Business Context and Reporting Period
Hannon Armstrong Sustainable Infrastructure Capital, Inc. filed this Form 8-K on October 13, 2015, to disclose preliminary financial results and recent developments for the period ended September 30, 2015. The Company focuses on sustainable infrastructure, including utility-scale solar and wind projects.
Key Financial Metrics
- Transaction Volume: Approximately $645 million completed from January 1, 2015, through October 12, 2015. For the quarter ended September 30, 2015, approximately $140 million was closed, with an additional $50 million closed post-quarter.
- Core Earnings (Preliminary Estimates):
- Quarter ended September 30, 2015: $0.26 to $0.27 per share.
- Nine months ended September 30, 2015: $0.78 to $0.79 per share.
- Debt and Liquidity:
- Debt-to-equity ratio (excluding match-funded nonrecourse debt): Approximately 1.9 to 1 as of September 30, 2015.
- Fixed debt percentage: Approximately 43% of total fixed and floating debt (excluding match-funded nonrecourse debt).
- Credit facility outstanding: Approximately $378 million as of September 30, 2015.
- Securitization: On September 30, 2015, the Company closed a private placement securitization issuing $100.5 million in Class A Bonds and $18.1 million in Class B Bonds (retained by the Company), secured by land lease assets related to solar and wind projects.
Material Changes Versus Prior Period
- Transaction Growth: Transaction volume for the year-to-date period increased to approximately $645 million, compared to approximately $510 million in the same period of 2014.
- Earnings Growth: Preliminary core earnings per share for the quarter ended September 30, 2015 ($0.26-$0.27) are expected to exceed the $0.22 reported in the same quarter of 2014. Nine-month core earnings ($0.78-$0.79) are also expected to exceed the $0.64 reported in the same period of 2014.
Outlook, Risks, and Contingencies
- Debt Service Reserve Risk: The Company disclosed events of default regarding approximately $58 million in senior secured debt securities for an operating wind project. While payments have been timely made, the trustee cited defaults due to a terminated tax credit agreement and funding failures. Approximately $1.1 million of a $5.5 million debt service reserve was used in May 2015, and an additional $2.0 million is expected to be tapped for a November 2015 payment.
- Impairment Analysis: The Company concluded these debt securities were not impaired as of June 30, 2015, but is currently completing an impairment analysis for the third quarter of 2015. The final conclusion on impairment as of September 30, 2015, remains undetermined.
- Guidance: The Company targets a long-term fixed debt percentage range of approximately 50% to 70%.
- Disclaimer: All financial data presented is preliminary and subject to change upon completion of the Company's financial closing procedures and final adjustments.
Investor Verification Checklist
- Verify the final core earnings per share for the quarter and nine months ended September 30, 2015, once the official 10-Q is filed.
- Confirm the outcome of the impairment analysis for the $58 million wind project debt securities and any potential charge to earnings.
- Monitor the status of the debt service reserve for the wind project and the Company's ability to fund the November 2015 payment.
- Review the final debt-to-equity ratio and fixed debt percentage in the audited financial statements.