Attached files

file filename
EX-32.2 - EX-32.2 - MMA Capital Holdings, Inc.mmac-20200331ex32268c260.htm
EX-32.1 - EX-32.1 - MMA Capital Holdings, Inc.mmac-20200331ex32101a377.htm
EX-31.2 - EX-31.2 - MMA Capital Holdings, Inc.mmac-20200331ex312482a91.htm
EX-31.1 - EX-31.1 - MMA Capital Holdings, Inc.mmac-20200331ex31198c217.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly report year ended March 31, 2020

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number 001‑11981

MMA CAPITAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware
(State or other jurisdiction of incorporation or organization)

52‑1449733
(I.R.S. Employer Identification No.)

3600 O’Donnell Street, Suite 600

Baltimore, Maryland 21224
(Address of principal executive offices,

including zip code)

 

(443) 263‑2900
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

 

 

 

Title of each class
Common Shares, no par value

Common Stock Purchase Rights

Trading Symbol(s)

MMAC

MMAC

Name of each exchange on which registered
Nasdaq Capital Market

Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☑   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  Yes ☐ No ☑

There were 5,700,646 shares of common shares outstanding at May 1, 2020.

 

 

 

 

 

MMA Capital Holdings, Inc.

Table of Contents

 

 

 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 

2

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION 

3

 

 

 

 

 

 

 

Item 1. 

Financial Statements (Unaudited)

25

 

 

 

 

 

 

 

 

(a)

Consolidated Balance Sheets at March 31, 2020 and December 31, 2019

25

 

 

 

 

 

 

 

 

(b)

Consolidated Statements of Operations for the three months ended March 31, 2020 and March 31, 2019

26

 

 

 

 

 

 

 

 

(c)

Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and March 31, 2019

28

 

 

 

 

 

 

 

 

(d)

Consolidated Statements of Equity for the three months ended March 31, 2020 and March 31, 2019

 

29

 

 

 

 

 

 

 

 

(e)

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and March 31, 2019

 

30

 

 

 

 

 

 

 

 

(f)

Notes to Consolidated Financial Statements

32

 

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

5

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

55

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

55

 

 

 

 

 

 

PART II – OTHER INFORMATION 

 

56

 

 

 

 

 

 

 

Item 1

Legal Proceedings

 

56

 

 

 

 

 

 

 

Item 1A.

Risk Factors

 

56

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

57

 

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

57

 

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

58

 

 

 

 

 

 

 

Item 5.

Other Information

 

58

 

 

 

 

 

 

 

Item 6.

Exhibits

 

59

 

 

 

 

 

 

SIGNATURES 

S-1

 

 

 

 

1

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10‑Q for the period ended March 31, 2020 (this “Report”) should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Annual Report”), filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”), to which reference is hereby made. This Report contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements often include words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “see,” “seek,” “should,” “will,” “would,” and similar words or expressions and are made in connection with discussions of future events and future operating or financial performance.

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results.  They are not guarantees of future performance.  By their nature, forward-looking statements are subject to risks and uncertainties including the uncertain aspect of the novel strain of coronavirus pandemic, known as COVID-19.  Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements.  There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report.  For a discussion of certain risks and uncertainties and the factors that could cause our actual results to differ materially because of those risks and uncertainties, see Part II, Item 1A. “Risk Factors” of this Report and Part I, Item 1A. “Risk Factors” of our 2019 Annual Report.

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we may make from time to time, and to consider carefully the factors discussed in Part II, Item 1A. “Risk Factors” of this Report and Part I, Item 1A. “Risk Factors” of our 2019 Annual Report in evaluating these forward-looking statements.  We do not undertake to update any forward-looking statements contained herein, except as required by law.

2

PART I  – FINANCIAL INFORMATION

 

MMA Capital Holdings, Inc.

Consolidated Financial Highlights

(Unaudited)

 

 

 

 

 

 

 

 

 

 

As of and for the three months ended

(in thousands, except per common share data)

    

March 31, 2020

    

December 31, 2019

Selected income statement data

 

 

 

 

 

 

Net interest income

 

$

559

 

$

2,276

Non-interest income

 

 

2,429

 

 

10,666

Other expenses

 

 

7,237

 

 

4,213

Net (loss) income from continuing operations before income taxes

 

 

(4,249)

 

 

8,729

 

 

 

 

 

 

 

Income tax benefit (1)

 

 

1,191

 

 

60,571

Net (loss) income

 

$

(3,058)

 

$

69,300

 

 

 

 

 

 

 

Earnings per share data

 

 

 

 

 

 

Net (loss) income: Basic and Diluted

 

$

(0.53)

 

$

11.84

 

 

 

 

 

 

 

Net (loss) income from continuing operations before income taxes per share: Basic and Diluted

 

$

(0.73)

 

$

1.49

 

 

 

 

 

 

 

Average shares:   Basic and Diluted

 

 

5,804

 

 

5,855

 

 

 

 

 

 

 

Market and per common share data

 

 

 

 

 

 

Market capitalization

 

$

141,021

 

$

181,322

Common shares at period-end

 

 

5,807

 

 

5,805

Share price during period:

 

 

 

 

 

 

High

 

 

32.70

 

 

33.00

Low

 

 

20.00

 

 

29.01

Closing price at period-end

 

 

24.73

 

 

31.80

Book Value per common share: Basic and Diluted

 

 

47.82

 

 

48.43

Adjusted Book Value per common share: Basic and Diluted (2)

 

 

37.59

 

 

38.49

 

 

 

 

 

 

 

Selected balance sheet data

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,164

 

$

8,555

Investments in debt securities

 

 

29,645

 

 

31,365

Investment in partnerships

 

 

368,598

 

 

316,677

Deferred tax assets, net

 

 

59,394

 

 

57,711

Loans held for investment

 

 

1,271

 

 

54,100

All other assets

 

 

26,000

 

 

17,234

Total assets

 

$

508,072

 

$

485,642

 

 

 

 

 

 

 

Debt

 

$

223,653

 

$

201,816

All other liabilities

 

 

6,750

 

 

2,701

Total liabilities

 

 

230,403

 

 

204,517

Common shareholders' equity ("Book Value")

 

$

277,669

 

$

281,125

 

 

 

 

 

 

 

Rollforward of Book Value

 

 

 

 

 

 

Book Value - at beginning of period

 

$

281,125

 

$

212,910

Net (loss) income

 

 

(3,058)

 

 

100,977

Other comprehensive loss

 

 

(453)

 

 

(30,064)

Common share repurchases

 

 

(41)

 

 

(2,730)

Other changes in common shareholders' equity

 

 

96

 

 

32

Book Value - at end of period

 

$

277,669

 

$

281,125

 

 

 

 

 

 

 

Less: Deferred tax assets, net

 

 

59,394

 

 

57,711

Adjusted Book Value (2) - at end of period

 

$

218,275

 

$

223,414

 

 

 

 


 

 

 

3

(1)

The Company recognized a net $57.7 million deferred tax asset (“DTA”) in the fourth quarter of 2019 that was driven by an increase in the amount of net operating loss carryforwards (“NOLs”) that, at December 31, 2019, the Company assessed were more likely than not to be utilized prior to their expiration.

 

 

(2)

Book Value excluding deferred tax assets (“Adjusted Book Value”) and Adjusted Book Value per share are financial measures that are determined other than in accordance with generally accepted accounting principles in the United States of America (“GAAP”). These non-GAAP financial measures are used to show the amount of our net worth in the aggregate and on a per-share basis, without giving effect to changes in Book Value due to the partial release of our deferred tax asset valuation allowance as of March 31, 2020 and December 31, 2019. Refer to “Use of Non-GAAP Measures” for more information, including a  reconciliation of these non-GAAP financial measures to the most directly comparable historical measures determined under GAAP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

INTRODUCTION


Overview

MMA Capital Holdings, Inc. focuses on infrastructure-related investments that generate positive environmental and social impacts and deliver attractive risk-adjusted total returns to our shareholders, with an emphasis on debt associated with renewable energy projects and infrastructure. Unless the context otherwise requires, and when used in this Report, the “Company,” “MMA,” “we,” “our” or “us” refers to MMA Capital Holdings,  Inc. and its subsidiaries. We were originally organized as a Delaware limited liability company in 1996, converted to a Delaware corporation on January 1, 2019 and are externally managed by Hunt Investment Management, LLC (our “External Manager”), an affiliate of Hunt Companies, Inc. (Hunt Companies, Inc. and its affiliates are hereinafter referred to as “Hunt”). 

Our current objective is to produce attractive risk-adjusted returns by investing in the large, growing and fragmented renewable energy market in the United States (“U.S.”). We believe that we are well positioned to take advantage of these investment opportunities because of our External Manager’s origination network built off of extensive relationships and credit expertise gathered through years of experience. We also seek to increase the Company’s return on equity by prudently deploying debt and recycling equity out of lower yielding investments that are unrelated to renewable energy. 

In addition to renewable energy investments, we continue to own a limited number of bond investments and real estate-related investments, as well as have subordinated debt with beneficial economic terms. Further, we have significant net operating loss carryforwards (“NOLs”) that may be used to offset future federal income tax obligations, a portion of which were reported as deferred tax assets (“DTAs”) in our Consolidated Balance Sheets at March 31, 2020 and December 31, 2019. Effective December 31, 2019, we no longer organize our assets and liabilities into discrete portfolios (in each Quarterly Report on Form 10-Q that was filed in 2019, assets and liabilities of the Company were allocated to one of two portfolios, “Energy Capital” and “Other Assets and Liabilities”). 

We operate as a single reporting segment.

COVID-19 and Related Business Impacts

General

In December 2019, a novel coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China. Following its spread to over 100 countries, including the U.S., the World Health Organization declared a global pandemic on March 11, 2020. On March 13, 2020, the U.S. declared a national emergency with respect to COVID-19.

In many countries, including the U.S., the outbreak of COVID-19 has adversely impacted overall economic activity and contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is rapidly evolving and many countries, including the U.S., have instituted quarantines, business closures, governmental agency closures and restrictions on travel to contain COVID-19.

The long-term impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration, spread and intensity of COVID-19, all of which are uncertain and difficult to predict. Due to the speed with which the situation is developing, we are not able at this time to estimate the long-term effects of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material. Given such uncertainty, we have updated the risk factors included in our 2019 Annual Report to reflect risks posed by COVID-19. Refer to Part II, Item 1A. “Risk Factors” of this Report for additional information.

5

Business Operations

We are managed by our External Manager. We also rely upon other third-party vendors to conduct business operations, including vendors that provide information technology services, legal and accounting services or other support services.

Through May 4, 2020, there were no disruptions to the services provided by the External Manager and support provided by other third parties in connection with our business operations.

Renewable Energy Investments

Through May 4, 2020, the construction and development of renewable energy projects that have been financed through loans made by the Solar Ventures (as defined below) were generally on schedule as the development and construction of such projects qualified as critical infrastructure or essential services. Furthermore, most of the unpaid principal balances associated with the Solar Ventures’ loans related to projects that are located in rural and less populated areas allowing for required social distancing. While we have not encountered any significant supply chain issues to date due to COVID-19, the shutdown of manufacturing plants in China in January and February had a minor impact on delivery schedules to certain renewable energy projects financed by the Solar Ventures. Although production levels in China have subsequently returned to near normal levels, supplies were also sourced during the first quarter of 2020 from other countries, such as Mexico and India, where production levels were not consequentially impacted by COVID-19.

At May 4, 2020, all loans made by the Solar Ventures were assessed to be adequately secured and were currently expected to be repaid in full. In most cases, the repayment of the Solar Venture loans, or their “take-out,” is dependent upon the refinancing of a given loan or the sale of an underlying renewable energy project to third-parties, both of which typically require some combination of tax credit equity, sponsor equity and construction or permanent debt financing. Given deteriorating macro-economic conditions, uncertainty in the financial markets and our dependence on a functioning renewable energy finance market, we will continue to closely monitor loan performance and expected sources of repayment. 

 

Given adverse economic and market conditions that stemmed from COVID-19, origination volumes at the Solar Ventures between April 1, 2020, and May 4, 2020, declined compared to the volume of loans originated by the Solar Ventures during the same timeframes in 2019. Disruption to origination activities at the Solar Ventures is not expected to be long term.

 

Market yields associated with certain funded loans at the Solar Ventures increased in the first quarter of 2020 as credit spreads widened given deteriorating economic conditions. As a result, the fair value of the loan portfolio of the Solar Ventures, particularly those loans with longer remaining terms than average and without take-out financing commitments, declined during such reporting period by $9.0 million, or 1.2%, of outstanding unpaid principal balance (“UPB”) of the loan portfolio at March 31, 2020.  The Company recognized its share of such unrealized losses ($4.0 million) and other components of net income of the Solar Ventures in the first quarter of 2020.  Given performance expectations and the short tenor of loans at the Solar Ventures, we currently expect these unrealized loan losses to reverse over time upon the repayment of such loans. Nonetheless, the measurement of fair value of the loan portfolio of the Solar Ventures in future reporting periods is expected to remain volatile until market conditions moderate.

DTAs

The Company’s assessment of the likelihood of realizing tax benefits related to DTAs recognized in the fourth quarter of 2019 did not change in the first quarter of 2020. That is, while COVID-19 caused a sharp deterioration in macro-economic conditions, the potential amount and permanence of long-term impacts of those conditions on the Company’s business was uncertain at March 31, 2020. Consequently, the Company did not make an adjustment in the first quarter of 2020 to the carrying value of DTAs that were recognized at December 31, 2019.  However, given such uncertainty, we believe it is reasonably possible that, within the next 12 months, a reduction to the carrying value of recognized DTAs that is material to the Company’s financial statements could be recognized. However, the exact timing and amount of loss recognition depends upon future circumstances and, therefore, cannot be predicted at this time.

6

In the first quarter of 2020, the Company recognized a $1.7 million increase in the carrying value of recognized DTAs due to incremental tax benefits stemming from the recognition of a $3.5 million comprehensive loss during such reporting period. Refer to the comparative discussion of our Consolidated Results of Operations for more information about the Company’s results in the first quarter of 2020. 

Other Investments and Hedging Instruments

Market yields associated with the Company’s bond investments generally increased in the first quarter of 2020 given deteriorating conditions associated with the economy. Consequently, the Company recognized $1.8 million of net unrealized fair value losses in the first quarter associated with such investments. Changes in the fair value of these investments are expected to remain volatile until market conditions moderate.    

Given decreases in benchmark interest rates that generally stemmed from actions taken by central banks to stem the tide of the economic downturn, the fair value of interest rate hedge positions of the Company decreased by $2.8 million in the first quarter of 2020 while, given its terms, the Company’s foreign exchange hedge position increased by $1.1 million. Changes in the fair value of these instruments are expected to remain volatile until market conditions moderate.

The Company’s real estate-related investments are accounted for at cost, in the case of our one land investment, or follow the equity method of accounting, in the case of our equity investments in unconsolidated funds or ventures. None of such investments were assessed to be other-than-temporarily impaired at March 31, 2020. However, with respect to the Company’s 80% ownership interest in a joint venture that owns a mixed-use town center development and undeveloped land parcels and whose incremental tax revenues secure our Infrastructure Bond (hereinafter, the “SF Venture”), the downturn in the economy that stems from COVID-19 could impair the underlying real estate value. In this regard, we anticipate that we will continue to recognize equity in losses from the SF Venture related to our equity investment and that such losses may increase, possibly significantly, as the SF Venture consists of hotel tenants, retail tenants and undeveloped land parcels. However, the severity and duration of expected losses cannot be currently quantified due to uncertainty about the duration of COVID-19 and restrictions on business openings and operations.  Nonetheless, we believe that it is reasonably possible that, within the next 12 months, a loss that is material to the Company’s financial statements could be recognized due to the residual economic effects of the measures taken to combat COVID-19, which could weigh on the performance of the development and underlying real estate value. However, the exact timing and amount of loss recognition is based upon future circumstances and, therefore, cannot be predicted at this time.

Liquidity and Capital Resources

The Company is committed to make additional capital contributions to certain of its investments in partnerships and ventures. Through May 4, 2020, the Company has honored all such commitments and we believe that we will continue to do so as these commitments arise.

Through May 4, 2020, the Company was in compliance with all its debt covenants. 

Renewable Energy Investments

We invest in loans that finance renewable energy projects to enable developers, design and build contractors and system owners to develop, build and operate renewable energy systems throughout the U.S. Renewable energy debt in which we invest is primarily structured as senior secured fixed rate loans that are made through joint ventures or directly on our balance sheet. These loans, which are generally short term in nature, are typically made to borrowers when they are in the late stages of development or construction of their commercial, utility and community solar scale photovoltaic (“PV”) facilities that are located across different states and benefit from various state and federal regulatory programs. The short duration of loans in which we invest also helps us to efficiently manage interest rate risk, mitigate long-term risks such as credit exposure to off-take counterparties and provide us flexibility to target investments.

We generally invest in renewable energy investments through the following joint ventures: Solar Construction Lending, LLC (“SCL”); Solar Permanent Lending, LLC (“SPL”); Solar Development Lending, LLC (“SDL”); these  joint ventures together with our wholly owned subsidiary, Renewable Energy Lending, LLC (“REL”), are hereinafter referred to as the

7

Solar Ventures.” We are a 50% investor member in the renewable energy joint ventures in which we invest though, on occasion, we may periodically become a minority investor as a result of non-pro rata capital contributions made by our capital partner pursuant to non-pro rata funding agreements between our capital partner and us. At March 31, 2020,  we were a minority investor in SDL and SCL with a 44.5% interest in such ventures.

Lending Activities of the Solar Ventures

The Solar Ventures typically lend on a senior secured basis collateralized by solar projects, but may also invest in subordinated loans and revolving loans and may finance non-solar renewable technologies such as wind and battery storage, or provide equipment financing and other customized debt solutions for borrowers. The Solar Ventures have historically targeted loans that are underwritten to generate internal rates of return (“IRR”) ranging from 10% to 15%, before expenses, with origination fees that range from 1.0% to 3.0% on committed capital and fixed-rate coupons that range from 7.0% to 14.0%. These loans generally range in size from $2 million to over $50 million. 

Since their inception in 2015, the Solar Ventures have invested in more than 180 project-based loans that total $2.6 billion of debt commitments for the development and construction of over 660 renewable energy project sites. When completed, these projects will contribute to the generation of over 6.2 gigawatts of renewable energy, thereby eliminating approximately 178 million metric tons of carbon emissions over their project lives. The Solar Ventures closed $287.1 million of commitments across 11 loans during the first quarter of 2020 as compared to $210.0 million and 18 loans during the fourth quarter of 2019.

Through March 31, 2020,  $1.5 billion of commitments across 121 project-based loans had been repaid with no loss of principal, resulting in a weighted-average IRR (“WAIRR”) of 17.0% that was on average higher than originally underwritten loan IRRs.  Additionally, for the three months ended March 31, 2020,  10 loans totaling $207.1 million of commitments had been repaid, resulting in a WAIRR of 16.1%. WAIRR is measured as the total return in dollars of all repaid loans divided by the total commitment amount associated with such loans, where (i) the total return for each repaid loan was calculated as the product of each loan’s IRR and its commitment amount and (ii) IRR for each repaid loan was established by solving for a discount rate that made the net present value of all loan cash flows equal zero. WAIRR has been higher than the net return on the Company's investments in the Solar Ventures because it is a measure of gross returns earned by the Solar Ventures on repaid loans and does not include the impact of certain items, including: (i) operating expenses of the Solar Ventures; (ii) the amortization of the purchase premium paid by the Company in the second quarter of 2018 to buyout our former investment partner’s interest in REL; and (iii) the opportunity cost of idle capital. 

At March 31, 2020,  loans funded through the Solar Ventures had an aggregate UPB of $745.8 million and total fair value (“FV”) of $736.8 million or 98.8% of UPB, a weighted-average remaining maturity of eight months and a weighted-average coupon of 9.7%. At December 31, 2019, loans funded through the Solar Ventures had an aggregate UPB and total fair value of $654.4 million, a weighted-average maturity of 10 months and a weighted-average coupon of 10.8%. 

Table 1 provides financial information about the composition of the Solar Ventures’ loan portfolio at March 31, 2020 and December 31, 2019.

Table 1: Composition of the Solar Venture’s Loan Portfolio

 

 

 

 

 

 

 

At

 

At

 

March 31,

 

December 31,

(in thousands)

2020

 

2019

Late-stage development

$

224,901

 

$

298,609

Construction

 

484,180

 

 

321,809

Permanent

 

8,960

 

 

23,597

Other loans associated with renewable energy

 

27,715

 

 

10,345

Total UPB

$

745,756

 

$

654,360

 

8

The Solar Ventures had $435.0 million of unfunded loan commitments that required borrowers to meet various conditions set forth in governing loan agreements in order for funding to occur. At March 31, 2020, $217.9 million of such commitments were attributable to the Company based upon its interest in these ventures.  Unfunded loan commitments that qualify for funding are anticipated to be funded primarily by capital within the Solar Ventures through a combination of existing loan redemptions and idle capital. To the extent capital within the Solar Ventures is not sufficient to meet their funding obligations, additional capital contributions by the members of the Solar Ventures would be required.

Investment Interests and Related Carrying Values

The carrying value and income-related information related to investments that we have made in, or related to, the Solar Ventures are further discussed below. During the first quarter of 2020, the Company and our capital partner in SDL and SCL executed various non-pro rata funding agreements pursuant to which our capital partner contributed $36.5 million of $83.0 million in SDL capital calls and $61.0 million of $97.5 million in SCL capital calls, while the Company contributed the balance. In addition, our capital partner in SDL and SCL received distributions of $32.0 million and $37.5 million, respectively, while the Company received $15.0 million and $10.5 million, respectively. As a consequence of these non-pro rata capital contributions and distributions during the first quarter of 2020,  our ownership interest in SDL and SCL increased in percentage terms from December 31, 2019. At  March 31, 2020,  through MMA Energy Holdings, LLC, the Company held ownership interests of 44.5%, 50.0%, 44.5% and 100% in SCL, SPL, SDL and REL, respectively. 

In addition to investments in the Solar Ventures, in the fourth quarter of 2019, the Company invested in a loan originated by our External Manager with a $2.1 million commitment made to a special purpose entity that is secured by land, which is subject to a 25-year ground lease to a community solar project, and by the equity interests in the borrower. The UPB and fair value of this loan, which bears interest at a fixed rate of 8.0% and matures in December 2022, was $1.3 million at March 31, 2020.

Table 2 provides financial information about the carrying value of the Company’s renewable energy investments at March 31, 2020 and December  31, 2019.  

Table 2:  Carrying Values of the Company’s Renewable Energy Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

March 31,

 

December 31,

(in thousands)

2020

 

2019

Equity investments in the Solar Ventures

$

344,601

 

$

289,123

Loan receivable

 

1,271

 

 

500

Total carrying value

$

345,872

 

$

289,623

 

The carrying value of the Company’s equity investments in the Solar Ventures increased  $55.5 million during the three months ended March 31, 2020 as a result of $51.0 million of net capital contributions made, which were sourced primarily from the $53.6 million repayment of the secured loan receivable from Hunt. Such increase was also driven in part by $4.5 million of equity in income in the Solar Ventures that was recognized during the three months of March 31, 2020.

Investment Income and Return on Investment

The Company applies the equity method of accounting to its equity investments in the Solar Ventures, which are not consolidated by the Company for reporting purposes. Accordingly, the Company recognizes its allocable share of the Solar Ventures’ net income based on the Company’s weighted-average percentage ownership during each reporting period.  Separately, the Company recognizes interest income associated with the aforementioned loan using the interest method.

Table 3 summarizes income recognized by the Company in connection with our renewable energy investments for the periods presented.

9

Table 3:  Income Recognized from Renewable Energy Investments

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

March 31,

(in thousands)

  

2020

  

2019

Equity in income from the Solar Ventures

 

$

4,542

 

$

3,720

Interest income

 

 

19

 

 

 ─

Net losses on loans

 

 

(9)

 

 

 ─

Total investment income

 

$

4,552

 

$

3,720

 

Equity in income from the Solar Ventures recognized by the Company in the first quarter of 2020 included its allocable share, or $4.0 million, of $9.0 million of net fair value losses that were recognized by the Solar Ventures related to its loan portfolio.  The Company generated an unlevered net return on investment from our renewable energy investments, as measured on an annualized twelve-month trailing basis, of 10.4% and 9.3% for the three months ended March 31, 2020 and March 31, 2019, respectively. These returns were measured by dividing total investment income from renewable energy investments by the average carrying value of renewable energy investments on a trailing four quarter basis.

Refer to the comparative discussion of our Consolidated Results of Operations for more information about income that was recognized in connection with the Company’s renewable energy investments.

Leveraging our Renewable Energy Investments

On September 19, 2019, MMA Energy Holdings, LLC (“MEH” or “Borrower”), a wholly owned subsidiary of the Company, entered into a $125.0 million (the “Facility Amount”) revolving credit agreement with various lenders. During the first quarter of 2020, the maximum Facility Amount was increased to $175.0 million and the committed amount of the revolving credit facility increased from $100.0 million to $120.0 million upon the joinder of an additional lender and an increase in commitment by one of the existing lenders. 

Obligations associated with the revolving credit facility are guaranteed by the Company and are secured by specified assets of the Borrower and a pledge of all of the Company’s equity interest in the Borrower through pledge and security documentation. Availability and amounts advanced under the revolving credit facility, which may be used for various business purposes, are subject to compliance with a borrowing base comprised of assets that comply with certain eligibility criteria, and includes late-stage development, construction and permanent loans to finance renewable energy projects and cash.

Borrowing on the revolving credit facility bears interest at the one-month London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements (subject to a 1.5% floor), plus a fixed spread of 2.75% per annum. The Borrower has also agreed to pay certain customary fees and expenses and to provide certain indemnities. In certain circumstances where the interest rate is unable to be determined, including in the event LIBOR ceases to be published, the administrative agent to the credit agreement will select a new rate in its reasonable judgment, including any adjustment to the replacement rate to reflect a different credit spread. The maturity date of the credit agreement is September 19, 2022, subject to a 12-month extension solely to allow refinancing or orderly repayment of the facility. 

At March 31, 2020, the UPB and carrying value of amounts borrowed under the revolving credit facility was $120.0 million and the Company recognized $1.3 million of related interest expense in the Consolidated Statements of Operations during the three months ended March 31, 2020.  

The liquidity accessed by the Company through the revolving credit facility has increased the amount of capital invested in the Solar Ventures.

10

Deferred Tax Assets

Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes.  DTAs are recognized if we assess that it is more likely than not that tax benefits, including NOLs and other tax attributes, will be realized prior to their expiration.  

At March 31, 2020, the reported carrying value of the Company’s net DTA was $59.4 million. A valuation allowance was also maintained at such reporting date against the portion of our DTAs that correspond to federal and state NOL carryforwards that we expected will expire prior to utilization based upon our forecast of pretax book income. 

Investments in Bonds

The Company has one unencumbered tax-exempt municipal bond that financed the development of infrastructure for a mixed-use town center development in Spanish Fort, Alabama and is secured by incremental tax revenues generated from the development (this investment is hereinafter referred to as our “Infrastructure Bond”). At March 31, 2020, the Infrastructure Bond had a stated fixed interest rate of 6.3% and had a UPB and fair value of $26.9 million and $23.5 million, respectively.

At March 31, 2020, we also held one subordinate unencumbered tax-exempt multifamily bond investment with a UPB and fair value of $4.0 million and $6.1 million, respectively.

Real Estate-Related Investments

At March 31, 2020, we were an equity partner in a real estate-related investment with an 80% ownership interest in the SF Venture. The carrying value of this investment was $19.2 million at March 31, 2020.  

At March 31, 2020, the Company maintained an 11.85% ownership interest in the South Africa Workforce Housing Fund (“SAWHF”).  SAWHF is a multi-investor fund whose term matured in April 2020. However, the fund does not anticipate fully exiting all its remaining investments until December 31, 2021.  The carrying value of the Company’s investment in SAWHF was $4.8 million at March 31, 2020.

At March 31, 2020, we also owned one direct investment in real estate consisting of a parcel of land that is currently in the process of development. This real estate is located just outside the city of Winchester in Frederick County, Virginia.  On January 15, 2020, the Company invested $5.9 million in additional land improvements that were capitalized, increasing the carrying value of our investment. As of March 31, 2020, the carrying value of this investment was $14.3 million.

Debt Obligations

At March 31, 2020, the Company’s nonrenewable energy debt obligations included the subordinated debt, notes payable and other debt used to finance the Company’s 11.85% ownership interest in SAWHF, and debt obligations to the Morrison Grove Management, LLC (“MGM”) principals.

The carrying value and weighted-average yield of the Company’s nonrenewable energy debt obligations was $103.7 million and 3.7%, respectively, at March 31, 2020. Refer to Table 9, “Debt,” for more information.

11

SUMMARY OF FINANCIAL PERFORMANCE

 

Net Worth

Common shareholders’ equity (“Book Value”) decreased  $3.5 million in the first quarter of 2020 to $277.7 million at March 31, 2020.  This change was driven by $3.5 million of comprehensive loss.

Book Value per share decreased $0.61, or  1.3%, in the first quarter of 2020 to $47.82 at March 31, 2020.  

Book Value adjusted to exclude the carrying value of our net DTAs (“Adjusted Book Value”) decreased $5.1 million in the first quarter of 2020 to $218.3 million at March 31, 2020. This change was driven by $4.2 million of Net loss from continuing operations before income taxes and $0.9 million of other decreases in Book Value.

Adjusted Book Value per share decreased $0.90, or 2.3%, in the first quarter of 2020 to $37.59 at March 31, 2020. 

Refer to “Use of Non-GAAP Measures” for more information regarding the reconciliation of Adjusted Book Value and Adjusted Book Value per share to our most comparable GAAP measures.

Comprehensive Loss

We recognized a  comprehensive loss of $3.5 million during the first quarter of 2020, which consisted of $3.1 million of net loss and $0.4 million of other comprehensive loss.  In comparison, we recognized $0.2 million of comprehensive loss in the quarter ended March 31, 2019, which consisted of $2.9 million of net income and $3.1 million of other comprehensive loss.

The $3.1 million net loss recognized in the first quarter of 2020 was primarily driven by $5.7  million of net fair value losses that were recognized in connection with derivative instruments and the Company’s interests in loans of the Solar Ventures. Refer to “Consolidated Results of Operations,” for more information.

Net loss from continuing operations before income taxes in the first quarter of 2020 was $4.2 million, or $0.73 per share, as compared to $2.9 million net income in the first quarter of 2019. 

Other comprehensive loss of $0.4 million that we reported in the first quarter of 2020 was primarily attributable to net fair value losses that we recognized in connection with our bond investments.

12

CONSOLIDATED BALANCE SHEET ANALYSIS

 

This section provides an overview of changes in our assets, liabilities and equity and should be read together with our consolidated financial statements, including the accompanying notes to the financial statements.

Table 4 provides Consolidated Balance Sheets for the periods presented.  

Table 4:  Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

 

 

 

March 31,

 

December 31,

 

 

(in thousands, except per share data)

    

2020

    

2019

    

Change  

Assets  

  

 

 

  

 

 

  

 

 

Cash and cash equivalents

 

$

23,164

 

$

8,555

 

$

14,609

Restricted cash

 

 

7,009

 

 

4,250

 

 

2,759

Investments in debt securities

 

 

29,645

 

 

31,365

 

 

(1,720)

Investments in partnerships

 

 

368,598

 

 

316,677

 

 

51,921

Deferred tax assets, net

 

 

59,394

 

 

57,711

 

 

1,683

Loans held for investment

 

 

1,271

 

 

54,100

 

 

(52,829)

Other assets

 

 

18,991

 

 

12,984

 

 

6,007

Total assets

 

$

508,072

 

$

485,642

 

$

22,430

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Debt

 

$

223,653

 

$

201,816

 

$

21,837

Accounts payable and accrued expenses

 

 

4,300

 

 

2,527

 

 

1,773

Other liabilities

 

 

2,450

 

 

174

 

 

2,276

Total liabilities

 

$

230,403

 

$

204,517

 

$

25,886

 

 

 

 

 

 

 

 

 

 

Book Value: Basic and Diluted

 

$

277,669

 

$

281,125

 

$

(3,456)

 

 

 

 

 

 

 

 

 

 

Less: Deferred tax assets, net

 

 

59,394

 

 

57,711

 

 

1,683

Adjusted Book Value: Basic and Diluted

 

$

218,275

 

$

223,414

 

$

(5,139)

 

 

 

 

 

 

 

 

 

 

Common shares outstanding: Basic and Diluted

 

 

5,807

 

 

5,805

 

 

 2

 

 

 

 

 

 

 

 

 

 

Book Value per common share: Basic and Diluted

 

$

47.82

 

$

48.43

 

$

(0.61)

 

 

 

 

 

 

 

 

 

 

Adjusted Book Value per common share: Basic and Diluted

 

$

37.59

 

$

38.49

 

$

(0.90)

 

Cash and cash equivalents increased primarily due to advances from the revolving credit facility.  

Restricted cash increased primarily as a result of an increase in the amount of cash collateral that was posted to counterparties in connection with our interest rate hedging instruments.

Investments in debt securities decreased primarily due to the recognition of net fair value losses related to such investments in the first quarter of 2020 as credit spreads related to such investments widened during such reporting period.

Investments in partnerships increased primarily as a result of net capital contributions of $51.0 million that we made to the Solar Ventures and the recognition of $4.5 million of equity in income of our investees.

Deferred tax assets, net increased $1.7 million due to the recognition of a net loss in the first quarter of 2020.

13

Loans held for investment decreased primarily as a result of the repayment of the Company’s $53.6 million loan receivable from Hunt (the “Hunt Note”) on January 3, 2020. 

Other Assets increased primarily as a result of $5.9 million of land improvement costs that were capitalized in connection with a real estate investment that is in process of development.

Debt increased primarily as a result of advances from the revolving credit facility.    

14

CONSOLIDATED RESULTS OF OPERATIONS

 

This section provides a comparative discussion of our Consolidated Results of Operations and should be read in conjunction with our consolidated financial statements, including the accompanying notes.  See “Critical Accounting Policies and Estimates,” for more information concerning the most significant accounting policies and estimates applied in determining our results of operations.

Net Income

Table 5 summarizes net income for the periods presented.

Table 5:  Net (Loss) Income

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

  

2020

  

2019

  

Change

Net interest income

 

$

559

 

$

1,679

 

$

(1,120)

Non-interest income

 

 

 

 

 

 

 

 

 

Equity in income from unconsolidated funds and ventures

 

 

4,148

 

 

3,976

 

 

172

Net (losses) gains

 

 

(1,720)

 

 

2,118

 

 

(3,838)

Other income

 

 

 1

 

 

17

 

 

(16)

Other expenses

 

 

 

 

 

 

 

 

 

Other interest expense

 

 

(2,269)

 

 

(1,209)

 

 

(1,060)

Operating expenses

 

 

(4,968)

 

 

(3,679)

 

 

(1,289)

Net (loss) income from continuing operations before income taxes

 

 

(4,249)

 

 

2,902

 

 

(7,151)

Income tax benefit (expense)

 

 

1,191

 

 

(13)

 

 

1,204

Net loss from discontinued operations, net of tax

 

 

 —

 

 

(7)

 

 

 7

Net (loss) income

 

$

(3,058)

 

$

2,882

 

$

(5,940)

 

Net Interest Income

Net interest income represents interest income earned on our investments in bonds, loans and other interest-earning assets less our cost of funding associated with the debt that we use to finance these assets.

Net interest income for the three months ended March 31, 2020, declined compared to that reported for the three months ended March 31, 2019, primarily due to the full repayment of the Hunt Note and the disposition and redemption of various bond-related investments throughout 2019.

Equity in Income from Unconsolidated Funds and Ventures

Equity in income from unconsolidated funds and ventures includes our allocable share of the earnings or losses from the funds and ventures in which we have an equity interest.

Table 6 summarizes equity in income from unconsolidated funds and ventures for the periods presented.

15

Table 6:  Equity in Income from Unconsolidated Funds and Ventures

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

  

2020

  

2019

  

Change

Solar Ventures

 

$

4,542

 

$

3,720

 

$

822

U.S. real estate partnerships

 

 

(586)

 

 

12

 

 

(598)

SAWHF

 

 

192

 

 

244

 

 

(52)

Equity in income from unconsolidated funds and ventures

 

$

4,148

 

$

3,976

 

$

172

 

Equity in income from the Solar Ventures for the three months ended March 31, 2020, increased compared to that reported for the three months ended March 31, 2019, primarily as a result of a significant period-over-period increase in the volume of loans originated by the Solar Ventures, which drove net income of the Solar Ventures and the Company’s share thereof higher.  The amount of equity in income from the Solar Ventures recognized in the first quarter of 2020 included the Company’s allocable share, or $4.0 million, of $9.0 million of net fair value losses that were recognized by the Solar Ventures in connection with the funded portion of loan commitments. The fair value of the loan portfolio of the Solar Ventures decreased in the first quarter of 2020 as certain loan-related credit spreads widened due to deteriorating macro-economic conditions. 

Equity in income from U.S. real estate partnerships for the three months ended March 31, 2020,  decreased compared to that reported for the three months ended March 31, 2019, primarily as a result of $0.6 million of net losses attributable to the Company from the SF Venture.    

Equity in income from the Company’s equity investment in SAWHF for the three months ended March 31, 2020,  decreased compared to that reported for the three months ended March 31, 2019, primarily as a result of a decrease in net fair value gains that were recognized by SAWHF in connection with its real estate-related investments.

Net (Losses) Gains

Net (losses) gains may include net realized and unrealized gains or losses relating to bonds, loans, derivatives, real estate and other investments as well as gains or losses realized by the Company in connection with the extinguishment of debt obligations.

Net losses for the three months ended March 31, 2020,  increased compared to net gains reported for the three months ended March 31, 2019, primarily due to (i) nonrecurring gains of $3.6 million that were recognized in the first quarter of 2019 in connection with the sale or redemption of bond investments and (ii) a $0.3 million increase in net fair value losses related to derivative instruments that was driven by changes in reference interest and foreign exchange rates.

Other Interest Expense

Other interest expense for the three months ended March 31, 2020, increased compared to that reported for the three months ended March 31, 2019, primarily due to advances on the Company’s revolving credit facility. 

Operating Expenses

Operating expenses include management fees and reimbursable expenses payable to our External Manager, general and administrative expense, professional fees and other miscellaneous expenses.

Table 7 summarizes operating expenses for the periods presented.

16

Table 7:  Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

March 31,

 

 

 

(in thousands)

  

2020

  

2019

  

Change

External management fees and reimbursable expenses

 

$

(2,760)

 

$

(2,268)

 

$

(492)

General and administrative

 

 

(359)

 

 

(314)

 

 

(45)

Professional fees

 

 

(709)

 

 

(967)

 

 

258

Other expenses

 

 

(1,140)

 

 

(130)

 

 

(1,010)

Total operating expenses

 

$

(4,968)

 

$

(3,679)

 

$

(1,289)

 

Operating expenses for the three months ended March 31, 2020,  increased compared to that reported for the three months ended March 31, 2019, primarily due to (i) $1.1 million of losses recognized in the first quarter of 2020 in connection with the remeasurement of foreign currency-denominated assets into U.S. dollars for reporting purposes as the rand weakened against the U.S. dollar in the first quarter of 2020 and (ii) an increase in the amount of compensation-related expense reimbursements that were payable to the External Manager. 

Income Tax Benefit (Expense)

The Company recognized a $1.2 million income tax benefit for the three months ended March 31, 2020, as compared to income tax expense reported for the three months ended March 31, 2019, primarily due to the recognition of a net loss from operations in the first quarter of 2020.

17

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity

Liquidity is a measure of our ability to meet potential short-term (within one year) and long-term cash requirements, including ongoing commitments to repay borrowings, fund and maintain our current and future assets and other general business needs. Our sources of liquidity include: (i) cash and cash equivalents; (ii) cash flows from operating activities; (iii) cash flows from investing activities; and (iv) cash flows from financing activities.

Summary of Cash Flows

Table 8 provides a consolidated view of the change in cash, cash equivalents and restricted cash of the Company for the periods presented.  At  March 31, 2020 and March 31, 2019,  $7.0 million and $5.7 million, respectively, of amounts presented below represented restricted cash.

Table 8:  Net Increase in Cash, Cash Equivalents and Restricted Cash

 

 

 

 

 

 

For the three months ended

(in thousands)

 

March 31, 2020

Cash, cash equivalents and restricted cash at beginning of period

  

$

12,805

Net cash provided by (used in):

 

 

 

Operating activities

 

 

3,414

Investing activities

 

 

(8,817)

Financing activities

 

 

22,771

Net increase in cash, cash equivalents and restricted cash

 

 

17,368

Cash, cash equivalents and restricted cash at end of period

 

$

30,173

 

 

 

 

 

 

 

For the three months ended

(in thousands)

 

March 31, 2019

Cash, cash equivalents and restricted cash at beginning of period

  

$

33,878

Net cash (used in) provided by:

 

 

 

Operating activities

 

 

(649)

Investing activities

 

 

2,409

Financing activities

 

 

(1,197)

Net increase in cash, cash equivalents and restricted cash

 

 

563

Cash, cash equivalents and restricted cash at end of period

 

$

34,441

 

Operating Activities

Cash flows from operating activities include, but are not limited to, interest income on our investments,  and income distributions from our investments in unconsolidated funds and ventures.

Net cash flows provided by operating activities during the three months ended March 31, 2020 increased  $4.1 million compared to such net cash flows during the three months ended March 31, 2019. This net increase was primarily driven by a $4.9 million increase in distributions received from the Company’s investment in partnerships that related to the Solar Ventures. The impact of this increase was partially offset by (i) a $0.5 million increase in interest expense primarily attributable to the Company’s revolving credit facility and (ii) a decline in net cash flows from bond-related investments given the disposition and redemption of various bond investments and termination of TRS agreements in 2019.  

18

Investing Activities

Net cash flows associated with investing activities include, but are not limited to, principal payments; capital contributions and distributions; advance of loans held for investment; and sales proceeds from the sale of bonds, loans and real estate and other investments.

Net cash flows used in investing activities during the three months ended March 31, 2020 increased $11.2 million compared to such net cash flows during the three months ended March 31, 2019. This net increase was primarily driven by (i) a $31.0 million increase in capital contributions made to the Solar Ventures and (ii) a $23.0 million decrease in capital distributions received from the Company’s investments in partnerships that primarily related to its investments in the Solar Ventures. The impact of these items was partially offset by a $45.0 million increase in net principal payments and bond-related sales proceeds received on bonds and loans held for investment primarily due to the full repayment of the $53.6 million Hunt Note during the first quarter of 2020.

Financing Activities

Net cash flows provided by financing activities during the three months ended March 31, 2020 increased $24.0 million compared to such net cash flows during the three months ended March 31, 2019. This increase was primarily attributable to $25.5 million of net advances from the revolving credit facility. The impact of this increase was partially offset by $0.5 million of debt issuance costs incurred in connection with the increased capacity of the revolving credit facility during the first quarter of 2020.  

Capital Resources

Our debt obligations include liabilities that we recognized in connection with our subordinated debt, revolving credit facility debt obligations and other notes payable. The major types of debt obligations of the Company are further discussed below. We use the revolving credit facility to finance our investments in the Solar Ventures. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Table 9 summarizes the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at March 31, 2020 and December 31, 2019.

Table 9:  Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

March 31, 2020

 

December 31, 2019

 

  

 

 

 

Wtd. Avg.

 

 

 

 

Wtd. Avg.

 

 

 

 

 

Effective 

 

 

 

 

Effective 

 

 

Carrying

 

Interest

 

Carrying

 

Interest

(dollars in thousands)

    

Value (1)

    

Rate (1)

 

Value (1)

    

Rate (1)

Subordinated debt

 

$

94,923

 

3.1

%

 

$

95,488

 

3.2

%

Revolving credit facility debt obligations

 

 

120,000

 

5.3

 

 

 

94,500

 

5.6

 

Notes payable and other debt

 

 

8,730

 

9.7

 

 

 

8,328

 

13.0

 

Asset related debt

 

 

 ─

 

 ─

 

 

 

3,500

 

5.0

 

Total debt

 

$

223,653

 

4.5

%

 

$

201,816

 

4.8

%


(1)

Carrying value amounts and weighted-average interest rates reported in this table include the effects of any discounts, premiums and other cost basis adjustments. An effective interest rate represents an internal rate of return of a debt instrument that makes the net present value of all cash flows, inclusive of cash flows that give rise to cost basis adjustments, equal zero and in the case of (i) fixed rate instruments, is measured as of an instrument’s issuance date and (ii) variable rate instruments, is measured as of each date that a reference interest rate resets.

19

Subordinated Debt

At March 31, 2020 and December 31, 2019, the Company had subordinated debt obligations that had a total UPB of $87.6 million and $88.0 million, respectively. This debt included four tranches that amortize 2.0% per annum over their contractual lives, are due to mature with balloon payments between March 2035 and July 2035 and require the Company to pay interest based upon three-month LIBOR plus a fixed spread of 2.0%. At  March 31, 2020 the weighted average interest rate on the outstanding debt was 3.8%.

Revolving Credit Facility Debt Obligations

At March 31, 2020,  a wholly owned subsidiary of the Company had borrowed the full committed amount of $120.0 million from the revolving credit facility. This debt obligation, which is guaranteed by the Company and secured by (i) specific assets of the Borrower and (ii) a pledge of all of the Company’s equity interest in the Borrower, which in turn owns our equity investments in the Solar Ventures, matures on September 19, 2022, and is subject to a 12-month extension solely to allow refinancing or orderly repayment of the debt obligation. This debt obligation bears interest equal to one-month LIBOR (subject to a 1.5% floor) plus a fixed spread of 2.75%, which, at March 31, 2020 was 4.3%. 

Notes Payable and Other Debt

At March 31, 2020 and December 31, 2019,  the Company had notes payable and other debt with a UPB of $8.8 million and $8.4 million, respectively.  

At March 31, 2020 and December 31, 2019, $4.2 million and $6.8 million, respectively, of this debt relates to financing that was obtained to complete the purchase of the Company’s 11.85% ownership interest in SAWHF. This debt, which is denominated in South African rand, amortizes over its contractual life, is due to mature on September 8, 2020, and requires the Company to pay interest based upon the Johannesburg Interbank Agreed Rate (“JIBAR”) plus a fixed spread of 5.15%, which at March 31, 2020 was 11.6%.

At March 31, 2020 and December 31, 2019, $4.5 million and $1.5 million, respectively, of the notes payable and other debt relates to debt obligations to the MGM principals. This debt bears interest at 5.0%. The $3.0 million debt obligation amortizes over its contractual life and is due to mature on January 1, 2026. The $1.5 million debt obligation is interest only until March 31, 2026 and then amortizes in three equal installments until its maturity date of January 1, 2027.

Asset Related Debt

Asset related debt is debt that finances interest-bearing assets of the Company. The interest expense associated with this debt is included within “Net interest income” on the Company’s Consolidated Statements of Operations.

Non-bond Related Debt

At December 31, 2019, the Company had a debt obligation to MGM principals with a UPB of $3.5 million. Upon the full redemption of the Hunt Note on January 3, 2020, this asset related debt obligation to the MGM principals was reclassified to notes payable and other debt.

Covenant Compliance

At March 31, 2020 and December 31, 2019, the Company was in compliance with all covenants under its debt arrangements.

Off-Balance Sheet Arrangements

At March 31, 2020 and December 31, 2019, the Company had no off-balance sheet arrangements.

20

Other Contractual Commitments

The Company is committed to make additional capital contributions to certain of its investments in partnerships and ventures.  Refer to Notes to Consolidated Financial Statements - Note 3, “Investments in Partnerships,” for more information.

At March 31, 2020 and December 31, 2019, the Company, through its wholly owned subsidiary of REL had unfunded loan commitments of $0.8 million and $1.6 million, respectively.  Refer to Notes to Consolidated Financial Statements - Note 4, “Loans Held for Investment (“HFI”)” for more information.

The Company uses derivative instruments to hedge interest rate and foreign currency risks. Depending upon movements in reference interest and foreign exchange rates, the Company may be required to make payments to the counterparties to these agreements. Refer to Notes to Consolidated Financial Statements – Note 7, “Derivative Instruments,” for more information about these instruments.

Other Capital Resources

Common Shares

The Company’s 2019 share repurchase program expired on December 31, 2019.

Dividend Policy

The Board makes the final determination regarding dividends based on our External Manager’s recommendation, which is based on an evaluation of a number of factors, including our financial condition, business prospects, the predictability of recurring cash flows from operations, available cash and other factors the Board may deem relevant. The Board does not believe paying a dividend is appropriate at the current time.

Tax Benefits Rights Agreement

Effective May 5, 2015, the Company adopted a Rights Plan designed to help preserve the Company’s NOLs.  In connection with adopting the Rights Plan, the Company declared a distribution of one right per common share to shareholders of record as of May 15, 2015.  The rights do not trade apart from the current common shares until the distribution date, as defined in the Rights Plan.  Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person. On March 11, 2020, the Board approved an extension of the original five-year term of the Rights Plan until May 5, 2023, or until the Board determines that the plan is no longer needed, whichever comes first. The Board has asked shareholders for an advisory vote to ratify its decision to extend the Rights Plan at the Company’s 2020 annual meeting of shareholders.

On January 3, 2018, the Board approved a waiver of the 4.9% ownership limitation with respect to Hunt, increasing the limitation to 9.9% of the Company’s issued and outstanding shares in any rolling 12-month period without causing a triggering event.

At March 31, 2020, the Company had two shareholders, including one of its executive officers, Michael L. Falcone, who held greater than a 4.9% interest in the Company.  On March 11, 2020, the Board named Mr. Falcone an exempted person in accordance with the Rights Plan for open-market share purchases of up to an additional 7,500 common shares, to be completed by December 31, 2020, with the Board reserving all its rights under the Rights Plan for any subsequent purchase. As a result of the Board’s action, purchases made by Mr. Falcone up to the authorized 7,500 common shares would not be a triggering event for purposes of the Rights Plan if purchased prior to December 31, 2020.  

21

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The preparation of our consolidated financial statements is based on the application of GAAP, which requires us to make certain estimates and assumptions that affect the reported amounts and classification of the amounts in our consolidated financial statements.  These estimates and assumptions require us to make difficult, complex and subjective judgments involving matters that are inherently uncertain.  We base our accounting estimates and assumptions on historical experience and on judgments that we believe to be reasonable under the circumstances known to us at the time.  Actual results could differ materially from these estimates.  We applied our critical accounting policies and estimation methods consistently in all material respects and for all periods presented and have discussed those policies with our Audit Committee.

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions.  Management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board.  See Part I, Item 1A. “Risk Factors” in our 2019 Annual Report for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods.  We have identified three of our accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition.  These policies govern:

·

Income taxes;

·

fair value measurement of financial instruments; and

·

consolidation.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our 2019 Annual Report for a discussion of these critical accounting policies and estimates.

22

ACCOUNTING AND REPORTING DEVELOPMENTS

 

We identify and discuss the expected impact on our consolidated financial statements of recently issued accounting guidance in Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies.”

23

USE OF NON-GAAP MEASURES

 

We present certain non-GAAP financial measures that supplement the financial measures we disclose that are calculated under GAAP. Non-GAAP financial measures are those that include or exclude certain items that are otherwise excluded or included, respectively, from the most directly comparable measures calculated in accordance with GAAP. The non-GAAP financial measures that we disclose are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as similar non-GAAP financial measures used by other companies. 

Adjusted Book Value represents Book Value reduced by the carrying value of the Company’s DTAs. We believe this measure is useful to investors in assessing the Company’s underlying fundamental performance and trends in our business because it eliminates potential volatility in results brought on by tax considerations in a given year. As a result, reporting upon, and measuring changes in, Adjusted Book Value enables for a better comparison of period-to-period operating performance.

Adjusted Book Value per common share represents Adjusted Book Value at the period end divided by the common shares outstanding at the period end. 

Management intends to continually evaluate the usefulness, relevance, limitations and calculations of our reported non-GAAP performance measures to determine how best to provide relevant information to the public.

Table 10 provides reconciliations of the non-GAAP financial measures that are included in this Report to the most directly comparable GAAP financial measures.

Table 10:  Non-GAAP Reconciliations

 

 

 

 

 

 

 

 

 

At

 

At

 

 

March 31,

 

December 31,

(in thousands, except per share data)

    

2020

 

2019

Reconciliation of Book Value to Adjusted Book Value

 

 

 

 

 

 

Book Value (total shareholders' equity), as reported

 

$

277,669

 

$

281,125

Less: DTAs, net

 

 

59,394

 

 

57,711

Adjusted Book Value

 

$

218,275

 

$

223,414

 

 

 

 

 

 

 

Common shares outstanding

 

 

5,807

 

 

5,805

 

 

 

 

 

 

 

Reconciliation of Book Value per share to Adjusted Book Value per common share

 

 

 

 

 

 

Book Value (total shareholders' equity) per common share, as reported

 

$

47.82

 

$

48.43

Less: DTAs, net per common share

 

 

10.23

 

 

9.94

Adjusted Book Value per common share

 

$

37.59

 

$

38.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

Item 1.  Financial Statements

MMA Capital Holdings, Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

March 31,

 

December 31,

 

    

2020

    

2019

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,164

 

$

8,555

Restricted cash

 

 

7,009

 

 

4,250

Investments in debt securities

 

 

29,645

 

 

31,365

Investments in partnerships (includes $349,362 and $296,855 pledged as collateral at March 31, 2020 and December 31, 2019, respectively)

 

 

368,598

 

 

316,677

Deferred tax assets, net

 

 

59,394

 

 

57,711

Loans held for investment (includes zero and $53,600 of related party loans at March 31, 2020 and December 31, 2019)

 

 

1,271

 

 

54,100

Other assets

 

 

18,991

 

 

12,984

Total assets

 

$

508,072

 

$

485,642

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Debt

 

$

223,653

 

$

201,816

Accounts payable and accrued expenses

 

 

4,300

 

 

2,527

Other liabilities

 

 

2,450

 

 

174

Total liabilities

 

 

230,403

 

 

204,517

 

 

 

 

 

 

 

Commitments and contingencies (see Note 10)

 

 

 ─

 

 

 ─

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

Preferred shares, no par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2020 and December 31, 2019

 

 

 ─

 

 

 ─

Common shares, no par value, 50,000,000 shares are authorized (5,702,423 and 5,701,946 shares issued and outstanding and 104,916 and 103,069 non-employee directors' deferred shares issued at March 31, 2020 and December 31, 2019, respectively)

 

 

270,489

 

 

273,492

Accumulated other comprehensive income ("AOCI") 

 

 

7,180

 

 

7,633

Total shareholders’ equity

 

 

277,669

 

 

281,125

Total liabilities and equity

 

$

508,072

 

$

485,642

 

 

The accompanying notes are an integral part of these consolidated financial statements.

25

MMA Capital Holdings, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

March 31,

 

    

2020

    

2019

Interest income

  

 

 

  

 

 

Interest on bonds

 

$

468

 

$

1,043

Interest on loans and short-term investments

 

 

91

 

 

935

Total interest income

 

 

559

 

 

1,978

Asset related interest expense

 

 

 

 

 

 

Bond related debt

 

 

 ─

 

 

237

Non-bond related debt

 

 

 ─

 

 

62

Total interest expense

 

 

 ─

 

 

299

Net interest income

 

 

559

 

 

1,679

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

Equity in income from unconsolidated funds and ventures

 

 

4,148

 

 

3,976

Net gains on bonds

 

 

 ─

 

 

3,571

Net losses on derivatives

 

 

(1,711)

 

 

(1,442)

Net losses on loans and extinguishment of liabilities

 

 

(9)

 

 

(11)

Other income

 

 

 1

 

 

17

Non-interest income

 

 

2,429

 

 

6,111

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

Interest expense

 

 

2,269

 

 

1,209

External management fees and reimbursable expenses

 

 

2,760

 

 

2,268

General and administrative

 

 

359

 

 

314

Professional fees

 

 

709

 

 

967

Other expenses

 

 

1,140

 

 

130

Total other expenses

 

 

7,237

 

 

4,888

 

 

 

 

 

 

 

Net (loss) income from continuing operations before income taxes

 

 

(4,249)

 

 

2,902

Income tax benefit (expense)

 

 

1,191

 

 

(13)

Net (loss) income from continuing operations

 

 

(3,058)

 

 

2,889

Net loss from discontinued operations, net of tax

 

 

 ─

 

 

(7)