

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

The amortized cost of our securitization residual assets as of March 31, 2023 was $ 231 million.

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

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Commercial paper notes — — Level 3

Term loan facility 384 384 Level 3

Non-recourse debt 402 442 Level 3

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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 September 30, For the nine months ended September 30,

2022 2021 2022 2021

For the three months ended March 31,

(in millions)

Balance, beginning of period $ 10 $ 18

Purchases of investments — — 2 5

Sale of investments — — ( 7 ) ( 38 )

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

2 unchanged sentences

Estimated Fair Value Unrealized Losses (1)

Securities with a loss shorter than 12 months Securities with a loss longer than 12 months Securities with a loss shorter than 12 months Securities with a loss longer than 12 months

Count of Securities

Securities with a loss shorter than 12 months Securities with a loss longer than 12 months Securities with a loss shorter than 12 months Securities with a loss longer than 12 months Securities with a loss shorter than 12 months Securities with a loss longer than 12 months

(in millions)

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

March 31, 2023 $ 2 $ 8 $ 0.4 $ 1.3 2 3

December 31, 2022 4 6 0.7 1.2 4 1

(1) Loss position is due to interest rates movements.

(1) Loss position is due to interest rates movements and is not indicative of credit deterioration.

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 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.

In determining the fair value of our investments we used a risk-free rate and added a range of interest rate spreads based upon recent transactions involving similar assets of approximately 1 % to 4 % as of March 31, 2023, and 1 % to 4 % as of December 31, 2022.

The weighted average discount rates used to determine the fair value of our investments as of March 31, 2023 and December 31, 2022 were 6.2 % and 6.5 %, 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 September 30, For the nine months ended September 30,

2022 2021 2022 2021

For the three months ended March 31,

(in millions)

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Balance, end of period $ 193 $ 192

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 September 30, 2022 and December 31, 2021.

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 following table illustrates our securitization residual assets in an unrealized loss position:

Estimated Fair Value Unrealized Losses (1)

Count of Securities

(in millions)

March 31, 2023 $ 71 $ 99 $ 11 $ 30 40 30

December 31, 2022 118 51 27 22 66 12

(1) Loss position is due to interest rates movements and is not indicative of credit deterioration.

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

In determining the fair value of our securitization residual assets, we used a market-based risk-free rate and added a range of interest rate spreads, determined based upon recent transactions involving similar assets, of approximately 1 % to 6 % based upon transactions involving similar assets as of March 31, 2023 and December 31, 2022.

The weighted average discount rates used to determine the fair value of our securitization residual assets as of March 31, 2023 and December 31, 2022 were 6.3 % and 6.8 %, 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.

The unrealized 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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Concentration of Credit Risk

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

Commercial and government 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 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.

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

These investments typically have structural credit protections to mitigate our risk exposure and, in most cases, the projects are insured for estimated physical loss, which helps to mitigate the possible risk from these concentrations.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

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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.

No OP units were redeemed by non-controlling interest holders during the three months ended March 31, 2023 or March 31, 2022.

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 nine months ended September 30,

As of and for the three months ended March 31,

(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 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.

Depending on the nature of the transaction risks, the all-in discount rate ranged from 5 % to 10 % for the three months ended March 31, 2023.

As of March 31, 2023 and December 31, 2022, our managed assets totaled $ 10.4 billion and $ 9.8 billion, respectively, of which $ 5.7 billion and $ 5.5 billion, respectively, were securitized assets held in unconsolidated securitization trusts.

no securitization credit losses in the three months ended March 31, 2023 or March 31, 2022.

As of March 31, 2023, 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 $ 97 million of our securitization residual assets.

3 unchanged sentences

Our Portfolio

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.

As of March 31, 2023, our Portfolio included approximately $ 4.7 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.

3 unchanged sentences

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 September 30, 2022, which is assessed quarterly:

The following is an analysis of the Performance Ratings of our Portfolio as of March 31, 2023, which is assessed quarterly:

Portfolio Performance

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Percent of Portfolio 2 % 97 % 1 % — % 100 %

Average remaining balance (7)

$ 5 $ 11 $ 11 $ 11 $ 11

(1) This category includes our assets where based on our credit criteria and performance to date we believe that our risk of not receiving our invested capital remains low.

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Loans in this category are placed on non-accrual status.

In the second quarter of 2022, we moved to this category from Category 2 $ 11 million of loans we had made in a new market venture where the performance has not met expectations.

Previously included in this category were two commercial receivables with a combined total carrying value of approximately $ 8 million which were assignments of land lease payments from two wind projects that we had originated in 2014.

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 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.

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As they are part of large portfolios, they are not classified separately.

(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 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

As of March 31, 2023, our allowance for loan losses was $ 43 million based on our expectation of credit losses over the lives of the receivables in our portfolio.

During the three months ended March 31, 2023, we increased our reserve by approximately $ 2 million due to new loans and loan commitments made during the period.

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 March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

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

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Total $ 2,104 $ 253 $ 43 $ 2,031 $ 256 $ 41

(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.

(1) As of March 31, 2023, this category of assets includes $ 1.2 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 $ 38 million allowance on these $ 2.0 billion in assets as a result of lower probability assumptions utilized in our allowance methodology.

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

(2) As of March 31, 2023, our government receivables include $ 10 million of U.S.

federal government transactions and $ 88 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 September 30, 2022 Three months ended September 30, 2021

Government Commercial Government Commercial

(in millions)

Beginning balance $ — $ 37 $ — $ 37

Provision for loss on receivables — ( 3 ) — 2

Write-off of allowance — — — —

Ending balance $ — $ 34 $ — $ 39

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

Three months ended March 31, 2023 Three months ended March 31, 2022

Government Commercial Government Commercial

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Provision for loss on receivables — 2 — 1

Write-off of allowance — ( 8 ) — —

Ending balance $ — $ 43 $ — $ 37

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 September 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 March 31, 2023:

Total Less than 1

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Weighted average yield by period 8.1 % — % 6.2 % 8.4 % 7.9 %

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:

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 March 31, 2023:

Total Less than 1

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Weighted average yield by period 4.6 % — % — % — % 4.6 %

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.

We had no investments that were impaired or on non-accrual status as of March 31, 2023 or December 31, 2022, 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 September 30, 2022 and December 31, 2021, were as follows:

September 30, 2022 December 31, 2021

The components of our real estate portfolio as of March 31, 2023 and December 31, 2022, were as follows:

March 31, 2023 December 31, 2022

(in millions)

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Real estate $ 352 $ 353

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:

As of March 31, 2023, 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 October 1, 2022 to December 31, 2022 $ 1 $ 5

From April 1, 2023 to December 31, 2023 $ 2 $ 18

Thereafter 66 673

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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:

As of March 31, 2023, we held the following equity method investments:

Investment Date Investee Carrying Value

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Various Lighthouse Partnerships (1)

Various Phase V Class A LLC 191

March 2020 University of Iowa Energy Collaborative Holdings LLC 128

Various Vivint Solar Asset 3 HoldCo Parent, LLC 110

Various Other investees 1,178

Total equity method investments $ 2,250

(1) Represents the total of three equity investments in a portfolio of renewable assets.

(1) Represents the total of four equity investments in a portfolio of renewable assets.

Jupiter Equity Holdings LLC

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 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.

As of March 31, 2023, we have made capital contributions to Jupiter of approximately $ 548 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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Lighthouse Renewables Portfolio

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 September 30, 2022, and additional investments are expected to be made as the projects become commercially operational.

We have entered into certain agreements relating to the acquisition, ownership and management of 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 investments in the preferred cash equity interests of the Lighthouse Partnerships of approximately $ 563 million through March 31, 2023, 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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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 $ 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.

The following table provides additional detail on these related party transactions:

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

(in millions)

Interest income from related party loans $ 15 $ 15

Investments made in related party loans 14 32

Principal collected from related party loans 9 13

Interest collected from related party loans 15 17

Credit facilities and commercial paper notes

Secured credit facilities

We have two secured revolving credit facilities (our “Secured Credit Facilities”), a representation-based loan agreement (the “Rep-Based Facility”) and an approval-based loan agreement (the “Approval-Based Facility”) with various lenders, which mature in July 2023.

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 September 30, 2022:

Facility Approval-Based Facility

Secured credit facility

We have a secured revolving credit facility in the form of an approval-based loan agreement (the “Approval-Based Facility”) with various lenders, which matures in July 2023 with a maximum outstanding principal amount of $ 200 million.

In the first quarter of 2023, we terminated a previously existing representation-based secured revolving limited-recourse credit facility which had a maximum outstanding principal amount of $ 100 million

The following table provides additional detail on our Secured Credit Facility as of March 31, 2023:

Approval-Based Facility

(dollars in millions)

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Available capacity based on pledged assets 2

Weighted average short-term borrowing rate N/A 4.70 %

Loans under the Rep-Based Facility bear interest at a rate equal to one-month LIBOR plus 1.40 % or 1.85 % (depending on the type of collateral) or, in certain circumstances, the Federal Funds Rate plus 0.40 % or 0.85 % (depending on the type of collateral).

Weighted average short-term borrowing rate 6.76 %

Loans under the Approval-Based Facility bear interest at a rate equal to one-month LIBOR plus 1.50 % or 2.00 % (depending on the type of collateral) or, under certain circumstances, the Federal Funds Rate plus 0.50 % or 1.00 % (depending on the type of collateral).

Inclusion of any financings of the Company in the borrowing base as collateral under the Rep-Based Facility will be subject to the Company making certain agreed upon representations and warranties.

We have provided a limited guarantee covering the accuracy of the representations and warranties, and the repayment by the borrowers of certain amounts relating to any such financing is the exclusive remedy with respect to any breach of such representations and warranties under the Rep-Based Facility.

Inclusion of any financings of the Company in the borrowing base as collateral under the Approval-Based Facility will be subject to the approval of a super-majority of the lenders, and we have provided a guarantee of the Approval-Based Facility.

The amount eligible to be drawn under the Secured Credit Facilities is based on a discount to the value of each included investment based upon the type of collateral or an applicable valuation percentage.

The sum of included financings after taking into account the applicable valuation percentages and any changes in the valuation of the financings in accordance with the Secured Credit Facilities determines the borrowing capacity, subject to the overall facility limits described above.

Under the Rep-Based Facility, the applicable valuation percentage is 85 % in the case of a land-lease obligor or a U.S.

Federal Government obligor, 80 % in the case of an institutional obligor or state and local obligor, and with respect to other obligors or in certain circumstances, such other percentage as the administrative agent may prescribe.

The amount eligible to be drawn under the Approval-Based Facility is based on a discount to the value of each included investment based upon the type of collateral or an applicable valuation percentage.

The sum of included financings after taking into account the applicable valuation percentages and any changes in the valuation of the financings in accordance with the Approval-Based Facility determines the borrowing capacity, subject to the overall facility limits described above.

Under the Approval-Based Facility, the applicable valuation percentage is 85 % in the case of certain approved financings and 67 % or such other percentage as the administrative agent may prescribe.

We have approximately $ 1 million of remaining unamortized financing costs associated with the Secured Credit Facilities 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 Secured Credit Facilities.

Administrative fees are payable annually to the administrative agent under each of the Secured Credit Facilities and letter agreements with the administrative agent.

Under the Rep-Based Facility, we pay to the administrative agent on each monthly payment date, for the benefit of the lenders, certain availability fees for the Rep-Based Facility equal to 0.60 %, divided by 365 or 366, as applicable, multiplied by the excess of the available total commitments under the Rep-Based Facility over the actual amount borrowed under the Rep-Based Facility.

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 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.

The occurrence of an event of default may result in termination of the credit facilities, acceleration of amounts due under the Secured Credit Facilities, and accrual of default interest at a rate of LIBOR plus 2.00 % in the case of both the Rep-Based Facility and the Approval-Based Facility.

We have less than $ 1 million of remaining unamortized financing costs associated with the Approval-Based 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 Approval-Based Facility.

Administrative fees are payable annually to the administrative agent under each of the Approval-Based Facility and letter agreements with the administrative agent.

The Approval-Based Facility 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 March 31, 2023.

The Approval-Based Facility also include customary events of default, including the existence of a default in more than 50 % of the value of underlying financings.

The occurrence of an event of default may result in termination of the credit facilities, acceleration of amounts due under the Approval-Based Facility, and accrual of default interest at a rate of LIBOR plus 2.00 %.

Unsecured revolving credit facilities

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 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 a $ 600 million unsecured revolving credit facility pursuant to a revolving credit agreement with a syndicate of lenders which matures in February 2025.

As of March 31, 2023, the outstanding balance on this facility was $ 250 million, and it currently bears interest at a weighted average rate of 6.76 %.

We have approximately $ 2 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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CarbonCount Green Commercial Paper Note Program

In September 2021, we entered into an agreement allowing us to issue commercial paper notes, in amounts up to $ 100 million outstanding at any time.

We obtained an irrevocable direct-pay letter of credit in an amount not to exceed $ 100 million from Bank of America, N.A, to support these obligations which expires in December 2022.

We have entered into an agreement allowing us to issue commercial paper notes, in amounts up to $ 100 million outstanding at any time.

We obtained an irrevocable direct-pay letter of credit in an amount not to exceed $ 100 million from Bank of America, N.A, to support these obligations which expires in June 2024.

Commercial paper notes will not be redeemable, will not be subject to voluntary prepayment and are not to exceed 397 days.

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 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.

As of March 31, 2023, we have $ 100 million of commercial paper notes outstanding under the facility which matures in 2024, which together bear an average total borrowing rate of 6.18 %.

Green commercial paper notes will be issued at a discount based on market pricing, subject to broker fees of 0.10 %.

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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 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.

As of March 31, 2023, we have no remaining unamortized financing costs associated with the commercial paper program and associated letter of credit.

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.

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Maturity Carrying Value of Assets Pledged as of

September 30, 2022 December 31, 2021 Interest

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

March 31, 2023 December 31, 2022 Interest

Rate Maturity Date March 31, 2023 December 31, 2022 Description

of Assets Pledged

(dollars in millions)

HASI Sustainable Yield Bond 2015-1A $ 74 $ 77 4.28 % October 2034 $ — $ 137 $ 139 Receivables, real estate and real estate intangibles

HASI SYB Trust 2016-2 61 62 4.35 % April 2037 — 67 70 Receivables

HASI SYB Trust 2017-1 143 146 3.86 % March 2042 — 231 208 Receivables, real estate and real estate intangibles

HASI Sustainable Yield Bond 2015-1A $ 72 $ 73 4.28 % October 2034 $ — $ 137 $ 136 Receivables, real estate, real estate intangibles, and restricted cash

HASI SYB Trust 2016-2 57 56 4.35 % April 2037 — 64 63 Receivables and restricted cash

HASI SYB Trust 2017-1 140 141 3.86 % March 2042 — 232 231 Receivables, real estate, real estate intangibles, and restricted cash

Lannie Mae Series 2019-1 90 90 3.68 % January 2047 — 121 120 Receivables, real estate and real estate intangibles

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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 $ 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.

(2) The total collateral pledged against our non-recourse debt was $ 602 million and $ 632 million as of March 31, 2023 and December 31, 2022, respectively.

These amounts include $ 21 million and $ 20 million of restricted cash pledged for debt service payments as of March 31, 2023 and December 31, 2022, 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.

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We typically act as servicer for the debt transactions.

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

We were in compliance with all covenants as of March 31, 2023 and December 31, 2022.

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 September 30, 2022, were as follows:

The stated minimum maturities of non-recourse debt as of March 31, 2023, were as follows:

Future minimum maturities

(in millions)

October 1, 2022 to December 31, 2022 $ 11

April 1, 2023 to December 31, 2023 $ 22

Thereafter 244

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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 September 30, 2022 and December 31, 2021.

We are in compliance with all of our covenants as of March 31, 2023 and December 31, 2022.

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

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2025 Notes $ 400 April 15, 2025 6.00 % April 15 and

October 15th April 15, 2022 (1)

October 15th N/A

2026 Notes 1,000 June 15, 2026 3.38 % June 15 and December 15 March 15, 2026 (1)

2030 Notes 375 (2)

September 15, 2030 3.75 % February 15th and August 15th September 15, 2022 (3)

(1) Prior to this date, we may redeem, at our option, some or all of the 2025 Notes or 2026 Notes for the outstanding principal amount plus the applicable “make-whole” premium as defined in the indenture governing the 2025 Notes or 2026 Notes plus accrued and unpaid interest through the redemption date.

September 15, 2030 3.75 % February 15th and August 15th N/A

(1) Prior to this date, we may redeem, at our option, some or all of the 2026 Notes for the outstanding principal amount plus the applicable “make-whole” premium as defined in the indenture governing the 2026 Notes plus accrued and unpaid interest through the redemption date.

In addition, prior to this date, we may redeem up to 40 % of the Senior Unsecured Notes using the proceeds of certain equity offerings at a price equal to par plus the coupon percentage of the principal amount thereof, plus accrued but unpaid interest, if any, to, but excluding, the applicable redemption date.

On, or subsequent to, this date we may redeem the 2025 Notes or 2026 Notes in whole or in part at redemption prices defined in the indenture governing the 2025 Notes or 2026 Notes, plus accrued and unpaid interest though the redemption date.

On, or subsequent to, this date we may redeem the 2026 Notes in whole or in part at redemption prices defined in the indenture governing the 2026 Notes, plus accrued and unpaid interest though the redemption date.

(2) We issued the $ 375 million aggregate principal amount of the 2030 Notes for total proceeds of $ 371 million ($ 367 million net of issuance costs) at an effective interest rate of 3.87 %.

(3) Prior to this date, we may, at our option on one or more occasions redeem up to 40 % of the 2030 Notes using the proceeds of certain equity offerings at a price equal to 103.75 % of the principal amount thereof;

plus accrued but unpaid interest, if any, to, but excluding the applicable redemption date.

We may redeem the 2025 Notes in whole or in part at redemption prices defined in the indenture governing the 2025 Notes plus accrued and unpaid interest though the redemption date.

At any point prior to maturity, we may redeem, at our option, some or all of the 2030 Notes plus the applicable “make-whole” premium as defined in the indenture governing the 2030 Notes plus accrued and unpaid interest through the redemption date.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

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Carrying value of Senior Unsecured Notes $ 1,780 $ 1,768

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.

We recorded approximately $ 19 million in interest expense related to the Senior Unsecured Notes in the three months ended March 31, 2023, compared to approximately $ 19 million in the three months ended March 31, 2022, respectively.

Convertible Notes

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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 September 30, 2022:

The following are summarized terms of the Convertible Notes as of March 31, 2023:

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

(in millions) (in millions)

2022 Convertible Senior Notes $ — (2)

2022 4.125 % March 1 and September 1 36.8366 $ 27.15 — $ 0.330

2023 Convertible Senior Notes 144 August 15,

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(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 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.

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

The current balance including accreted premium is $ 206 million.

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

$ 7.6 million principal amount of notes converted prior to the effectiveness of the redemption option, with the remaining notes being redeemed for cash of $ 0.5 million.

For the 2023 Convertible Senior Notes, following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the conversion rate for a holder that converts its convertible notes in connection with such make-whole fundamental change.

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We may redeem the 2023 Convertible Senior Notes at any time only if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT.

In April 2022, certain of our TRS jointly issued $ 200 million of 0.00 % Exchangeable Senior Notes due 2025 which are guaranteed by us and certain of our subsidiaries and may, under certain conditions, be exchangeable for our common stock.

Certain of our TRS have jointly issued $ 200 million of 0.00 % Exchangeable Senior Notes due 2025 which are guaranteed by us and certain of our subsidiaries and may, under certain conditions, be exchangeable for our common stock.

The notes accrete to a premium at maturity at an effective rate of 3.25 % annually.

Upon any exchange, holders will receive a number of shares of our common stock equal to the product of (i) the aggregate initial principal amount of the notes to be exchanged, divided by $1,000 and (ii) the applicable exchange rate, plus cash in lieu of fractional shares.

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.

We have allocated 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 following table presents a summary of the components of our Convertible Notes:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

Principal $ 344 $ 344

Accrued interest — —

Unamortized financing costs ( 3 ) ( 5 )

Carrying value of Convertible Notes

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 %.

We recorded approximately $ 2 million in interest expense related to our Convertible Notes in the three months ended March 31, 2023, compared to $ 1 million for the three months ended March 31, 2022, respectively.

CarbonCount Term Loan Facility

We have entered into an unsecured term loan facility with a syndicate of banks which has an outstanding principal amount of $ 383 million.

Principal 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 March 31, 2023, the applicable margin is 2.225 %, and the current interest rate is 6.98 %.

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

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Principal payments which were due under the term loan facility as of March 31, 2023 are as follows:

Future maturities

(in millions)

April 1, 2023 to December 31, 2023 $ 14

Unamortized Financing Costs ( 3 )

Carrying Value $ 380

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.

Interest rate swaps

In connection with several of our long-term borrowings, including floating-rate loans from our Term Loan Facility, and the anticipated refinancings of certain of our Senior Secured Notes, in the first quarter of 2023 we entered into the following interest rate swaps that are designated as cash flow hedges:

Fair Value as of

Index Hedged Rate Notional Value March 31, 2023 Term

$ in millions

1 month SOFR 3.788 % $ 400 $ ( 22 ) March 2023 to March 2033

Overnight SOFR 2.980 % 400 ( 1 ) June 2026 to June 2033

Overnight SOFR 3.085 % 600 ( 5 ) June 2026 to June 2033

Overnight SOFR 3.075 % 400 ( 4 ) April 2025 to April 2035

$ 1,800 $ ( 32 )

The fair values of our interest rate swaps designated and qualifying as effective cash flow hedges are reflected in our consolidated balance sheets as a component of other assets (if in an unrealized gain position) or accounts payable, accrued expenses and other (if in an unrealized loss position) and in net unrealized gains and losses in AOCI.

As of March 31, 2023, all of our derivatives were designated as hedging instruments which were deemed to be effective.

As of March 31, 2023, we have posted $ 20 million of collateral related to our interest rate swaps, which we have netted against the derivative liability in accounts payable, accrued expenses and other on our balance sheet.

Certain of the projects in which we have equity method investments also have interest rate swaps which are designated as cash flow hedges, and we recognize the portion of the gain or loss allocated to us related to those instruments through other comprehensive income.

Commitments and Contingencies

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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 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.

As of March 31, 2023, there have been no such actions resulting in claims against the Company.

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

As of March 31, 2023, 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 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 $( 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.

We recorded an income tax (expense) benefit of approximately $( 1 ) million for the three months ended March 31, 2023, respectively, compared to a $( 11 ) million income tax (expense) benefit in the three months ended March 31, 2022, respectively.

For the three months ended March 31, 2023 and 2022, 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 2023 and 2022.

Dividends and Distributions

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5/4/2023 7/5/2023 7/12/2023 $ 0.395

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 2023 for tax purposes.

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We may offer the securities directly, through agents, or to or through underwriters by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale or at negotiated prices and may include “at the market” (“ATM”) offerings to or through a market maker or into an existing trading market on an exchange or otherwise.

In January 2023, we established a dividend reinvestment and stock purchase plan, allowing stockholders and holders of OP Units (including LTIP Units) to purchase shares of our common stock by reinvesting cash dividends or distributions received.

We completed the following public offerings (including ATM issuances) of our common stock during 2023 and 2022:

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Q1 2022 ATM 1.050 $ 48.14 $ 50

Q2 2021 None — — —

Q2 2022 ATM 0.731 38.91 28

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Q1 2023 ATM 0.763 31.31 24

Q3 2022 ATM 1.346 36.85 49

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

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We have issued equity awards that vest from 2023 to 2027 subject to service, performance and market 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.

During the three months ended March 31, 2023, our board of directors awarded employees and directors 732,371 shares of restricted stock, restricted stock units and LTIP Units that vest from 2024 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 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.

For the three months ended March 31, 2023 we recorded $ 8 million of stock based compensation, compared to $ 4 million during the three months ended March 31, 2022.

We have a retirement policy which 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.

Employees are eligible for the retirement policy upon meeting age and years of service criteria.

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 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.

The total unrecognized compensation expense related to awards of shares of restricted stock and restricted stock units was approximately $ 30 million as of March 31, 2023.

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

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Forfeited ( 541 ) 36.58 —

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

Ending Balance — March 31, 2023 151,671 $ 36.65 $ 5.6

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

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Forfeited ( 10,686 ) 21.03 ( 0.2 )

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

Ending Balance — March 31, 2023 99,884 $ 48.58 $ 4.9

(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.

The incremental performance shares granted relate to the vesting of an award at the 200 % level.

The incremental performance shares granted relate to the vesting of awards at the actual performance level.

A summary of the unvested LTIP Units that have time-based vesting conditions that have been issued is as follows:

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Forfeited — — —

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

Ending Balance — March 31, 2023 529,246 $ 35.96 $ 19.1

(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 ( 56,102 ) 4.56 ( 0.3 )

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

Ending Balance — March 31, 2023 493,858 $ 47.76 $ 23.6

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

LTIP 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.

The incremental performance shares granted relate to the vesting of an award at the 200 % level.

The incremental performance shares granted relate to the vesting of awards at the actual performance level.

Earnings per Share of Common Stock

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions, except share and per share data)

14 unchanged sentences

Weighted-average number of OP units 1,186,616 675,207

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

As of March 31, 2023 As of March 31, 2022

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 $ 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.

We recognized income (loss) from our equity method investments of approximately $ 22 million during the three months ended March 31, 2023 compared to $ 48 million during the three months ended March 31, 2022.

We describe our accounting for non-controlling equity investments in Note 2.

3 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.

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

Certain of our equity method investments have the 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.

As these swaps are settled, the projects will sell power at the higher market price, offsetting the loss recognized on the energy hedges.

Jupiter Equity Holdings LLC Other Investments (1)

(in millions)

Balance Sheet

As of June 30, 2022

As of December 31, 2022

Current assets $ 112 $ 585 $ 697

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Income Statement

For the six months ended June 30, 2022

For the year ended December 31, 2022

Revenue ( 75 ) 603 528

1 unchanged sentence

Net income (loss) ( 270 ) ( 94 ) ( 364 )

For the six months ended June 30, 2021

For the year ended December 31, 2021

Revenue ( 253 ) 394 141

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