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We source and identify quality opportunities within our broad areas of expertise and apply our rigorous underwriting processes to our transactions, which, we believe, will generally enable us to minimize our credit losses and maintain access to attractive financing.
−Removed: In the case of various renewable energy and other sustainable infrastructure projects, we will be exposed to
−Removed: the credit risk of the obligor of the project’s PPA or other long-term contractual revenue commitments, as well as to the credit risk of certain suppliers and project operators.
+Added: In the case of various renewable energy and other sustainable infrastructure projects, we will be exposed to the credit risk of the obligor of the project’s PPA or other long-term contractual revenue commitments, as well as to the credit risk of certain suppliers and project operators.
While we do not anticipate facing significant credit risk in our assets related to government energy efficiency projects, we are subject to varying degrees of credit risk in these projects in relation to guarantees provided by ESCOs where payments under energy savings performance contracts are contingent upon achieving pre-determined levels of energy savings.
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We seek to manage credit risk through thorough due diligence and underwriting processes, strong structural protections in our transaction agreements with customers and continual, active asset management and portfolio monitoring.
−Removed: Nevertheless, unanticipated credit losses could occur and during periods of economic downturn in the global economy, our exposure to credit risks from obligors increases, and our efforts to monitor and mitigate the associated risks may not be effective in reducing our credit risks.
+Added: Nevertheless, unanticipated credit losses could occur and during periods of economic downturn in the global economy, our exposure to credit
+Added: risks from obligors increases, and our efforts to monitor and mitigate the associated risks may not be effective in reducing our credit risks.
We utilize a risk rating system to evaluate projects that we target.
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Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
−Removed: We are subject to interest rate risk in connection with new asset originations and our borrowings, including our credit facilities and commercial paper program, and in the future, any new floating rate assets, credit facilities or other borrowings.
+Added: We are subject to interest rate risk in connection with new asset originations and our floating-rate borrowings, and in the future, any new floating rate assets, credit facilities or other borrowings.
Because short-term borrowings are generally short-term commitments of capital, lenders may respond to market conditions, making it more difficult for us to secure continued financing.
7 unchanged sentences
We monitor the impact of interest rate changes on the market for new originations and often have the flexibility to negotiate the term of our investments to offset interest rate increases.
−Removed: Typically, our long-term debt, or that of the projects in which we invest if applicable, is at fixed rates or at times interest rate hedges may be used to convert most of the floating rate debt to fixed rate debt.
+Added: Typically, our long-term debt, or that of the projects in which we invest if applicable, is at fixed rates or may at times be fixed using interest rate hedges that convert most of the floating rate debt to fixed rate debt.
If interest rates rise, and our fixed rate debt balance remains constant, we expect the fair value of our fixed rate debt to decrease and the value of our hedges, if any, on floating rate debt to increase.
See Note 3 to our financial statements in this Form 10-Q for the estimated fair value of our fixed rate long-term debt, which is based on having the same debt service requirements that could have been borrowed at the date presented, at prevailing current market interest rates.
−Removed: We have $200 million of debt with variable interest rates outstanding as of September 30, 2022, including our revolving credit facilities and borrowings under our commercial paper program.
+Added: We have $439 million of debt with variable interest rates outstanding as of March 31, 2023, including the unhedged portion of loans under our term loan facility, revolving credit facilities and borrowings under our commercial paper program.
Future increases in interest rates would result in higher interest expense while future decreases in interest rates would result in lower interest expense.
As described above, we may use various financing techniques including interest rate swap agreements, interest rate cap agreements or other financial instruments, or a combination of these strategies to mitigate the variable interest nature of these facilities.
−Removed: A 50 basis point increase in benchmark interest rates would increase the quarterly interest expense related to the $200 million in variable rate
−Removed: borrowings by $251 thousand.
−Removed: Such hypothetical impact of interest rates on our variable rate borrowings does not consider the effect of any change in overall economic activity that could occur in a rising interest rate environment.
+Added: A 50 basis point increase in benchmark interest rates would increase the quarterly interest expense related to the $439 million in floating-rate borrowings by $549 thousand.
+Added: Such hypothetical impact of interest rates on our floating-rate borrowings does not consider the effect of any change in overall economic activity that could occur in a rising interest rate environment.
Further, in the event of such a change in interest rates, we may take actions to further mitigate our exposure to such a change.
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Projects in which we invest, or in which we may plan to invest, may also be exposed to volatility in the prices of environmental attributes, such as renewable energy credits or other similar credits which the project may produce.
−Removed: Although we generally focus on renewable energy projects that have the majority of their operating cash flow supported by long-term PPAs or leases, many of our projects have shorter term contracts (which may have the potential of producing higher current returns) or sell their power or environmental attributes in the open market on a merchant basis.
+Added: Although we generally focus on renewable energy projects that have the majority of their operating cash flow supported by long-term PPAs or leases, many projects have shorter term contracts (which may have the potential of producing higher current returns) or sell their power or environmental attributes in the open market on a merchant basis.
The cash flows of certain projects, and thus the repayment of, or the returns available for, our assets, are subject to risk if energy or environmental attribute prices change.
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When structuring and underwriting these transactions, we evaluate these transactions using a variety of scenarios, including natural gas prices remaining low for an extended period of time.
−Removed: Despite these protections, as natural gas price volatility continues or PPAs expire, the cash flows from certain of our projects are exposed to these market conditions and we work with the projects sponsors to minimize any impact as part of our on-going active asset management and portfolio monitoring.
+Added: Despite these protections, as natural gas price volatility continues or PPAs expire, the cash flows from certain projects are exposed to these market conditions and we work with the projects sponsors to minimize any impact as part of our on-going active asset management and portfolio monitoring.
We often invest in utility scale solar projects by owning the land under the project where our rent is paid out of project operational costs before the debt or equity in the project receives any payments.
Certain of the projects in which we invest may also be obligated to physically deliver energy under PPAs or related agreements, and to the extent they are unable to do so may be negatively impacted.
−Removed: Certain PPAs or related agreements may also price power at a location different than the location where power is delivered to the grid, and the projects may be negatively impacted to the extent to which these prices differ.
−Removed: We believe high prices in natural gas may increase the demand for other projects such as renewable energy that may be a substitute for natural gas, and that low prices in natural gas may increase demand for some types of our projects, such as combined heat and power.
+Added: Certain PPAs or related agreements may also price power at a different location than the location where power is delivered to the grid, and the projects may be negatively impacted to the extent to which these prices differ.
+Added: We believe high prices in natural gas may increase the demand for other projects such as renewable energy that may be a substitute for natural gas, and that low prices in natural gas may increase demand for some types of projects, such as combined heat and power.
We seek to structure our energy efficiency investments so that we typically avoid exposure to commodity price risk.
−Removed: Volatility in retail power prices may cause building owners and other parties to be reluctant to commit to projects for which repayment is based upon a fixed monetary value for energy savings that would not decline if the price of energy declines.
+Added: However, volatility in energy prices may cause building owners and other parties to be reluctant to commit to projects for which repayment is based upon a fixed monetary value for energy savings that would not decline if the price of energy declines.
Environmental Risks
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As described above, we engage in a variety of interest rate management techniques that seek to mitigate the economic effect of interest rate changes on the values of, and returns on, some of our assets.
−Removed: While we have written off only two transactions amounting to approximately $19 million (net of recoveries) on the over $9 billion of loans and real estate transactions we originated since 2012, which represents an aggregate loss of approximately 0.2% on cumulative such transactions originated over this time period, there can be no assurance that we will continue to be as successful, particularly as we invest in more credit sensitive assets or more equity investments and engage in increasing numbers of transactions with obligors other than U.S.
+Added: While we have written off only two transactions amounting to approximately $19 million (net of recoveries) on the approximately $10 billion of loans and real estate transactions we originated since 2012, which represents an aggregate loss of approximately 0.2% on cumulative such transactions originated over this time period, there can be no assurance that we will continue to be as successful, particularly as we invest in more credit sensitive assets or more equity
+Added: investments and engage in increasing numbers of transactions with obligors other than U.S.
federal government agencies.
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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.