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

Quarterly report pursuant to Section 13 or 15(d)

Long-term Debt

Long-term Debt

9 Months Ended

Sep. 30, 2020

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						Anticipated Balance at Maturity		Carrying Value of Assets Pledged as of
	September 30, 2020		December 31, 2019		Interest Rate (1)	Maturity Date			September 30, 2020		December 31, 2019		Description of Assets Pledged
	(dollars in millions)

HASI Sustainable Yield Bond 2015-1A	$	83	$	85	4.28%	October 2034	$	—	$	134	$	126	Receivables, real estate and real estate intangibles
HASI Sustainable Yield Bond 2015-1B Note	13		13		5.41%	October 2034	—		134		126		Class B Bond of HASI Sustainable Yield Bond 2015-1
2017 Credit Agreement (2)	—		61		N/A	January 2023	—		—		120		Equity interests in Strong Upwind Holdings I, II, III, and IV LLC, and Northern Frontier, LLC
HASI SYB Loan Agreement 2015-2 (3)	—		28		N/A	December 2023	—		—		73		Equity interest in Buckeye Wind Energy Class B Holdings LLC
HASI SYB Trust 2016-2	72		72		4.35%	April 2037	—		72		76		Receivables

HASI ECON 101 Trust	126		129		3.57%	May 2041	—		133		135		Receivables and investments
HASI SYB Trust 2017-1	152		155		3.86%	March 2042	—		205		206		Receivables, real estate and real estate intangibles
Lannie Mae Series 2019-01	95		96		3.68%	January 2047	—		108		106		Receivables, real estate and real estate intangibles
Other non-recourse debt (4)	72		77		3.15% - 7.45%	2022 to 2032	18		72		77		Receivables
Unamortized financing costs	(13)		(16)
Non-recourse debt (5)	$	600	$	700

(1)Represents interest rate as of September 30, 2020.

(2)This loan was prepaid in January 2020.

(3)This loan was prepaid in September 2020.

(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 $724 million and $921 million as of September 30, 2020 and December 31, 2019, respectively. In addition, $24 million and $23 million of our restricted cash balance was pledged as collateral to various non-recourse loans as of September 30, 2020 and December 31, 2019, 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. 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 September 30, 2020 and December 31, 2019.

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.

The stated minimum maturities of non-recourse debt as of September 30, 2020, were as follows:


	Future minimum maturities
	(in millions)
October 1, 2020 to December 31, 2020	$	12
2021	25
2022	27
2023	30
2024	34
2025	31
Thereafter	454
Total minimum maturities	$	613
Unamortized financing costs	(13)
Total non-recourse debt	$	600

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. To the extent there are not sufficient cash flows received from those investments pledged as collateral, the investor has no recourse against other corporate assets to recover any shortfalls.

Senior Unsecured Notes

We have outstanding senior unsecured notes issued jointly by certain of our TRS and are guaranteed by the Company and certain other subsidiaries (the "Senior Unsecured Notes"), including $375 million aggregate principal amount of 3.75% Senior Unsecured Notes due 2030 (the "2030 Notes") issued in August 2020 at 99% of par. The Senior Unsecured Notes are subject to covenants which limit our ability to incur additional indebtedness and require us to maintain unencumbered assets of not less than 120% of our unsecured debt. 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 September 30, 2020 and December 31, 2019. The Senior Unsecured Notes impose certain requirements in the event that we merge with or sell substantially all of our assets to another entity. The proceeds of our Senior Unsecured Notes are used to acquire or refinance, in whole or in part, eligible green projects, including assets which are neutral to negative on incremental carbon emissions.

The following are summarized terms of the Senior Unsecured Notes:


	Outstanding Principal Amount			Maturity Date	Stated Interest Rate		Interest Payment Dates	Redemption Terms Modification Date
	(in millions)
2024 Notes	$	500	(1)	July 15, 2024	5.25	%	January 15th and July 15th	July 15, 2021 (2)
2025 Notes	400			April 15, 2025	6.00	%	April 15 and October 15th	April 15, 2020 (2)
2030 Notes	375		(3)	September 15, 2030	3.75	%	February 15th and August 15th	September 15, 2022 (4)

(1)The first $350 million issuance of 2024 Notes was priced at par. We subsequently issued $150 million of the $500 million aggregate principal amount of the 2024 Notes for total proceeds of $157 million ($155 million net of issuance costs) at an effective interest rate of 4.13%.

(2)Prior to this date, we may redeem, at our option, some or all of the 2024 Notes or 2025 Notes for the outstanding principal amount plus the applicable “make-whole” premium as defined in the indenture governing the 2024 Notes or 2025 Notes plus accrued and unpaid interest through the redemption date. In addition, prior to this date, we may redeem up to 40% of the Senior Unsecured Notes using the proceeds of certain equity offerings at a price equal to par plus the coupon percentage of the principal amount thereof, plus accrued but unpaid interest, if any, to, but excluding, the applicable redemption date. On, or subsequent to, this date we may redeem the 2024 or 2025 Notes in whole or in part at redemption prices defined in the indenture governing the 2024 Notes or 2025 Notes, plus accrued and unpaid interest though the redemption date.

(3)We issued the $375 million aggregate principal amount of the 2030 Notes for total proceeds of $371 million ($367 million net of issuance costs) at an effective interest rate of 3.87%.

(4)Prior to this date, we may, at our option on one or more occasions redeem up to 40% of the 2030 Notes using the proceeds of certain equity offerings at a price equal to 103.75% of the principal amount thereof; plus accrued but unpaid interest, if any, to, but excluding the applicable redemption date. At any point prior to maturity, we may redeem, at our option, some or all of the 2030 Notes plus the applicable “make-whole” premium as defined in the indenture governing the 2030 Notes plus accrued and unpaid interest through the redemption date.

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


	September 30, 2020		December 31, 2019
	(in millions)
Principal	$	1,275	$	500
Accrued interest	18		13
Unamortized premium	2		7
Less: Unamortized financing costs	(16)		(8)
Carrying value of Notes	$	1,279	$	512

We recorded approximately $14 million and $33 million, in interest expense related to the Senior Unsecured Notes in the three and nine months ended September 30, 2020, respectively, compared to approximately $5 million in each of the three and nine months ended September 30, 2019.

Convertible Senior Notes

We have outstanding $294 million aggregate principal amount of convertible senior notes ("Convertible Senior Notes"), including $144 million of principal amount convertible senior notes due August 15, 2023 issued in August 2020 at a stated interest rate of 0%. Holders may convert any of their convertible notes into shares of our common stock at the applicable conversion 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 Senior Notes as of September 30, 2020:


	Outstanding Principal Amount		Maturity Date	Stated Interest Rate		Interest Payment Dates	Conversion Ratio	Conversion Price	Issuable Shares	Dividend Threshold Amount (1)
	(in millions)								(in millions)
2022 Convertible Notes	$	150	September 1, 2022	4.125	%	March 1 and September 1	36.7680	$27.20	5.5	$0.33
2023 Convertible Notes	144		August 15, 2023	0.000	%	N/A	20.6779	$48.36	3.0	$0.34

(1)The conversion 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.

For both the 2022 Convertible Notes and the 2023 Convertible 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 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 2022 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. We may redeem the 2023 Convertible notes at any time only if such a 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:


	September 30, 2020		December 31, 2019
	(in millions)
Principal	$	294	$	150
Accrued interest	1		2
Less: Unamortized financing costs	(6)		(3)
Carrying value of convertible notes	$	289	$	149

We recorded approximately $2 million and $6 million in interest expense related to the convertible notes in the each of three and nine months ended September 30, 2020 and 2019, respectively.