Business Context and Reporting Period
Company: Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI)
Filing Type: Form 8-K (Current Report)
Date of Report: May 4, 2024
Event: Formation of a joint venture (JV) with Kohlberg Kravis Roberts & Co. L.P. (KKR) to invest in climate-positive projects.
Key Financial Metrics and Transaction Details
- JV Capital Commitment: $2 billion total ($1 billion each from HASI CarbonCount and KKR Hoops).
- Investment Period: 18 months from the effective date of the Operating Agreement.
- Purchase Price for KKR Interest: Approximately $54.65 million payable by KKR Hoops to HASI's subsidiary upon closing.
- Fee Structure:
- Broker-Dealer Upfront Fee: Generally 1% of total cash consideration funded.
- Asset Manager Ongoing Fee: 0.5% to 1.0% of invested capital per annum based on performance thresholds.
- Seed Assets: Two sustainable infrastructure assets already acquired by the JV prior to closing.
Material Changes and Governance
The filing details the creation of CarbonCount Holdings 1 LLC, a new Delaware limited liability company. Key structural changes include:
- Ownership: HASI and KKR will each hold a 50% interest in the JV following the transfer of interests from HASI's initial subsidiary.
- Governance: A four-member Board of Directors (two appointed by each member) will govern the JV. Board actions generally require a 3-out-of-4 affirmative vote.
- Investment Sourcing: HASI's Broker-Dealer is obligated to present all qualifying investment opportunities to the Board until commitments are fully invested or the period expires.
- Termination Triggers: The commitment period may terminate early if investment targets are not met ($300 million by month 6; $800 million by month 12) or in cases of material breach or bankruptcy.
Outlook, Risks, and Contingencies
- Closing Timeline: Expected on or before May 17, 2024. KKR retains the right to terminate if closing does not occur by May 31, 2024.
- Guarantees: HASI may provide back-stop guarantees for the JV's obligations in tax equity-funded renewable energy projects as required by counterparties.
- Lockup Period: Members cannot transfer interests until the earlier of the commitment termination date or the date KKR's capital commitment is fully invested.
- Extension Clause: The 18-month commitment period automatically extends if the JV is refinanced with debt, lasting until at least 90% of debt proceeds are deployed.
Investor Verification Checklist
- Confirm the actual closing date and whether the $54.65 million purchase price was received.
- Verify the specific details and performance metrics of the two "seed assets" already acquired.
- Monitor the deployment of capital against the $300 million (6-month) and $800 million (12-month) milestones to avoid early termination.
- Review the definitive Operating Agreement for specific definitions of "material breach" and "permitted transferees."
- Assess the impact of potential back-stop guarantees on HASI's balance sheet and liquidity.