What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-09 · 95 added, 150 removed, 277 unchanged (47% of the section changed)

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1 to our Annual Report on Form 10-K for the year ended December 31, 2022 (collectively, our “2022 Form 10-K”), that was filed with the SEC .

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

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

public companies solely dedicated to climate solutions.

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

We are a climate positive investment firm that actively partners with clients to deploy real assets that facilitate the energy transition.

With more than $10 billion in managed assets, our vision is that every investment improves our climate future.

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

In addition to Net Investment Income from our portfolio, we also generate ongoing fees through gain-on-sale securitization transactions, asset management, and other services.

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

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

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

Our investments are focused on three markets:

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

• Sustainable Infrastructure (“SI”) :

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

• Fuels, Transport, and Nature (“FTN”) :

renewable natural gas (RNG) plants, transportation fleet enhancements, and ecological restoration projects, among others, that increase resiliency or more efficiently use natural resources.

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

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

We completed approximately $273 million and $944 million of transactions during the three and nine months ended September 30, 2022, respectively, compared to approximately $359 million and $1.1 billion during the same periods in 2021, respectively.

As of September 30, 2022, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $3.9 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of September 30, 2022, our Portfolio consisted of over 366 assets and we seek to manage the diversity of our Portfolio by, among other factors, project type, project operator, type of investment, type of technology, transaction size, geography, obligor and maturity.

We completed approximately $389 million of transactions during the three months ended March 31, 2023, compared to approximately $331 million during the same periods in 2022, respectively.

As of March 31, 2023, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $4.7 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of March 31, 2023, our Portfolio consisted of over 350 assets and we seek to manage the diversity of our Portfolio by, among other factors, project type, project operator, type of investment, type of technology, transaction size, geography, obligor and maturity.

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

As of September 30, 2022, we managed approximately $5.5 billion in assets in these securitization trusts or vehicles that are not consolidated on our balance sheet.

When combined with our Portfolio, as of September 30, 2022, we manage approximately $9.4 billion of assets which we refer to as our “Managed Assets”.

As of March 31, 2023, we managed approximately $5.7 billion in assets in these securitization trusts or vehicles that are not consolidated on our balance sheet.

When combined with our Portfolio, as of March 31, 2023, we manage approximately $10.4 billion of assets which we refer to as our “Managed Assets”.

We make our investments utilizing a variety of structures including:

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

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

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

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

• commercial and government receivables or securities;

• real estate.

Our equity investments in climate solutions projects are operated by various renewable energy companies or by joint ventures in which we participate.

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

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

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

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

We may finance our investments through the use of 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.

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

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

As of September 30, 2022, our pipeline consisted of more than $4.5 billion in new equity, debt and real estate opportunities.

Of our pipeline, 47% is related to BTM assets and 35% is related to GC assets, with the remainder related to other sustainable infrastructure.

As of March 31, 2023, our pipeline consisted of more than $5.0 billion in new equity, debt and real estate opportunities.

Of our pipeline, approximately 41% is related to BTM assets and 46% is related to GC assets, with the remainder related to FTN.

There can, however, be no assurance with regard to any specific terms of such pipeline transactions or that any or all of the transactions in our pipeline will be completed.

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Factors Impacting our Operating Results

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

We provide a summary of the factors impacting our operating results in our 2022 Form 10-K under MD&A – Factors Impacting our Operating Results.

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

We believe the estimates and assumptions used in preparing our financial statements and related footnotes are reasonable and supportable based on the best information available to us as of September 30, 2022.

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

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

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

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Our Portfolio

Our Portfolio totaled approximately $3.9 billion as of September 30, 2022 and included approximately $2.2 billion of BTM assets and approximately $1.6 billion of GC assets, with the remainder in SI assets.

Our Portfolio totaled approximately $4.7 billion as of March 31, 2023 and included approximately $2.5 billion of BTM assets and approximately $2.0 billion of GC assets, with the remainder in FTN assets.

Approximately 48% of our Portfolio consisted of unconsolidated equity investments in renewable energy related projects.

Approximately 45% consisted of fixed-rate commercial and government receivables and debt securities, which are classified as investments, on our balance sheet, and 7% of our Portfolio was real estate leased to renewable energy projects under lease agreements.

Our Portfolio consisted of over 366 transactions with an average size of $11 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 18 years as of September 30, 2022.

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

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

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

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

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

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

Our Portfolio consisted of over 350 transactions with an average size of $13 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 18 years as of March 31, 2023.

The table below provides details on the interest rate and maturity of our receivables and debt securities as of March 31, 2023:

Balance Maturity

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Fixed-rate receivables, interest rates from 6.50% to 8.00% per annum 746 2024 to 2069

Fixed-rate receivables, interest rates from 8.00% to 9.50% per annum 367 2025 to 2035

Fixed-rate receivables, interest rates greater than 9.50% per annum 525 2024 to 2061

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(1) Excludes receivables held for sale of $17 million.

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

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(dollars in millions)

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Interest expense (1)

$ 30 $ 27 $ 85 $ 79

Average balance of debt $ 3,096 $ 2,512

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

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

The following table provides a summary of our anticipated principal repayments for our receivables and investments as of March 31, 2023:

Payment due by Period

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

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

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

• the anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of March 31, 2023,

• the term of our leases and a schedule of our future minimum rental income under our land lease agreements as of March 31, 2023,

• the Performance Ratings of our Portfolio, and

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Results of Operations

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

Three Months Ended September 30, 2021

Three months ended September 30,

2022 2021 $ Change % Change

(dollars in thousands)

Interest income $ 34,303 $ 26,236 $ 8,067 31 %

Rental income 6,609 6,430 179 3 %

Gain on sale of receivables and investments 14,490 13,072 1,418 11 %

Fee income 4,748 3,144 1,604 51 %

Total Revenue 60,150 48,882 11,268 23 %

Interest expense 29,556 27,349 2,207 8 %

Provision for loss on receivables (2,463) 1,485 (3,948) (266) %

Compensation and benefits 12,933 12,218 715 6 %

General and administrative 8,150 4,964 3,186 64 %

Total expenses 48,176 46,016 2,160 5 %

Income (loss) before equity method investments 11,974 2,866 9,108 318 %

Income (loss) from equity method investments 30,552 (7,215) 37,767 (523) %

Income (loss) before income taxes 42,526 (4,349) 46,875 (1,078) %

Income tax (expense) benefit (7,585) 1,250 (8,835) (707) %

Net income (loss) $ 34,941 $ (3,099) $ 38,040 (1,228) %

• Net income (loss) increased by $38 million due to an increase in equity method investments income (loss) of $38 million and an $11 million increase in total revenue, offset by a $2 million increase in total expenses and a $9 million increase in income tax benefit (expense).

• Total revenue increased by $11 million due to a $8 million increase in interest income, driven primarily by a higher average Portfolio balance offset by a decrease in average interest rate and by a $3 million increase in gain on sale and fee income, driven by a change in the mix and volume of assets being securitized.

• Interest expense increased by $2 million primarily due to a larger average outstanding debt balance.

We released $2 million from our allowance for loan losses, driven primarily by improvements in loans in our Portfolio, offset partially by provision for loans and loan commitments made during the quarter.

• Compensation and benefits and general and administrative expenses increased by $4 million due to additional investment in corporate infrastructure and corporate governance expenses.

• Income (loss) from equity method investments using HLBV allocations increased by $38 million primarily due to income from new projects in the current period and lower losses related to mark to market losses on economic hedges used by some of our projects to reduce the impact of power price fluctuations.

• Income tax expense increased by $9 million primarily due to the increase in GAAP net income.

Comparison of the Nine Months Ended September 30, 2022 vs.

Nine Months Ended September 30, 2021

Nine Months Ended September 30,

Comparison of the Three Months Ended March 31, 2023 vs.

Three Months Ended March 31, 2022

Three months ended March 31,

2023 2022 $ Change % Change

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Gain on sale of receivables and investments 15,719 17,099 (1,380) (8) %

Fee income 12,557 8,769 3,788 43 %

Securitization income 3,432 2,741 691 25 %

Other Income 355 1,895 (1,540) (81) %

Total Revenue 69,101 58,476 10,625 18 %

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Net income (loss) $ 24,598 $ 45,703 $ (21,105) (46) %

• Net income decreased by $2 million due to a decrease in equity method investment income of $11 million, an increase in total expenses of $11 million, and a decrease in income tax (expense benefit) of $2 million, offset by an increase in total revenue of $22 million.

• Total revenue increased by $22 million due to a $22 million increase in interest income resulting from a higher average Portfolio balance and a $4 million increase in fee income due to additional deferred fee income on our securitizations, offset partially by a decrease in gain on sale revenue of $4 million due to a change in the mix of assets being securitized.

• Interest expense decreased by $10 million due to a one time loss on the redemption of senior unsecured notes in the prior period which did not recur, offset by additional expense from a larger average outstanding debt balance with a lower average rate.

We recorded a provision for loss on receivables of $6 million primarily as a result of loans and loan commitments.

• Compensation and benefits expense increased by $10 million primarily due to the acceleration of share based compensation associated with the adoption of a new retirement policy in the second quarter of 2022.

General and administrative expenses increased by $8 million due to additional investment in corporate infrastructure, charitable contributions, and an increase in corporate governance expenses.

• Income from equity method investments decreased by $11 million primarily due to the impact of increasing power prices and the resulting unrealized mark to market losses on economic hedges used by some of our projects to reduce the impact of power price fluctuations.

• Income tax expense increased by $2 million due to an increase in our estimated annual effective tax rate.

• Net income decreased by $21 million due to a decrease in equity method investments income of $25 million and a $16 million increase in total expenses, offset by an $11 million increase in total revenue and a $10 million decrease in income tax expense.

• Total revenue increased by $11 million due to a $14 million increase in interest income and securitization income, driven by a higher average Portfolio balance and by higher Managed Assets.

This was partially offset by decreases in gain on sale and other income, driven by a change in the mix and volume of assets being securitized and fewer fee generating opportunities.

• Interest expense increased by $11 million primarily due to a larger average outstanding debt balance and a higher average interest rate.

We recorded a $2 million provision for loss on receivables, driven primarily by loans and loan commitments made during the quarter.

• Compensation and benefits and general and administrative expenses increased by $4 million due to share-based compensation recognized upon the grant of awards as a result of our retirement policy, as well as additional investment in corporate infrastructure.

• Income (loss) from equity method investments using HLBV allocations decreased by $25 million primarily due to fewer tax attributes recognized by our co-investors which decreases our HLBV allocation of earnings.

• Income tax expense decreased by $10 million primarily due to the decrease in GAAP net income before taxes.

Non-GAAP Financial Measures

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

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

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

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

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

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

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

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

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

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

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

We believe this equity method investment adjustment to our GAAP net income (loss) in calculating our distributable earnings measure is an important supplement to the HLBV income

allocations determined under GAAP for an investor to understand the economic performance of these investments where HLBV income can differ substantially from the economic returns in any one period.

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

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

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

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

2022 2021 2022 2021

The following table provides results related to our equity method investments for the three months ended March 31, 2023 and 2022.

Three months ended March 31,

(in millions)

Income (loss) under GAAP $ 22 $ 48

Distributable earnings $ 31 $ 26 $ 99 $ 77

Return of capital/(deferred cash collections) 49 (13) 33 (42)

Collections of Distributable earnings $ 9 $ 8

Return of Capital 3 5

Cash collected $ 12 $ 13

$ 80 $ 13 $ 132 $ 35

(1) Cash collected during the three- and nine-months ended September 30, 2022 includes $64 million related to the issuance of debt by three of our equity method investees, the repayment of which we have guaranteed.

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

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

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

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

2022 2021 2022 2021

The table below provides a reconciliation of our GAAP net income (loss) to distributable earnings for the three months ended March 31, 2023 and 2022.

Three Months Ended March 31,

(dollars in thousands, except per share amounts)

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Equity method investments earnings adjustment 33,957 31,598

Equity-based compensation charges 2,060 3,715 17,993 13,503

Equity-based expenses 9,435 3,540

Provision for loss on receivables 1,883 621

(2,463) 1,485 6,222 2,896

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

Amortization of intangibles

760 823 2,360 2,468

Non-cash provision (benefit) for income taxes

7,585 (1,250) 13,794 11,510

Current year earnings attributable to non-controlling interest

407 (261) 676 366

Distributable earnings (2)

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

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

In 2017, the operator of the projects terminated the lease, at which time we filed a legal claim and placed these

assets on non-accrual status.

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

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

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

(3) Distributable earnings per share are based on 89,635,572 and 88,612,178 shares for the three and nine months ended September 30, 2022, respectively, and 83,912,769 and 83,118,733 shares for the three and nine months ended September 30, 2021, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership.

(2) Distributable earnings per share are based on 93,266,916 shares for the three months ended March 31, 2023, and 87,206,540 shares for the three months ended March 31, 2022, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership.

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(in thousands)

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Equity method earnings adjustment 33,957 31,598

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

Amortization of real estate intangibles 772 771

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

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

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

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

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

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

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

Unlevered portfolio yield was 7.4% as of September 30, 2022 and 7.5% as of December 31, 2021.

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

See Note 6 to our financial statements and MD&A - Our Business in this Form 10-Q for additional discussion of the characteristics of our portfolio as of September 30, 2022.

Our Portfolio totaled approximately $4.7 billion as of March 31, 2023.

Unlevered portfolio yield was 7.5% as of March 31, 2023 and 7.5% as of December 31, 2022.

See Note 6 to our financial statements and MD&A - Our Business in this Form 10-Q for additional discussion of the characteristics of our portfolio as of March 31, 2023.

Environmental Metrics

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

We estimate that our investments originated during the quarter ended September 30, 2022, will avoid annual carbon emissions by approximately 49,000 metric tons, equating to a CarbonCount® of 0.18.

We estimate that our investments originated during the quarter ended March 31, 2023, will avoid annual carbon emissions by approximately 92,000 metric tons, equating to a CarbonCount® of 0.24.

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

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

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

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

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

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

We have adequate liquidity as of September 30, 2022, with unrestricted cash balances of $273 million, an unsecured revolving credit facility with an unused capacity of $550 million, and $16 million of available capacity in our secured revolving credit facilities.

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

We have adequate liquidity as of March 31, 2023, with unrestricted cash balances of $142 million, an unsecured revolving credit facility with an unused capacity of $350 million, and $2 million of available capacity in our secured revolving credit facilities.

As of March 31, 2023, we had used the available $100 million capacity in our green commercial paper program.

During 2023, we have issued $24 million in equity.

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

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

In November of 2022, we entered into a delayed draw term loan facility with a committed and available amount of $383 million.

As of September 30, 2022, we had $418 million of non-recourse borrowings, $1.8 billion of senior unsecured notes and $344 million of Convertible Notes outstanding.

As of March 31, 2023, we had $404 million of non-recourse borrowings, $1.8 billion of senior unsecured notes, $383 million in term loans, and $344 million of Convertible Notes outstanding.

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

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

As of September 30, 2022, the outstanding balance of our assets financed through the use of these off-balance sheet transactions was approximately $5.5 billion.

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

As of March 31, 2023, the outstanding balance of our assets financed through the use of these off-balance sheet transactions was approximately $5.7 billion.

In addition to general operational obligations, which are typically paid as incurred, and dividends, which are declared by our board of directors quarterly, we have future cash needs related to the payments due at maturity on our Senior Unsecured Notes, and loans under our term loan facility and the balances of our short-term commercial paper issuances and revolving credit facilities.

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

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

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

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

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

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The amount of financial leverage we may deploy for particular assets will depend upon the availability of particular types of financing and our assessment of the credit, liquidity, price volatility and other risks of those assets, and the interest rate environment.

As shown in the table below, our debt to equity ratio was approximately 1.7 to 1 as of September 30, 2022, below our current board-approved leverage limit of up to 2.5 to 1.

Our percentage of fixed rate debt was approximately 93% as of September 30, 2022, which is within our targeted fixed rate debt percentage range of 75% to 100%.

As shown in the table below, our debt to equity ratio was approximately 2.0 to 1 as of March 31, 2023, below our current board-approved leverage limit of up to 2.5 to 1.

Our percentage of fixed rate debt was approximately 87% as of March 31, 2023, which is within our targeted fixed rate debt percentage range of 75% to 100%.

Our targeted fixed rate debt range allows for percentages as low as 70% on a short term basis if we intend to repay or swap floating rate borrowings in the near term.

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

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

March 31, 2023 % of Total December 31, 2022 % of Total

(dollars in millions) (dollars in millions)

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Leverage 2.0 to 1 1.8 to 1

(1) Floating-rate borrowings include borrowings under our floating-rate credit facilities and commercial paper issuances with less than six months original maturity.

(1) Floating-rate borrowings include borrowings under our floating-rate credit facilities and commercial paper issuances with less than six months original maturity, to the extent such borrowings are not hedged using interest rate swaps.

(2) Fixed-rate debt includes the portion of debt that is hedged using interest rate swaps.

Debt excludes securitizations that are not consolidated on our balance sheet.

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Sources and Uses of Cash

We had approximately $298 million and $251 million of unrestricted cash, cash equivalents, and restricted cash as of September 30, 2022 and December 31, 2021, respectively.

We had approximately $164 million and $176 million of unrestricted cash, cash equivalents, and restricted cash as of March 31, 2023 and December 31, 2022, respectively.

Cash flows relating to operating activities

Net cash provided by operating activities was approximately $64 million for the nine months ended September 30, 2022, driven primarily by net income of $62 million plus adjustments for non-cash and other items of $2 million.

The non-cash and other adjustments consisted of increases of $18 million related to equity-based compensation, $12 million of depreciation and amortization, $28 million related to changes in accounts payable and accrued expenses, $6 million related to provision for loss on receivables, and $5 million in changes in receivables held-for-sale.

These were partially offset by decreases of $26 million related to equity method investments, $25 million related to gains on securitizations, $10 million related to portfolio accrued interest, and $6 million related to other items.

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

The non-cash and other adjustments consisted of decreases of $46 million related to equity method investments, $38 million related to gains

on securitizations, $10 million related to portfolio accrued interest, and $3 million related to other items.

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

Net cash provided by operating activities was approximately $49 million for the three months ended March 31, 2023, driven primarily by net income of $25 million plus adjustments for non-cash and other items of $24 million.

The non-cash and other adjustments consisted of increases of $8 million related to equity-based compensation, $4 million of depreciation and amortization, $3 million related to changes in accounts payable and accrued expenses and other items, $2 million related to provision for loss on receivables, and $37 million in changes in receivables held-for-sale.

These were partially offset by decreases of $11 million related to equity method investments, $7 million related to gains on securitizations, and $12 million related to portfolio accrued interest.

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

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

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

Cash flows relating to investing activities

Net cash used in investing activities was approximately $254 million for the nine months ended September 30, 2022.

We made $340 million of investments in receivables and fixed rate debt-securities, made $144 million of equity method investments and purchased $5 million of real estate.

We collected $107 million of principal payments from receivables and fixed rate debt-securities, $101 million from equity method investments in excess of income recognized to date under GAAP, and $12 million from the sale of receivables and investments, and withdrew $15 million from escrow accounts.

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

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

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

Net cash used in investing activities was approximately $449 million for the three months ended March 31, 2023.

We made $97 million of investments in receivables and fixed rate debt-securities, made collateral deposits of $21 million, and made $363 million of equity method investments.

We collected $23 million of principal payments from receivables and fixed rate debt-securities, $1 million from equity method investments in excess of income recognized to date under GAAP, and $8 million from the sale of receivables and investments.

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

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

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

Cash flows relating to financing activities

Net cash provided by financing activities was approximately $237 million for the nine months ended September 30, 2022.

We received $200 million from the issuance of Convertible Notes, $100 million from our credit facilities, $127 million of net proceeds from issuances of common stock and $50 million of net proceeds from the issuance of green commercial paper notes, which were offset by $100 million of payments on credit facilities, $22 million of principal prepayments on non-recourse debt, $8 million for financing costs, $3 million for withholding requirements resulting from the vesting of employee shares and payments of $107 million of dividends, distributions and other items.

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

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

Net cash provided by financing activities was approximately $388 million for the three months ended March 31, 2023.

We received $312 million from our credit facilities, $23 million of net proceeds from issuances of common stock and $100 million of net proceeds from the issuance of green commercial paper notes, which were offset by $5 million of payments on credit facilities, $5 million of principal prepayments on non-recourse debt, $1 million for withholding requirements resulting from the vesting of employee shares and payments of $36 million of dividends, distributions and other items.

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

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

Off-Balance Sheet Arrangements

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

Other than our securitization assets (including any outstanding servicer advances) of approximately $181 million as of September 30, 2022, that may be at risk in the event of defaults or prepayments in our securitization trusts and as discussed below, and except as disclosed in Note 9 to our financial statements in this Form 10-Q, we have not guaranteed any obligations of non-consolidated entities or entered into any commitment or intent to provide additional funding to any such entities.

Other than our securitization assets (including any outstanding servicer advances) of approximately $200 million as of March 31, 2023, that may be at risk in the event of defaults or prepayments in our securitization trusts and as discussed below, and except as disclosed in Note 9 to our financial statements in this Form 10-Q, we have not guaranteed any obligations of non-consolidated entities or entered into any commitment or intent to provide additional funding to any such entities.

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

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Book Value Considerations

As of September 30, 2022, we carried only our investments and residual assets in securitized financial assets at fair value on our balance sheet.

As of March 31, 2023, we carried only our investments, residual assets in securitized financial assets, and derivatives at fair value on our balance sheet.

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

Other than our investments and the residual assets in securitized financial assets that are carried on our balance sheet at fair value as of September 30, 2022, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP, adjusted for income or loss recognized on such assets.

Other than our investments and the residual assets in securitized financial assets that are carried on our balance sheet at fair value as of March 31, 2023, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP, adjusted for income or loss recognized on such assets.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis