What changed in this filing

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Item 1. Financial Statements

2023-11-03 compared with 2023-08-04 · 217 added, 148 removed, 929 unchanged (28% of the section changed)

3 unchanged sentences

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

June 30, 2023 (unaudited) December 31, 2022

September 30, 2023 (unaudited) December 31, 2022

Cash and cash equivalents $ 155,500 $ 155,714

6 unchanged sentences

Investments 9,370 10,200

Securitization assets 203,743 177,032

Securitization assets, net of allowance of $ 3 million and $ 0 , respectively

182,824 177,032

Other assets 69,253 119,242

4 unchanged sentences

Commercial paper notes 49,974 192

Term loan facility 374,996 379,742

Term loans payable 567,244 379,742

Non-recourse debt (secured by assets of $ 245 million and $ 632 million, respectively)

16 unchanged sentences

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

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

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

2023 2022 2023 2022

1 unchanged sentence

Rental income 6,039 6,609 19,013 19,716

Gain on sale of receivables and investments 14,791 19,664 30,510 36,762

Securitization income 4,330 2,798 7,762 5,540

Gain on sale of assets 22,405 14,490 52,915 51,252

Securitization asset income 5,620 4,403 13,381 9,943

Other income 1,492 345 2,353 2,614

1 unchanged sentence

Interest expense 43,295 29,556 120,413 85,035

Provision for loss on receivables 806 8,064 2,689 8,685

Provision (benefit) for loss on receivables and securitization assets 9,792 ( 2,463 ) 12,481 6,222

Compensation and benefits 16,296 12,933 48,527 50,108

17 unchanged sentences

(DOLLARS IN THOUSANDS)

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

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

2023 2022 2023 2022

Net income (loss) $ 21,647 $ 34,941 $ 59,767 $ 62,107

Unrealized gain (loss) on available-for-sale securities, net of tax benefit (provision) of $ 0.3 million and $ 0.0 million for the three and six months ended June 30, 2023 and $ 0.6 million and $ 1.5 million for the three and six months ended June 30, 2022

Unrealized gain (loss) on available-for-sale securities and securitization assets, net of tax benefit (provision) of $ 0.6 million and $ 0.6 million for the three and nine months ended September 30, 2023 and $ 0.8 million and $ 2.3 million for the three and nine months ended September 30, 2022

( 20,614 ) ( 12,697 ) ( 17,046 ) ( 56,855 )

Unrealized gain (loss) on interest rate swaps, net of tax benefit (provision) of $ 1.1 million and $ 1.4 million for the three and six months ended June 30, 2023 and $( 3.5 ) million and $( 3.6 ) million for the three and six months ended June 30, 2022

Unrealized gain (loss) on interest rate swaps, net of tax benefit (provision) of $( 26.4 ) million and $( 24.9 ) million for the three and nine months ended September 30, 2023 and $( 6.1 ) million and $( 9.7 ) million for the three and nine months ended September 30, 2022

76,597 20,109 75,481 31,910

9 unchanged sentences

Shares Amount

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

Balance at June 30, 2023 106,769 $ 1,068 $ 2,283,257 $ ( 326,413 ) $ ( 8,002 ) $ 43,998 $ 1,993,908

Net income (loss) — — — 21,446 — 201 21,647

Unrealized gain (loss) on available-for-sale securities — — — — ( 5,238 ) ( 70 ) ( 5,308 )

Unrealized gain (loss) on available-for-sale securities and securitization assets — — — — ( 20,363 ) ( 251 ) ( 20,614 )

Unrealized gain (loss) on interest rate swaps — — — — 75,629 968 76,597

3 unchanged sentences

Issuance (repurchase) of vested equity-based compensation shares 3 — ( 33 ) — — — ( 33 )

Purchase of capped calls — — ( 37,835 ) — — — ( 37,835 )

Dividends and distributions — — — ( 43,962 ) — ( 733 ) ( 44,695 )

Balance at September 30, 2023 111,166 $ 1,112 $ 2,353,453 $ ( 348,929 ) $ 47,264 $ 46,994 $ 2,099,894

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

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

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

Unrealized gain (loss) on available-for-sale securities — — — — ( 21,188 ) ( 260 ) ( 21,448 )

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

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

3 unchanged sentences

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

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

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

See accompanying notes.

4 unchanged sentences

— — — 59,075 — 692 59,767

Unrealized gain (loss) on available-for-sale securities

— — — — 3,521 47 3,568

Unrealized gain (loss) on available-for-sale securities and securitization assets — — — — ( 16,841 ) ( 205 ) ( 17,046 )

Unrealized gain (loss) on interest rate swaps — — — — 74,502 979 75,481

3 unchanged sentences

Conversion of Convertible Notes — 2 — — — 2

Purchase of capped calls — — ( 37,835 ) — — — ( 37,835 )

Dividends and distributions — — — ( 122,530 ) — ( 2,595 ) ( 125,125 )

Balance at June 30, 2023 106,770 $ 1,068 $ 2,283,255 $ ( 326,413 ) $ ( 8,003 ) $ 43,998 $ 1,993,905

Balance at September 30, 2023 111,166 $ 1,112 $ 2,353,453 $ ( 348,929 ) $ 47,264 $ 46,994 $ 2,099,894

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

1 unchanged sentence

— — — 61,431 — 676 62,107

Unrealized gain (loss) on available-for-sale securities

— — — — ( 43,720 ) ( 438 ) ( 44,158 )

Unrealized gain (loss) on available-for-sale securities and securitization assets — — — — ( 56,236 ) ( 619 ) ( 56,855 )

Unrealized gain (loss) on interest rate swaps — — — — 31,563 347 31,910

4 unchanged sentences

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

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

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

See accompanying notes.

2 unchanged sentences

(DOLLARS IN THOUSANDS)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

24 unchanged sentences

Proceeds from sales of investments and securitization assets — 7,020

Funding of escrow accounts — ( 228 )

Withdrawal from escrow accounts — 15,156

Posting of hedge collateral ( 13,380 ) —

Other ( 285 ) ( 815 )

3 unchanged sentences

Principal payments on credit facilities ( 342,000 ) ( 100,000 )

Proceeds from issuance of term loan 200,000 —

Principal payments on term loan ( 9,575 ) —

3 unchanged sentences

Proceeds from issuance of convertible notes 402,500 200,000

Principal payments on convertible notes ( 143,748 ) —

Purchase of capped calls related to the issuance of convertible notes ( 37,835 ) —

Net proceeds of common stock issuances 465,015 127,008

2 unchanged sentences

Payment of financing costs ( 13,302 ) ( 8,203 )

Receipt of hedge collateral 106,330 —

Other ( 2,493 ) ( 8,128 )

6 unchanged sentences

Residual assets retained from securitization transactions $ 26,020 $ 25,374

Equity method investments received upon deconsolidation of a special purpose entity 144,603 —

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

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

September 30, 2023

Hannon Armstrong Sustainable Infrastructure Capital, Inc.

18 unchanged sentences

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

Our results of operations for the three- and six-month periods ended June 30, 2023 and 2022, are not necessarily indicative of the results to be expected for the full year or any other future period.

Our results of operations for the three- and nine-month periods ended September 30, 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.

119 unchanged sentences

If the amortized cost of servicing assets is greater than the estimated fair value, we will recognize an impairment in net income.

We account for our other retained interests in securitized assets, the residual assets, similar to available-for-sale debt securities and carry them at fair value, with changes in fair value recorded in AOCI.

We account for our other retained interests in securitized financial assets, the residual assets, similar to available-for-sale debt securities and carry them 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.

34 unchanged sentences

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 due to their requirement to post collateral.

We have entered into certain capped call transactions to mitigate the economic dilution that may result from the conversion or exchange of certain of our Convertible Notes.

These transactions are freestanding equity-linked derivative instruments that qualify for the exemption for contracts indexed to, and settled in, an issuer’s own equity found in ASC 815, and accordingly the payment of the option premium was recorded as a reduction of Additional Paid-in-Capital within our Statement of Stockholders’ Equity.

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

19 unchanged sentences

From time to time, we may grant equity or equity-based awards under our equity incentive plans as compensation to our senior management team, independent directors, employees, advisors, consultants and other personnel.

Certain awards earned under each plan are based on achieving various performance targets, which are generally earned between 0 % and 200 % of the initial target, depending on the extent to which the performance target is met.

Certain awards

earned under each plan are based on achieving various performance targets, which are generally earned between 0 % and 200 % of the initial target, depending on the extent to which the performance target is met.

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.

21 unchanged sentences

No adjustment is made for shares of potential common stock that are anti-dilutive during a period.

Our capped call transactions are anti-dilutive and therefore their impact will be excluded from earnings per share.

Segment Reporting

1 unchanged sentence

Recently Issued Accounting Pronouncements

Accounting standards updates issued before August 4, 2023, and effective after June 30, 2023, are not expected to have a material effect on our consolidated financial statements and related disclosures.

Accounting standards updates issued before November 3, 2023, and effective after September 30, 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 June 30, 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.

As of September 30, 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:

7 unchanged sentences

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

As of June 30, 2023

As of September 30, 2023

Fair Value Carrying

4 unchanged sentences

Investments (1)

10 10 Level 3

Securitization residual assets (2)

4 unchanged sentences

Commercial paper notes 50 50 Level 3

Term loan facility 378 378 Level 3

Term loans payable 573 573 Level 3

Non-recourse debt 158 170 Level 3

1 unchanged sentence

Convertible Notes:

2023 Convertible Senior Notes 140 144 Level 2

2028 Exchangeable Senior Notes 393 405 Level 2

2025 Exchangeable Senior Notes 193 210 Level 2

Total Convertible Notes 586 615

Derivative liabilities 8 8 Level 2

(1) The amortized cost of our investments as of June 30, 2023, was $ 12 million.

(1) The amortized cost of our investments as of September 30, 2023, was $ 12 million.

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

The amortized cost of our securitization residual assets as of June 30, 2023 was $ 247 million.

The amortized cost of our securitization residual assets net of allowance for credit losses as of September 30, 2023 was $ 247 million.

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

25 unchanged sentences

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

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

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

2023 2022 2023 2022

5 unchanged sentences

Unrealized gains (losses) on securitization residual assets recorded in OCI ( 20 ) ( 12 ) ( 16 ) ( 56 )

Provision for loss on securitization residual assets ( 3 ) — ( 3 ) —

Balance, end of period $ 183 $ 178 $ 183 $ 178

4 unchanged sentences

(in millions)

June 30, 2023 $ 42 $ 142 $ 2 $ 43 20 60

September 30, 2023 $ 30 $ 143 $ 3 $ 66 18 67

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.

(1) Other than the assets discussed in Note 5, 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 of approximately 1 % to 6 % based upon transactions involving similar assets as of June 30, 2023 and December 31, 2022.

The weighted average discount rates used to determine the fair value of our securitization residual assets as of June 30, 2023 and December 31, 2022 were 6.6 % and 6.8 %, respectively.

The weighted average discount rates used to determine the fair value of our securitization residual assets as of September 30, 2023 and December 31, 2022 were 7.5 % and 6.8 %, respectively.

Non-recurring Fair Value Measurements

8 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

7 unchanged sentences

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 six months ended June 30, 2023 or June 30, 2022.

No OP units were redeemed by non-controlling interest holders during the nine months ended September 30, 2023 or September 30, 2022.

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

7 unchanged sentences

The following summarizes certain transactions with securitization trusts:

As of and for the six months ended June 30,

As of and for the nine months ended September 30,

(in millions)

11 unchanged sentences

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 5 % to 10 % for the six months ended June 30, 2023.

As of June 30, 2023 and December 31, 2022, our managed assets totaled $ 10.7 billion and $ 9.8 billion, respectively, of which $ 5.8 billion and $ 5.5 billion, respectively, were securitized assets held in unconsolidated securitization trusts.

There were no securitization credit losses in the six months ended June 30, 2023 or June 30, 2022.

As of June 30, 2023, 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 nine months ended September 30, 2023.

As of September 30, 2023 and December 31, 2022, our managed assets totaled $ 11.5 billion and $ 9.8 billion, respectively, of which $ 6.0 billion and $ 5.5 billion, respectively, were securitized assets held in unconsolidated securitization trusts.

In the third quarter of 2023, we recorded an allowance for losses on securitization residual assets related to prepayable assets secured by real estate.

While there is no change in the underlying credit quality of the securitized assets, we have revised our estimates of cash flows due to prepayments on certain of these assets.

The following table reconciles our beginning and ending allowance for loss on securitization residual assets:

Three months ended September 30, 2023 Three months ended September 30, 2022

Government Commercial Government Commercial

(in millions)

Beginning balance $ — $ — $ — $ —

Provision for loss on securitization assets — 3 — —

Ending balance $ — $ 3 $ — $ —

Nine months ended September 30, 2023 Nine months ended September 30, 2022

Government Commercial Government Commercial

(in millions)

Beginning balance $ — $ — $ — $ —

Provision for loss on securitization assets — 3 — —

Ending balance $ — $ 3 $ — $ —

As of September 30, 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 $ 101 million of our securitization residual assets.

2 unchanged sentences

The remainder of our securitization residual assets are related to c ontracts where the underlying cash flows are secured by an interest in real estate which are typically senior in terms of repayment to other financings.

We recognized a gain of approximately $ 19 million upon deconsolidation of certain land assets and the debt to which those assets were pledged, which is included in gain on sale of receivables, investments, and other assets in our income statement.

Our Portfolio

As of June 30, 2023, our Portfolio included approximately $ 4.9 billion of equity method investments, receivables, real estate and investments on our balance sheet.

As of September 30, 2023, our Portfolio included approximately $ 5.5 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 climate solutions projects.

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 June 30, 2023, which is assessed quarterly:

The following is an analysis of the Performance Ratings of our Portfolio as of September 30, 2023, which is assessed quarterly:

Portfolio Performance

31 unchanged sentences

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

As of June 30, 2023, our allowance for loan losses was $ 44 million based on our expectation of credit losses over the lives of the receivables in our portfolio.

During the three months ended June 30, 2023, we increased our reserve by approximately $ 1 million, due to new loans and loan commitments made during the period which were partially offset by the release of an allowance related to loans that were collected in full.

Below is a summary of the carrying value, loan funding commitments, and allowance by type of receivable or “Portfolio Segment”, as defined by Topic 326, as of June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

As of September 30, 2023, our allowance for losses on receivables was $ 51 million based on our expectation of credit losses over the lives of the receivables in our portfolio.

During the three months ended September 30, 2023, we increased our reserve by approximately $ 7 million, due to new loans and loan commitments made during the period.

During the three months ended September 30, 2023, we entered into a variable rate revolving credit facility with an energy services company secured by projects in development, with a maximum principal amount of $ 300 million and that matures in 2026.

As of September 30, 2023, the principal amount of the facility was $ 213 million and the facility bore interest at a rate of 9.7 %.

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, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

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

5 unchanged sentences

Total $ 2,850 $ 464 $ 51 $ 2,031 $ 256 $ 41

(1) As of June 30, 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 hold 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 $ 48 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.

(1) As of September 30, 2023, this category of assets includes $ 1.4 billion of mezzanine loans made on a non-recourse basis to special purpose subsidiaries of residential solar companies which hold residential solar assets where we rely on certain limited indemnities, warranties, and other obligations of the residential solar companies or their other subsidiaries.

Risk characteristics of our commercial receivables include a project’s operating risks, which include the impact of 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 trends in interest rates.

2 unchanged sentences

For those assets, 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 $ 51 million allowance on these $ 2.8 billion in assets as a result of lower probability assumptions utilized in our allowance methodology.

(2) As of June 30, 2023, our government receivables include $ 10 million of U.S.

(2) As of September 30, 2023, our government receivables include $ 10 million of U.S.

federal government transactions and $ 83 million of transactions where the ultimate obligors are state or local governments.

5 unchanged sentences

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

Three months ended June 30, 2023 Three months ended June 30, 2022

Three months ended September 30, 2023 Three months ended September 30, 2022

Government Commercial Government Commercial

2 unchanged sentences

Provision for loss on receivables — 7 — ( 3 )

Write-off of allowance — — — ( 8 )

Ending balance $ — $ 51 $ — $ 34

Six months ended June 30, 2023 Six months ended June 30, 2022

Nine months ended September 30, 2023 Nine months ended September 30, 2022

Government Commercial Government Commercial

5 unchanged sentences

We have no receivables on non-accrual status.

The following table provides a summary of our anticipated maturity dates of our receivables and the weighted average yield for each range of maturities as of June 30, 2023:

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, 2023:

Total Less than 1

4 unchanged sentences

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 2052 under the initial terms and 2047 and 2080 if all renewals are exercised.

The components of our real estate portfolio as of June 30, 2023 and December 31, 2022, were as follows:

June 30, 2023 December 31, 2022

In the third quarter of 2023, a majority of our land and related intangibles were deconsolidated, and we retain a residual interest in those assets in the form of equity method investments as discussed in Other Equity Method Investments below.

The components of our real estate portfolio as of September 30, 2023 and December 31, 2022, were as follows:

September 30, 2023 December 31, 2022

(in millions)

3 unchanged sentences

Real estate $ 111 $ 353

As of June 30, 2023, the future amortization expense of the intangible assets and the future minimum rental income payments under our land lease agreements are as follows:

As of September 30, 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 July 1, 2023 to December 31, 2023 $ 1 $ 12

From October 1, 2023 to December 31, 2023 $ — $ 6

Thereafter 9 673

2 unchanged sentences

We have made non-controlling equity investments in a number of climate solutions projects that we account for as equity method investments.

As of June 30, 2023, we held the following equity method investments:

As of September 30, 2023, we held the following equity method investments:

Investment Date Investee Carrying Value

4 unchanged sentences

Total equity method investments $ 2,564

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

(1) Represents the total of five 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 June 30, 2023, we have made capital contributions to Jupiter of approximately $ 562 million related to these projects reflecting final funding true-ups after all projects reached substantial completion.

As of September 30, 2023, we have made capital contributions to Jupiter of approximately $ 562 million related to these projects reflecting final funding true-ups after all projects reached substantial completion.

Alongside the project sponsor and under terms outlined in the partnership agreement, we have made $ 10 million in working capital loans to Jupiter for one-time contract restructuring expenses and payments related to winter storm Uri.

9 unchanged sentences

Lighthouse Renewables Portfolio

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 $ 590 million through June 30, 2023, and additional investments are expected to be made as the remaining projects become commercially operational.

We have entered into certain agreements relating to the acquisition, ownership and management of preferred cash equity investments in five 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 $ 692 million through September 30, 2023, and additional investments are expected to be made as the remaining projects become commercially operational.

We expect to make additional capital contributions of $ 192 million, with the final contribution being made in 2024.

Alongside the project sponsor and under terms outlined in the partnership agreement, we have made $ 17 million in working capital loans to the Lighthouse Partnerships primarily for payments related to winter storm Uri.

7 unchanged sentences

We use the equity method of accounting to account for our preferred equity interest in each Lighthouse Partnership, and have elected to recognize earnings from this investment one quarter in arrears to allow for the receipt of financial information.

Other Equity Method Investments

In the third quarter of 2023, we entered into an agreement with an existing securitization partner to amend the contractual terms of certain non-recourse debt agreements, which caused us to deconsolidate the entities holding such debt and its pledged collateral.

Our retained interest in those entities are equity method investments, which hold land and associated operating leases as well as financial assets where the ultimate obligors are grid-connected solar projects.

The carrying value of these equity method investments is $ 152 million.

Our retained interest is in the form of an equity method investment, instead of a Securitization Asset, due to the nature of the underlying assets being predominantly real property.

Related Party Transactions

7 unchanged sentences

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

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

(in millions)

4 unchanged sentences

Credit facilities and commercial paper notes

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 with a maximum outstanding principal amount of $ 200 million.

Secured credit facilities

We previously had a secured revolving credit facility in the form of an approval-based loan agreement with various lenders with a maximum outstanding principal amount of $ 200 million.

In July of 2023, we extended the maturity of the facility from July 2023 to January 2024.

In the third quarter of 2023, we amended the facility to a term loan.

See Note 8 to our financial statements for discussion of the current terms of that loan.

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 June 30, 2023:

Approval-Based Facility

(dollars in millions)

Outstanding balance $ 107

Value of collateral pledged to credit facility 219

Available capacity based on pledged assets 4

Weighted average short-term borrowing rate 7.22 %

Prior to the July 2023 amendment and extension, loans under the Approval-Based Facility bore 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).

Subsequent to the amendment and extension, loans under the Approval-Based Facility bear interest at daily SOFR plus 2.25 %.

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 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 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 June 30, 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, subsequent to the July 2023 amendment, accrual of default interest at a rate of the applicable interest rate plus 2.00 %.

Unsecured revolving credit facilities

1 unchanged sentence

In the second quarter of 2023, we increased the maximum outstanding borrowing amount of the facility from $ 600 million to $ 840 million.

As of June 30, 2023, the outstanding balance on this facility was $ 175 million, and it currently bears interest at a weighted average rate of 7.02 %.

As of September 30, 2023, the outstanding balance on this facility was $ 487 million, and it currently bears interest at a weighted average rate of 7.25 %.

We have approximately $ 3 million of remaining unamortized financing costs associated with the unsecured revolving 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.

The unsecured revolving credit facility has a commitment fee based on our current credit rating and bears interest at a rate of SOFR or prime rate 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 unsecured revolving credit facility, the applicable margins are 1.875 % for SOFR-based loans and 0.875 % for prime rate-based loans.

As of the inception of the unsecured revolving credit facility, the applicable margins are 1.875 % for SOFR-based loans and 0.875 % for prime rate-based loans, plus an additional 0.10 %.

The unsecured revolving credit facility has a commitment fee based on our current credit rating.

The unsecured revolving credit 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.

organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases and dividends we declare.

The unsecured revolving credit facility also includes customary events of default and remedies.

5 unchanged sentences

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

As of June 30, 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 6.65 %.

As of September 30, 2023, we have $ 50 million of commercial paper notes outstanding under the facility which matures in 2024, which together bear an average total borrowing rate of 6.75 %.

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

1 unchanged sentence

Fees paid on the drawn letters of credit may be reduced by up to 0.1 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance as measured by our CarbonCount metric.

As of June 30, 2023, we have no remaining unamortized financing costs associated with the commercial paper program and associated letter of credit.

As of September 30, 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.

6 unchanged sentences

Maturity Carrying Value of Assets Pledged as of

June 30, 2023 December 31, 2022 Interest

Rate Maturity Date June 30, 2023 December 31, 2022 Description

September 30, 2023 December 31, 2022 Interest

Rate Maturity Date September 30, 2023 December 31, 2022 Description

of Assets Pledged

2 unchanged sentences

HASI SYB Trust 2016-2 55 56 4.35 % April 2037 — 62 63 Receivables and restricted cash

HASI SYB Trust 2017-1 138 141 3.86 % March 2042 — 232 231 Receivables, real estate, real estate intangibles, and restricted cash

Lannie Mae Series 2019-1 89 90 3.68 % January 2047 — 121 120 Receivables, real estate and real estate intangibles

HASI SYB Trust 2017-1 — (1)

141 3.86 % March 2042 — — 231 Receivables, real estate, real estate intangibles, and restricted cash

Lannie Mae Series 2019-1 — (1)

90 3.68 % January 2047 — — 120 Receivables, real estate and real estate intangibles

Other non-recourse

3 unchanged sentences

Non-recourse debt (3)

(1) In the third quarter of 2023, contractual terms of these non-recourse debt agreements were modified, which caused us to deconsolidate the entities holding such debt and its related pledged collateral.

(2) Other non-recourse debt consists of various debt agreements used to finance certain of our receivables.

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 $ 599 million and $ 632 million as of June 30, 2023 and December 31, 2022, respectively.

These amounts include $ 21 million and $ 20 million of restricted cash pledged for debt service payments as of June 30, 2023 and December 31, 2022, respectively.

(3) The total collateral pledged against our non-recourse debt was $ 245 million and $ 632 million as of September 30, 2023 and December 31, 2022, respectively.

These amounts include $ 14 million and $ 20 million of restricted cash pledged for debt service payments as of September 30, 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.

5 unchanged sentences

We typically act as servicer for the debt transactions.

We were in compliance with all covenants as of June 30, 2023 and December 31, 2022.

We were in compliance with all covenants as of September 30, 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 June 30, 2023, were as follows:

The stated minimum maturities of non-recourse debt as of September 30, 2023, were as follows:

Future minimum maturities

(in millions)

July 1, 2023 to December 31, 2023 $ 17

October 1, 2023 to December 31, 2023 $ 10

Thereafter 74

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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 June 30, 2023 and December 31, 2022.

We are in compliance with all of our covenants as of September 30, 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.

15 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

4 unchanged sentences

Carrying value of Senior Unsecured Notes $ 1,782 $ 1,768

We recorded approximately $ 19 million and $ 38 million in interest expense related to the Senior Unsecured Notes in the three and six months ended June 30, 2023, respectively, compared to approximately $ 19 million and $ 38 million in the three and six months ended June 30, 2022, respectively.

We recorded approximately $ 19 million and $ 57 million in interest expense related to the Senior Unsecured Notes in the three and nine months ended September 30, 2023, respectively, compared to approximately $ 19 million and $ 58 million in the three and nine months ended September 30, 2022, respectively.

Convertible Notes

We have outstanding $ 144 million aggregate principal amount of convertible senior notes and $ 200 million aggregate principal amount of exchangeable senior notes, together “Convertible Notes”.

We have outstanding exchangeable senior notes, and have previously issued convertible senior notes, together “Convertible Notes”.

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

The following are summarized terms of the Convertible Notes as of June 30, 2023:

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

2023 Convertible Senior Notes 144 August 15,

2023 Convertible Senior Notes — (2)

2023 0.000 % N/A 20.8643 $ 47.93 — $ 0.340

1 unchanged sentence

2025 0.000 % N/A 17.7144 $ 56.45 3.5 $ 0.375

2028 Exchangeable Senior Notes 403 August 15,

2028 3.750 % February 15 and August 15 36.8494 $ 27.14 14.8 $ 0.395

(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) These Notes were settled in the third quarter of 2023 using proceeds from the 2028 Exchangeable Senior Notes.

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

The current balance including accreted premium is $ 210 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.

There are no cash settlement provisions in the convertible notes and the conversion option can only be settled through physical delivery of our common stock.

Additionally, upon the occurrence of certain fundamental changes involving us, holders of the 2023 Convertible Senior Notes may require us to redeem all or a portion of their notes for cash at a price of 100 % of the principal amount outstanding, plus accrued and unpaid interest.

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.

For the exchangeable senior notes, following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the exchange rate for a holder that converts its exchangeable notes in connection with such make-whole fundamental change.

There are no cash settlement provisions for the 2025 Exchangeable Senior Notes and the exchange option can only be settled through physical delivery of our common stock.

Upon exchange of the 2028 Exchangeable Senior Notes, exchange may be settled through cash, shares of our common stock or a combination of cash and shares of our common stock, at our election (as described in the indenture related to the 2028 Exchangeable Senior Notes).

Additionally, upon the occurrence of certain fundamental changes involving us, holders of the exchangeable senior notes may require us to redeem all or a portion of their notes for cash at a price of 100 % of the principal amount outstanding, plus accrued and unpaid interest.

We may redeem the 2025 Exchangeable Senior Notes at any time only if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT.

We may redeem the 2028 Exchangeable Senior Notes at any time only if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT or, in whole or in part, at our option, on or after August 20, 2026 and prior to the 62nd scheduled trading day immediately preceding the maturity date for such notes, if certain conditions are met, as set forth in the indenture relating to the 2028 Exchangeable Senior Notes.

Any shares of our common stock issuable upon exchange of the exchangeable senior notes will have certain registration rights.

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 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.

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

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

Principal $ 603 $ 344

Accrued interest 2 —

Unamortized financing costs ( 11 ) ( 5 )

Carrying value of Convertible Notes

We recorded approximately $ 2.4 million and $ 4.7 million in interest expense related to our Convertible Notes in the three and six months ended June 30, 2023, respectively, compared to $ 2.0 million and $ 2.5 million for the three and six months ended June 30, 2022, respectively.

We recorded approximately $ 5 million and $ 9 million in interest expense related to our Convertible Notes in the three and nine months ended September 30, 2023, respectively, compared to $ 2 million and $ 5 million for the three and nine months ended September 30, 2022, respectively.

In order to mitigate the potential dilution to our common stock upon exchange of the 2028 Exchangeable Senior Notes, we entered into privately-negotiated capped call transactions (“Capped Calls”) with certain counterparties.

The Capped Calls are separate transactions and are not part of the terms of the 2028 Exchangeable Senior Notes.

The total premium for the Capped Calls was recorded as a reduction of additional paid-in capital.

The Company used a portion of the proceeds from the 2028 Exchangeable Senior Notes to pay for the cost of the Capped Call premium.

The material terms of the Capped Calls are as follows:

(in millions except per share data)

Aggregate cost of capped calls $ 38

Initial strike price per share $ 27.14

Initial cap price per share $ 43.42

Shares of our common stock covered by the capped calls 14.8

CarbonCount Term Loan Facility

1 unchanged sentence

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 June 30, 2023, the applicable margin is 2.225 %, and the current interest rate is 7.33 %.

As of September 30, 2023, the applicable margin is 2.125 % plus 0.10 %, and the current interest rate is 7.49 %.

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

3 unchanged sentences

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.

Principal payments which were due under the term loan facility as of June 30, 2023 are as follows:

Principal payments which were due under the term loan facility as of September 30, 2023 are as follows:

Future maturities

(in millions)

July 1, 2023 to December 31, 2023 $ 9

October 1, 2023 to December 31, 2023 $ 5

Unamortized Financing Costs ( 3 )

2 unchanged sentences

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

Subsequent to September 30, 2023, we increased our borrowing under this facility by $ 165 million, bringing the total outstanding principal amount to $ 538 million.

Secured Term Loan

In the third quarter of 2023, we amended our approval-based credit facility to become a term loan (“Secured Term Loan”) with a maturity date of January 2028.

Principal amounts under the term loan will bear interest at a rate of Daily Term SOFR plus a credit spread of 2.25 %, plus 0.10 %.

We are required to hold interest rate swaps with notional values equal to 85 % of the outstanding principal amount of the loan beginning in the fourth quarter of 2023.

The facility is subject to mandatory principal amortization of 5 % per annum, with principal and interest payments due quarterly.

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

As of September 30, 2023, the outstanding principal balance is $ 200 million, the interest rate is 7.55 %, and we have financing receivables pledged with a carrying value of $ 449 million.

We have $ 3 million of remaining unamortized financing costs associated with the Secured Term Loan that have been netted against the loan on our balance sheet and are being amortized on a straight-line basis over the term of the Secured Term Loan Facility.

Principal payments which were due under the Secured Term Loan Facility as of September 30, 2023 are as follows:

Future maturities

(in millions)

July 1, 2023 to December 31, 2023 $ —

Unamortized Financing Costs ( 3 )

Carrying Value $ 197

Interest rate swaps

In connection with several of our long-term borrowings, including floating-rate loans from our Term Loan Facility and unsecured revolving credit facility and the anticipated refinancings of certain of our Senior Unsecured Notes we have entered into the following derivative transactions that are designated as cash flow hedges:

Instrument type Hedged Rate Notional Value Fair Value as of

Index June 30, 2023 Term

Index September 30, 2023 Term

$ in millions

5 unchanged sentences

250 5 May 2023 to May 2026

$ 2,050 $ 100

(1) Interest rate collar consists of a purchased interest rate cap of 4.00 % and a written interest rate floor of 3.70 %.

The fair values of our interest rate derivatives 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 June 30, 2023, all of our derivatives were designated as hedging instruments which were deemed to be effective.

As of June 30, 2023, we have posted $ 13 million of collateral related to our interest rate derivatives, of which we have netted $ 1 million against the derivative liability in accounts payable, accrued expenses and other on our balance sheet and of which $ 12 million is included in other assets.

A benefit of $ 1 million was included in interest expense as a result of our hedging activities for the three and six months ended June 30, 2023.

As of September 30, 2023, all of our derivatives were designated as hedging instruments which were deemed to be effective.

As of September 30, 2023, we hold $ 106 million of collateral related to our interest rate derivatives.

We have netted $ 100 million of the liability associated with that collateral against the derivative asset in other assets on our balance sheet,

with the remaining $ 6 million included in accounts payable, accrued expenses and other.

A benefit of $ 2 million and $ 4 million was included in interest expense as a result of our hedging activities for the three and nine months ended September 30, 2023, respectively.

Subsequent to September 30, 2023, we entered into interest rate swaps to hedge the interest expense associated with the Secured Term Loan.

The swaps have a total notional of $ 170 million, SOFR rate of 4.4 %, and a termination date in 2033.

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.

4 unchanged sentences

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

As of June 30, 2023, there have been no such actions resulting in claims against the Company.

We have 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 August 2023.

As of June 30, 2023, our maximum obligation under this guarantee is approximately $ 80 million.

As of September 30, 2023, there have been no such actions resulting in claims against the Company.

We have made a guarantee related to the financing of four of our joint venture entities that owns debt securities of energy efficiency projects.

We received $ 73 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 2024.

As of September 30, 2023, our maximum obligation under this guarantee is approximately $ 87 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.

We recorded an income tax (expense) benefit of approximately $ 2 million and $ 0 for the three and six months ended June 30, 2023, respectively, compared to a $ 5 million and $( 6 ) million income tax (expense) benefit in the three and six months ended June 30, 2022, respectively.

For the three and six months ended June 30, 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.

We recorded an income tax (expense) benefit of approximately $ 5 million and $ 5 million for the three and nine months ended September 30, 2023, respectively, compared to a $( 8 ) million and $( 14 ) million income tax (expense) benefit in the three and nine months ended September 30, 2022, respectively.

For the three and nine months ended September 30, 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

9 unchanged sentences

8/3/2023 10/4/2023 10/11/2023 $ 0.395

(1) This dividend was treated as a distribution in 2023 for tax purposes.

11/2/2023 12/29/2023 01/12/2024 $ 0.395

(1) This dividend is treated as a distribution in the year following the record date for tax purposes.

Equity Offerings

13 unchanged sentences

Q2 2023 ATM 0.053 26.07 (3)

Q3 2023 ATM 4.394 24.71 (3)

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

4 unchanged sentences

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

During the six months ended June 30, 2023, our board of directors awarded employees and directors 753,371 shares of restricted stock, restricted stock units and LTIP Units that vest from 2024 to 2026.

During the nine months ended September 30, 2023, our board of directors awarded employees and directors 755,639 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 six months ended June 30, 2023 we recorded $ 4 million and $ 11 million of stock based compensation, respectively, compared to $ 12 million and $ 16 million during the three and six months ended June 30, 2022, respectively.

For the three and nine months ended September 30, 2023 we recorded $ 3 million and $ 15 million of stock based compensation, respectively, compared to $ 2 million and $ 18 million during the three and nine months ended September 30, 2022, respectively.

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.

The total unrecognized compensation expense related to awards of shares of restricted stock and restricted stock units was approximately $ 27 million as of June 30, 2023.

The total unrecognized compensation expense related to awards of shares of restricted stock and restricted stock units was approximately $ 23 million as of September 30, 2023.

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

10 unchanged sentences

Forfeited ( 7,840 ) 48.57 ( 0.4 )

Ending Balance — June 30, 2023 142,124 $ 35.74 $ 5.1

Ending Balance — September 30, 2023 132,305 $ 34.61 $ 4.6

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

12 unchanged sentences

Forfeited ( 13,224 ) 26.03 ( 0.4 )

Ending Balance — June 30, 2023 99,884 $ 48.59 $ 4.9

Ending Balance — September 30, 2023 97,890 $ 48.50 $ 4.7

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

12 unchanged sentences

Forfeited — — —

Ending Balance — June 30, 2023 488,296 $ 34.30 $ 16.8

Ending Balance — September 30, 2023 481,067 $ 34.32 $ 16.6

(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 — June 30, 2023 493,858 $ 47.76 $ 23.6

Ending Balance — September 30, 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.

1 unchanged sentence

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

NOL Shareholder Rights Plan

In the fourth quarter of 2023, we entered into a Tax Benefits Preservation Plan (“the Plan”), which is designed to protect our tax benefits in connection with any “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986.

Under the Plan, we declared a dividend distribution of one right (a “Right”) for each share of common stock, par value $ 0.01 per share outstanding, to be paid to all record holders of Common Stock at the close of business on November 21, 2023.

The Plan is intended to reduce the risk that our ability to use net operating losses (“NOLs”) and certain other Tax Benefits will become substantially limited as the result of an “ownership change”.

As of December 31, 2022, we had approximately $ 465 million of NOLs and $ 21 million of tax credits available that may be used to offset future taxable income.

Pursuant to the Plan, if a stockholder (or group) becomes a 5 % stockholder without meeting certain exceptions, the Rights become exercisable upon board approval and entitle stockholders (other than the 5 % stockholder or group causing the rights to become exercisable) to purchase additional of our common shares at a significant discount, resulting in significant dilution in the economic interest and voting power of the 5 % stockholder or group causing the Rights to become exercisable.

Stockholders owning 5% or more of our outstanding shares at the time the Plan was adopted were grandfathered and will only cause the Rights to distribute and become exercisable if they acquire any additional HASI shares.

Under the Plan, the Board has the ability to determine in its sole discretion that any person shall not be deemed an acquiring person and therefore that the Rights shall not become exercisable if such person becomes a 5 % stockholder.

The adoption of the Plan and the dividend distribution will not have an impact on our consolidated financial statements.

Earnings per Share of Common Stock

4 unchanged sentences

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

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

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

2023 2022 2023 2022

15 unchanged sentences

Weighted-average number of OP units 1,365,040 1,136,809 1,294,511 955,574

As of June 30, 2023 As of June 30, 2022

As of September 30, 2023 As of September 30, 2022

Participating securities:

Unvested restricted common stock and unvested LTIP Units with time-based vesting conditions outstanding at period end 613,373 392,602

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

2023 2022 2023 2022

Potentially dilutive securities as of period end that were not dilutive for the presented periods:

5 unchanged sentences

Equity Method Investments

We recognized income (loss) from our equity method investments of approximately $ 2 million and $ 25 million during the three and six months ended June 30, 2023, respectively, compared to $( 20 ) million and $ 28 million during the three and six months ended June 30, 2022, respectively.

We recognized income (loss) from our equity method investments of approximately $ 3 million and $ 27 million during the three and nine months ended September 30, 2023, respectively, compared to $ 31 million and $ 59 million during the three and nine months ended September 30, 2022, respectively.

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

9 unchanged sentences

Balance Sheet

As of March 31, 2023

As of June 30, 2023

Current assets $ 61 $ 760 $ 821

10 unchanged sentences

Income Statement

For the quarter ended March 31, 2023

For the six months ended June 30, 2023

Revenue 59 412 471

1 unchanged sentence

Net income (loss) ( 27 ) ( 64 ) ( 91 )

For the quarter ended March 31, 2022

For the six months ended June 30, 2022

Revenue ( 135 ) 239 104

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