HA Sustainable Infrastructure Capital, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Long-term Debt

Long-term Debt

12 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

Long-term Debt

Non-recourse debt

We have outstanding the following asset-backed non-recourse debt and bank loans:



	Outstanding Balance as of December 31,						Interest Rate			Maturity Date	Anticipated Balance at Maturity		Carrying Value of Assets Pledged as of December 31,				Description of Assets Pledged
	2018			2017			Interest Rate			Maturity Date	Anticipated Balance at Maturity		2018		2017		Description of Assets Pledged
	(dollars in millions)
HASI Sustainable Yield Bond 2013-1	$	55		$	67		2.79	%		December 2019	$	51	$	76	$	86	Receivables
ABS Loan Agreement ⁽¹⁾	—			81			—	%		—	—		—		79		Equity interest in Strong Upwind Holdings I, LLC
HASI Sustainable Yield Bond 2015-1A	90			94			4.28	%		October 2034	—		135		137		Receivables, real estate and real estate intangibles
HASI Sustainable Yield Bond 2015-1B Note	13			14			5.41	%		October 2034	—		135		137		Class B Bond of HASI Sustainable Yield Bond 2015-1
2017 Credit Agreement	112			180			4.12	%		January 2023	—		151		226		Equity interests in Strong Upwind Holdings I, II, III, and IV LLC, and Northern Frontier Wind, LLC
HASI SYB Loan Agreement 2015-2	32			36			6.89	%	⁽²⁾	December 2023	—		72		68		Equity interest in Buckeye Wind Energy Class B Holdings LLC, related interest rate swap
HASI SYB Loan Agreement 2015-3⁽³⁾	—			143			—	%		—	—		—		171		Residential solar receivables, related interest rate swaps
HASI SYB Loan Agreement 2016-1 ⁽³⁾	—			121			—	%		—	—		—		143		Residential solar receivables, related interest rate swaps
HASI SYB Trust 2016-2	77			81			4.35	%		April 2037	—		81		86		Receivables
2017 Master Repurchase Agreement	56			35			5.13	%	⁽²⁾	July 2019	53		67		38		Receivables and investments
HASI ECON 101 Trust	133			134			3.57	%		May 2041	—		137		140		Receivables and investments
HASI SYB Trust 2017-1	159			162			3.86	%		March 2042	—		208		209		Receivables, real estate and real estate intangibles
Other non-recourse debt ⁽⁴⁾	125			90			3.15% - 7.45%			2019 to 2046	18		178		162		Receivables
Debt issuance costs	(17		)	(27		)
Non-recourse debt ⁽⁵⁾	$	835		$	1,211


(1)	This non-recourse debt agreement was re-financed through our credit facilities in 2018.


(2)	Interest rate represents the current period’s LIBOR based rate plus the spread. Also see the interest rate swap contracts shown in the table below, the value of which are not included in the book value of assets pledged or the interest rate of the debt instrument.


(3)	These non-recourse debt agreements were repaid in the fourth quarter of 2018 from proceeds of prepayment of the related assets. See Note 6. Our Portfolio for further information.


(4)	Other non-recourse debt consists of various debt agreements used to finance certain of our receivables for their term. Debt service payment requirements, in a majority of cases, are equal to or less than the cash flows received from the underlying receivables.


(5)	The total collateral pledged against our non-recourse debt was $1,105 million and $1,545 million as of December 31, 2018 and December 31, 2017, respectively. In addition, $35 million and $59 million of our restricted cash balance was pledged as collateral to various non-recourse loans as of December 31, 2018 and December 31, 2017

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. There is no recourse for repayment of these obligations other than to the applicable borrower and any collateral pledged as security for the obligations. Generally, the assets and credit of these entities are not available to satisfy any of our other debts and obligations. The creditors can only look to the borrower, the cash flows of the pledged assets and any other collateral pledged, to satisfy the debt and we are not otherwise liable for nonpayment of such cash flows. The debt agreements contain terms, conditions, covenants, and representations and warranties that are customary and typical for transactions of this nature, including 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. The agreements also include customary events of default, the occurrence of which may result in termination of the agreements, acceleration of amounts due, and accrual of default interest. We typically act as servicer for the debt transactions. We are in compliance with all covenants as of December 31, 2018 and 2017.

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. In the case of the debt secured by certain of our renewable energy equity interests, we have also guaranteed the compliance of our subsidiaries with certain tax matters and certain obligations if our joint venture partners exercise their right to withdraw from our partnerships.

In connection with several of our non-recourse debt borrowings, we have entered into the following interest rate swaps that are designated as cash flow hedges:



				Notional Value as of December 31,				Fair Value as of December 31,
	Base Rate	Hedged Rate		2018		2017		2018		2017			Term
				(dollars in millions)
HASI SYB Loan Agreement 2015-2	3 month LIBOR	1.52	%	$	—	$	31	$	—	$	0.1		December 2015 to December 2018
HASI SYB Loan Agreement 2015-2	3 month LIBOR	2.55	%	29		29		—		(0.2		)	December 2018 to December 2024
HASI SYB Loan Agreement 2015-3 ⁽¹⁾	1 month LIBOR	2.34	%	—		119		—		—			November 2020 to August 2028
HASI SYB Loan Agreement 2016-1 ⁽¹⁾	3 month LIBOR	1.88	%	—		120		—		1.1			November 2016 to November 2021
HASI SYB Loan Agreement 2016-1 ⁽¹⁾	3 month LIBOR	2.73	%	—		107		—		(1.1		)	November 2021 to October 2032
2017 Master Repurchase Agreement	3 month LIBOR	2.42	%	32		32		0.3		—			August 2019 to March 2033
Total				$	61	$	438	$	0.3	$	(0.1	)


(1)	These interest rate swaps were financially settled in November 2018.

The fair values of our interest rate swaps 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 December 31, 2018 and 2017, all of our derivatives were designated as hedging instruments which were deemed to be effective. The following is a presentation of the total balance of the financial statement line item related to our hedging activities in our consolidated statements of operations and the impact of our hedges that is included in this total balance.



	Year ended December 31,
	2018				2017		2016
	(in thousands)
Total interest expense	$	76,874			$	65,472	$	45,241
Impact of hedging	(8,034		)	⁽¹⁾	972		1,316


(1)	There was an approximately $8 million gain on the settlement of these instruments that is classified in interest expense in our consolidated statement of operations.

The stated minimum maturities of non-recourse debt as of December 31, 2018, were as follows:



Year Ending December 31,	Future minimum maturities
	(in millions)
2019	$	139
2020	24
2021	26
2022	27
2023	61
Thereafter	575
Total minimum maturities	852
Deferred financing costs, net	(17		)
Total non-recourse debt	$	835

The stated minimum maturities of non-recourse debt above include only the mandatory minimum principal payments. To the extent there are additional cash flows received from our investments in renewable energy projects serving as collateral for certain of our non-recourse debt facilities, these additional cash flows are required to be used to make additional principal payments against the respective debt. Any additional principal payments made due to these provisions may impact the anticipated balance at maturity of these financings.

Convertible Senior Notes

We issued $150 million aggregate principal amount ($145 million net of issuance costs) of 4.125% convertible senior notes due September 1, 2022. Holders may convert any of their convertible notes into shares of our common stock at the applicable conversion rate 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 convertible notes are senior unsecured obligations of ours and have an initial conversion rate of 36.7107 shares for each $1,000 principal amount of convertible notes which is equal to a total of approximately 5.5 million shares with an initial conversion price of $27.24. The conversion rate is subject to adjustment for dividends declared above $0.33 per share per quarter and certain other events that may be dilutive to the holder. As of December 31, 2018, none of these dilutive events have occurred and the conversion rate remains at the initial rate. In February of 2019, our board of directors approved an increase to the dividend, which will change the conversion rate to an amount to be determined on the ex-dividend date of April 3, 2019.

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 convertible notes may require us to redeem all or a portion of their convertible notes for cash at a price of 100% of the principal amount outstanding, plus accrued and unpaid interest.

We have a redemption option to call the convertible notes prior to maturity (i) on or after March 1, 2022 and (ii) at any time if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT. The redemption price will be equal to the principal of the notes being redeemed, plus accrued and unpaid interest. In the event of redemption after March 1, 2022, there will be an additional make-whole premium paid to the holder of the redeemed notes unless the redemption is deemed reasonably necessary to preserve our qualification as a REIT.

The following table presents a summary of the components of the convertible notes:



	As of and for the year ended December 31,
	2018			2017
	(in millions)
Principal	$	150		$	150
Accrued interest	2			3
Less:
Unamortized financing costs	(4		)	(5		)
Carrying value of convertible notes	$	148		$	148
Interest expense	$	7		$	3