Q4 2019 Earnings Call

Welcome to an operator will be with you shortly.

Home welcome to an operator will be with you shortly. Hello. This is the operator. Can I help you?

Yes, of course. Could I please have your first and last name?

So, it's b a i b a i d

Okay. So and your last name, please?

Okay, perfect. And your company name, please?

I'm not doing anything you very much for calling in financial performance of which are based on current expectations wage, which include those identified in the company's filings with the Securities and Exchange Commission that could cause actual results to differ materially from those expressed in these former statements listeners are cautioned not to place undue Reliance on these forward-looking statements, which speak only as of the date of your company undertake no obligation to update any of the information contained in the forward-looking statements. I will not like to turn the call over to mister Michael Falcone CEO of em a capital Holdings, please go ahead.

Thank you operator. Good morning everyone and welcome with me on the call today or Dave Anderson our Chief Financial Officer. Gary mentesana our president and Chief Operating Officer and Megan Sophocles senior vice president and treasurer for our call today Dave Gary and I will deliver our prepared remarks after which we will be available to take your questions. I should know because of the current coronavirus crisis. We are doing this call remotely. So I apologize for any technical issues that might develop as a result of that, but we're on a handful of different cell phones Bridge together. The purpose of our call today is to review anime Capital Holdings 29th annual Financial results. You can provide an overall business update.

Our annual report was filed with the SEC.

Friday an updated investor presentation available on our website

with respect to the financial results, which they will review in detail later. You're please refer to the company end-of-the-year with 281.1 million of common shareholders Equity wage Book value, which represents an increase of 68.2 million for the year ended December 2019 and 61.5 million for the fourth quarter. Book value per share your $48.43 increase of $12.23 per share or 33.8% compared to the beginning of the month and $11.14 or 29.9% for the fourth quarter.

Increase in Book value is primarily driven by the recognition of 57.7 million for tax asset in the fourth quarter along with strong returns to renewable energy investment Club. The year is Dave will further discuss the recognition of the Deferred tax asset in the. Greatly impacted our quarterly and annual results. The recognition of this asset was the result of years of work to reposition the portfolio and manage our liabilities and expenses to the point where the company foresees ongoing profitability from recurring operations moving forward on a particular by the company gaining access to debt Capital markets in the third and fourth quarters of 2019 by redeploying capital from the repayment of our note receivable from hunt down your end The higher-yielding Investments.

It's important to note though that assessing the likelihood that deferred tax assets will be realized entails making estimates and assumptions that are inherently uncertain particularly concerning the company's future business structure and financial results and therefore require a significant judgment in this regard the carrying value of net for tax. That's could potentially change and subsequent wage reporting periods and cause learning by all earnings volatility. We've expanded the disclosures in our 10-K filing to reflect various risks of the company's projection of pre-tax income.

Additionally because the impact of deferred taxes created a significant non-cash recognition of that our financial statements do also see that we expanded disclosures in the filing preparation investor presentation to include certain non-gaap measures including adjusted Book value and adjusted book value per share which exclude be impacted deferred tax assets and which we think are useful in assessing the company's underlying financial performance and business Trends because they eliminate the potential volatility in the value of our deferred tax assets off that said the company's adjusted Book value at year-end was 223.4 million and increase of ten point five million for the year or 4.95% versus 2018 on a per-share basis. The company's adjusted book value per share at the end at year-end was 38.4 not $38.49.

and the increase of two.

Dollars and twenty-nine cents or 6.3% for the year and the dollar twenty or 3.2% for the quarter as discussed in Prior quarters part of our capital projects to the year involved obtaining reasonably priced at Capital in order to deploy additional Capital including Global energy Investments as well as to generate improve returns and such and bath during the third quarter. We successfully raised $70 million of debt capital in the form of a 3 year revolving credit facility committed amount of that credit facility increased to a hundred million in June fourth quarter. And as of this call now since that 120 million assessing this new source of capital is a significant event of the effort to grow our portfolio and increase our return home equity.

Another Capital strategy for the year was to continue recycling Capital out of Investments with lower returns. This is the leverage Bond investments in the hunt note and redeployed into higher. Yep energy Investments for the year. We liquidated a significant portion of our remaining Bond Investments, including all related debt used to finance such positions in addition a bond liquidations at your end. We received to prepayment of approximately 13 million on our know receivable from Hans as we disclosed in the filing. The balance is a hunting out or approximately $54 million was repaid in full in early January. It's created sixty-seven million of additional Capital available for investment. Most of which has been deployed into additional renewable energy investment best improving your overall return on equity for this again part of our overall portfolio.

We continue to see strong returns from our renewable energy Investments during the fourth quarter and year every year is Gary will further discuss demand for Capital to finance renewable energy projects remain strong and the solar Market is large and growing Financial financing Alternatives remain segmented and developers underserved the result. We believe we took position to further invest in the sector and can continue to generate attractive risk-adjusted returns, which are also generate positive environmental and social impact due to our national managers and Noble energy load origination platform.

The next few minutes of the call, we will focus on the operations of the company during the fourth quarter and for the year just ended however before opening the call for questions from investors bought I will address current marketing conditions due to the coronavirus outbreak and related Market response.

Now for further review of our investments in funding, let me turn the call over to Gary.

Thanks, Mike and good morning. Everyone before touching on the company's Investments and funding. I should note that effective with the fourth quarter. We no longer organized the company's assets and liabilities into to change this change this the result of balance sheet simplification and reflects an approach that is consistent with our management and financial reporting conventions that related to the company's own Noble energy Investments, which represented 72% of the company's loan receivables bonds and Investments and Partnerships that you're asked the company invest alongside an Institutional Capital Partner in a solar countries that mainly Finance the Development and Construction of renewable energy projects in North America in the fourth quarter of the carrying value of the company's renewable energy investment increased by about $75 million dollars to 289 point six million at December 31st. This increase was primarily due to the deployment of net draws on our revolving credit facility recycled wage.

an income recognized for the.

Since the start of the year the total carrying value of renewable energy investment increased 163.3 million dollars were approximately 129% as you will see in cable of our filing during the year of the company recognized twenty-three million dollars of income related to renewable energy Investments, which represents a nun leveraged net return on investment 11.4% of the Year versus 6.6% in 2018 is twenty-three million dollars of income recognized in these Investments represented in an increase of 16.1 million dollars or 231% year-over-year further income in the quarter was seven point five million dollars representing a $600,000 increase quarter-over-quarter off percent.

December 31st loan funded by the solar Ventures aggregate unpaid principal balance or upb of six hundred and fifty four point four million dollars a weighted-average meaning maturity of 10 months and a weighted average coupon of 10.8% compared to three hundred sixty two point seven million dollars nine months and 10.8% in September 30th at December 31st, 2018. The upb was 250.8 million with a weighted average maturity and coupon seven months and 9.2% wage effectively. This represents a hundred and 61% year-over-year growth in the upb of commitments originated by the solar Ventures.

As discussed on prior calls. We typically Target loans that generate origination fees ranging from 1 to 3% on committed capital and coupons on funded loan balances ranging from 7% to 43%

get their Inception in 2015. The solar Ventures have invested in more than a hundred and sixty project-based loans that total two point three million dollars of project commitments for the deployment in construction over over 660 renewable energy projects, but when completed will contribute to the generation of over six point two gigawatts of renewable energy for June 31st, 2019. One point three billion of commitments across a hundred eleven project-based loans are repaid with no loss of investment principles while generating a weighted average loan novel. I are are 17.2% which was on average higher than originally under it.

The pipeline of renewable energy opportunities remains robust and continues to represent an asset class with attractive risk-adjusted return that also meet our environmental and social investment goals. It's Mike mentioned earlier. We now have a rub a revolving credit facility with a committed amount of $129 which would enable our Equity Capital to remain fully invested which we believe will increase our returns in the future. We continue to explore ways to optimize the company's capitalization including additional debt Capital where appropriate

turning to

Their assets and liabilities the TV and fair value of our bond related Investments is December 31st, which is 30.9 dollars and thirty one point four million dollars respectively down slightly in the office workers. We continue to exit Bond positions with respect to the hunt note. We previously disclosed three payment in full of the 5% note as of January 3rd with the significant portion of that payment proceeds being redeployed into renewable energy Investments as stated in Prior quarters. We do not expect the other assets and liabilities to contribute consistently to quarterly income. We will continue to pursue opportunities to recycle capital from this part of the company's balance sheet as attractive levels.

Without trying to call over today. We'll discuss our annual results in Greater detail Dave.

Thanks, Gary a good morning everyone as I provide an overview of our results. I will refer to various tables and items seven of our form 10-K.

As Mike mentioned Book value increased 68.2 million dollars in 2019 to 281.1 million dollars in this regard book value per share increased to $48.43 per share which represented and $11.14 per share increase in the fourth quarter and $12.23 per share on a full year basis.

As I said earlier a significant driver of the reporting increases Book value in 2019 was the partial release of the Deferred tax asset valuation allowance of the fourth quarter, which resulted in the recognition of a 57.7 million dollar net deferred tax asset.

Basis for this partial releases further discussed in no fourteen of the company's financial statements, but at a high level the release was primarily driven by two factors first an evaluation of pre-tax income for the last three years exclusive non-recurring items as well. As an analysis of the company's core earnings provided positive evidence about the company's ability to utilize a portion of its of its tax benefits prior to their expiration.

Secondly, the company's projection of pre-tax book income consequentially improved after the third quarter given the full prepayment of the hunt note and an increase the amount of Leverage used in connection with rep energy and baskets which collectively enable the company to redeploy Capital into higher-yielding renewable energy Investments and Achieve enhanced returns through the use of Leverage.

The overall weight of these factors in other types of evidence. We considered at December 31st, 2019 supported our assessment that it was more likely than not that a portion of the company's deferred tax assets would be real life consequently. We released a portion of the related valuation allowance that in consideration of the company's forecasts a pre-tax book income reflected the project utilization overtime two hundred ten point two million dollars of our federal net operating losses.

As Mike mentioned determining the likelihood the Deferred tax assets will be realized entails making estimates and assumptions that are inherently uncertain and therefore require significant judgement with regard to reported carrying value of the net deferred tax assets could potentially change in some sort of 40. And cause of earnings volatility. Therefore we expanded disclosures in the filing to identify various ring to the company's projection of pre-tax book income. We also add disclosures in the filing press release and investor presentation of certain non-gaap performance measures that exclude the impact of tax assets and that we think are useful in assessing the company's underlying financial performance and business Trends because they eliminate the potential volatility in the value of our deferred tax assets.

We will continue.

We evaluate the usefulness relevance and limitations disclosed non-gaap performance measures to determine how best to provide relevant information to the public. This said boxes and Book value and 2019 were primarily driven by 70.9 million dollars of comprehensive income including sixty four point two million dollars recognized in the fourth quarter, which was partially offset by 2.7 each other reductions to book value that were large part driven by the repurchase of approximately 887000, shares at an average price of $31.71.

Comprehensive income that we reported in 2019, which exceeded what we reported in 2018 at thirteen point four million dollars included $101 and net income and thirty-eight million dollars of other comprehensive loss.

They didn't come reported in 2019 which included 69.3 million dollars recognized in the fourth quarter exceeded a mouse reported in 2018 by $40 with three key drivers took you to this year-over-year increase first, as you can see a table six of the company's filing the company recognized a sixty point five million dollar income tax benefit in 2019 compared to modest income tax expense of 2018 with the change primarily being due to the partial release of the Deferred tax asset valuation allowance in the fourth quarter 2019.

Secondly, as you can see in table seven of the company's filing equity and income from the solar Ventures recognized in 2019 increased 13.9 million dollars compared to 2018 back as a result of a significant year-over-year increase in the volume of loans originated by the solar vendors, which drove net income of the solar Ventures to the company's share their of higher. This net increase was always in park that you're available to the elimination of the preferred return that was previously earned by a former investment partner prior to the company's buyout of such Partners interest in one of the solar ventures in the second quarter of 2018.

Thirdly, as you can see in table eight of the company's filing operating expenses recognized by the company decreased by 5.9 million dollars on a year-over-year basis, which is primarily due to a reduction to non-recurring professional fees that we record in 2018 related to sale of various businesses and assets.

Well, these three items drove the largest changes in that income. There were several other drivers worth noting first that interest income decreased by 1 and 1/2 million dollars on a year-over-year basis large part to the disposition and Redemption of various Bond Investments and the termination of all outstanding Total return swap agreements.

Secondly net gains decreased by two point six million dollars compared to 2018 primarily due to a net decrease in Fair Value gains related to interest rate and foreign currency exchange derivatives off. So just impact was partially offset by among other items an increase in holding gains that were realized in connection with the sale or Redemption of bond Investments.

Other interest expense recognized in 2019 increased on a year-over-year basis primarily due to the recognition of 1.2 million dollars an interest expense in 2019 associated with the full amounts drawn from the company's revolving credit facility is said well that income increased $40 in 2019. The amount of other comprehensive loss recognized during such wage. Also increased by twenty six point six million dollars.

The Consolidated statements of comprehensive income disaggregate the components of other comprehensive loss recognized in 2019 and 2018 in reviewing it. You can see that the net increase in other comprehensive law recognized in 2019 was primarily driven by a thirteen point eight million dollar decrease in the amount of holding related games that were recognized in connection with Bond related Investments and a six point five million dollar increase in the amount of realized gains that were reclassified out of accumulated other comprehensive income and into earnings as a result of the disposition on related Investments.

A year-over-year decrease in the amount of recognized cumulative translation Justice was also a factor lastly with respect to the company's liquidity and capital resources. The company had 12.8 million dollars of cash cash equivalents and restricted cash at December 31st, 2019 eight point six million of which was unrestricted.

As reported in table nine of our filing the total amount of the company's Cash Cash equivalents restricted cash decreased twenty one point 1 million dollars in 2019, which was primarily driven by 114.7 thousand dollars of net cash used in investing activities associated with renewable energy Investments. Such impact was partially offset by eighty four point seven million dollars of cash that was provided by financing activities during 2019, which in large part was attributable to draw is made by the company gets the revolving credit facility that was closed in September however, net cash flows and he point nine million dollars were provided by operating activities in 2019 off with that. I will turn the call back over to Mike.

Thanks, Dave one comment before I get started at least on my line Gary broke up when he talked about total lending since Inception phone number I have for that is 2.3 billion just in case I don't know if that was just my line or if that was a broader problem before we took it to the Q&A. I'll provide a brief update on our approach the year ahead and our current visibility in the wake of the coronavirus news and Market reaction from the business operations perspective accessing reasonably priced sources of capital continue to increase the scale of the company's renewable energy Investments remains a priority that can include a combination of recycling out of our remaining non-core assets for their access and credit markets and reviewing other strategic Capital opportunities.

further we will Endeavour to

Identify additional investment opportunities that we think will produce attractive risk-adjusted returns and generate positive social or environmental impacts and we will seek to retain the flexibility to invest accordingly even apart from the current market dislocations. We realize some shareholders are interested in any new capital return programs for the company including in particular share buyback the board considers many factors when determining the appropriateness of the share buyback or any other Capital return program took the current market uncertainties, including volatile activity throughout the capital markets board has decided to proceed more slowly before making any determination on the new plan at this time.

Board will monitor events during the balance of the trading window, but there are no assurances that sufficient Clarity around current market events will be available for the board to ban a decision before March 31st. Finally. I wanted to touch on the impact of the coronavirus on the company's operations. Obviously. This is a very fluid situation, but from the perspective of day-to-day operations, we have not seen an impact on our Personnel or productivity on has worked hard with its it in human resources to make sure people can remain productive when working remotely and we don't foresee a material impact from that aspect of operations on the investment side. We haven't seen any direct impact on a global energy Investments you in the form of default or slow down in the ability to Source new investment.

Of course is everyone knows it's too early to predict whether the coronavirus will have any longer-term impact on our borrowers our current portfolio or our ability to generate new age. That's for investment. Well, we don't yet know the potential long-term impacts on our liquidity or access to Capital markets. We remain in compliance with all of our financial covenants. And as of them call have access to approximately $29 million of liquidity under our revolving credit agreements. Should we need that capacity to manage our investments in the renewable energy portfolio.

In clothing, even in this uncertain moment in time. We remain excited about the future committed to our shareholders, and we thank you for your continued support page now open the call to questions operator.

We will now begin the question-and-answer session to ask you a question. You may press * then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at anytime your question has been addressed and you would like to withdraw your question, please press star.

Find will pause momentarily to assemble our roster.

The first question comes from Stan trilling of Morgan Stanley, please go ahead.

Gentlemen, once again, thank you for doing a magnificent job. I have basically two questions number one the value of the residual money that you are contemplating liquidation. I think you said 30 million dollars over what period of time do you think about that liquidation could be done?

This is Mike. I'll let Gary or Dave speak to the exact number cuz I want to make sure we get that right but I can speak generally the the two largest assets, um related to Land Development projects where we are the two largest non-renewables Investments. I should say relating to Land Development projects where we ended up taking back Bonds in the last financial crisis. We are actively marketing about partials and and overall projects with within those but it's really hard to know how long that will take off to move on. There was a there's a remaining tax exempt bond that we would expect would move more quickly but the land assets

Particularly with the recent changes in the world. We just don't know.

Sure enough. It's it's not we we would hope it's month and it could be years. Okay, I understand second question is Jeff level of Premium to net asset value. Would you consider doing a second secondary offering to not only create Capital too, but create more liquidity to to the company and and the shareholders.

Thanks for that question. I realized I let me go back one step. I realized I didn't ask answer. Your question is the total amount. The total amount is is closer to 60 as opposed to Thirty in terms of the assets that we haven't rotated out. It's about sixty million, which is close to 30% of our total assets in terms of an offering the that is a a question that is actually a great question and gets to the heart of the sort of long-term growth of Mac. You know, we believe Thursday that we have investment opportunities from that are out there where if we could sell Equity around our birth.

good book value

It would be a creative and so, you know somewhere around adjusted Book value I think is probably the bogey that we would be looking at the you know, does it have to get all the way to par or a pre-owned A M I would say probably not but we probably wouldn't do it at a significant discount. It is all a function of at the time. We have the opportunity to raise Equity do we see reinvestment opportunities where we could deploy the capital and make it happen at creatively dead. So that's we we probably would be looking more at the adjusted value number that for that decision off.

The Gap Book value number for that decision, but it will very much be a function of what the alternative investment opportunities are for the capital of the time if it's always a matter of judgment based on what the situation of the time that I understand that but that being said, I'm pleased that you are being reasonable in your valuation at a time of doing a potential offering. Thank you very much. Appreciate it. Thank you.

Again, if you have a question, please press * then 1 on a touch-tone phone. The next question comes from Colin mcclafferty. Bubble bath, please go ahead. Hi. Good morning. It's take my question. I had a couple questions related to the the solar the solar loan portfolio. So the 1st would be my understanding is that you're providing Development and Construction loans. So your borrowers need to eventually refinance those upon project completion in order to to exit at their business model and I want to get a better sense of who are the parties that are, you know, providing this permanent Capital. So who are the lenders? Um, you know, if it's if it's parties who are you know tax credit equity syndicators and then really what's their access to Capital store. They rely on the capital markets to to get that that drive powder to to refinance.

I have a couple more thoughts on that as well.

Jerry why don't you take that one? Yeah, so thank the basic take out for the construction loans and home early stage development loans are tax credit Equity as well as Prime loans and they're typically provided by kind of large financial institutions often Banks Thursday. We obviously have been spending a lot of time trying to understand how each of those counterparties are kind of reacting in that environment. And at least to date we have not seen issues with respect to the liquidity or timing but we're still very early on in this so, we're we're constantly assessing but we don't see an issue yet in any of the takeout through the timing of take outs but as if there is more Sheltering in place there could be delayed.

I think that we have

And the plan to kind of deal with short-term glaze.

Okay, and I would just add to your to your specific question. Colin are take outs tend not to be quote-unquote syndicators. They tend to suck the actual tax Equity users. So it's utilities its banks from you know, we we thought we did a loan by Loan review earlier in the week on all the loans that are due to repay over the next few months and I don't remember seeing a a quote unquote syndicator as a source of equity in any of those and the the

The sources of permanent Capital tend to be again insurance companies utility some banks using various drug testing programs.

Hopefully that helps it does. Yeah and just the follow-up. So, you know, if if the folks who are refinancing this for the developers and the EPC who are building these projects, you know, if they have trouble or they're little they're little nervous about raising Capital. They're putting Capital to work here. You know, what what kind of Leverage do you have to pull to meet your your Capital college? So you've got, you know, three hundred twelve point five million unfunded commitments in the Solar JV, you know, what can you do in such a situation?

We have a couple of options one is we have cash on our balance sheet to is Thursday. We have a line of credit which is recently as Friday or Monday. I can't remember which day it was increased by $10 and we're continuing to look at increasing that line of credit by continuing to bring in other Banks. And three is we have a large partner in the Solar June hours who has significantly larger balance sheet than we do and who is not legally obligated to but who has has welcomed the opportunity to fund more than their fair share of obligation because they dead

Um, like the returns so, uh, particularly a risk-return profile so that those are our three level.

Okay helpful, and then just the last last couple on the portfolio. So I noticed in the the 10K that the solar JV made $104 Loan in 2015. And it seems like a very large percentage of the portfolio, you know about a sixth or seventh of the portfolio. Can you kind of speak to to that loan and is that type of I guess is used for making such large loans relative to the size of the JV. Is that is that normal or they're kind of risk controls in place for that?

. I'll give you that one too. Yeah, so it is larger than normal. So we typically Target loans that are you know, 15 to 25 million dollars. We have done loans as small as two million dollars and as large as a hundred and thirty million dollars, um, it's a loan that we have on that kind of done a lot to offer counter party that we've done a lot of business with it is certainly getting kind of more attention than a $10 loan might but it's a loan that we were comfortable making as well as kind of the joint venture partner was comfortable making and we'll just kind of keep kind of asset managing it as we go. Otherwise what

I guess the the the big question that I think a lot of folks have is you know, if you look at the the market your lending to it's been the beneficiaries of the tax code to the federal and state level that are incentivizing, uh, you know, people putting in solar capacity and you know, those credits are they're they're rolling off soon. Um, I'm just curious, you know, what they you all seen, um about demand in this market we can you speak to that would kind of, you know, give us a sense for over the next few years whether this dries up a little bit as those credits roll off in the Investments become less attractive split pea help with it to hear your thoughts on that.

Sure. So last year, we saw the federal tax credit all from 30% at your end to 26% this year and that's all began to 22% next year and then down to 10% there after we saw around here and some accelerated activity as folks tried to get the benefit of the higher tax credit. That was really just moving some deals that would have been done earlier this year in too late last year and maybe in a slightly different form right where maybe it was life equipment finance loan as folks were getting the materials necessary to then do the the construction. We continue to see a lot of demand wage more kind of demanding than probably we have capital for the the folks in the industry that kind of predict the future still believed.

Even with the step down in the federal tax credit that the amount of renewable energy projects the commitments for renewable energy projects will double double over the next five years. And I think that's a large part because kind of the comparative cost of renewable energy from compared to fossil fuels is in some markets already at parity cost so off there seems to be a lot of demand and we don't necessarily see that stepping down just because of the federal tax credit stepping away or down to 10% and notwithstanding the fact that there is a bill to extend that credit who knows if that will ever get extended, but we don't see a big issue with demand for this type of product.

I would also.

And I want to I would also add that is a public policy matter State policy matters just as much money as federal policy, you know how they how utilities are being regulated and how rates are being set. So, you know life cuz the it's both a federal and a state policy issue. And when you look at the investor presentation, you can see a map of where we've done a business. That's a function in in many ways of where State policy is most favorable.

Okay, great. I don't want to hug the line so I can get back in the queue if there are other questions, but I'm not sure if there are other folks waiting.

Want to just keep going. Yeah cut me off whenever you guys have other questions. I'll set you off. But so far they're both good questions and I think very relevant so, okay. All right, thank you. So the next one is still kind of related to risk wage and the portfolio. What is the revolvers debt covenants? So you said that it's basically limited by the the assets that you have in a JV or your equity in the JV. You kind of just explain what that is to say that the time was looking through the credit agreement.

Sure, I can kind of give a big picture and approach and Mexican fill in details as necessary, but it's a facility that is collateralized by the fact that we have invested in the JB. There are various Financial covenants in place. And um, they're basically a setup to have advanced rates based upon the type of the underlying loan. So, um lower Advance rates for late-stage development slightly higher Advanced rates for construction loans and even higher wage for a permanent loans and basically if a facility that set up so that there is a predetermined investment criteria box which basically serves as a collateral facility borrowing base amount and then we can draw against that amount currently we have kind of more collage.

And we have drawn under the facility, but it's constantly getting managed as loans existing loans draw up as existing loan payoff, and it's new loans get added in.

So generally speaking. I think you said before that your your appetite for how much leverage you want to put on portfolios about 50% Is that kind of you know in the ballpark of I guess with your current mix of old phones between development construction permanent. Is that kind of the the limit if you will on your facility?

Yes.

Fifty percent of the advanced rates are higher than 50% but we don't feel like uh, it's prudent to kind of put too much leverage on the portfolio. Right? Currently. We have the subordinated debt at the company level, which is really only senior to the common shares but really doesn't have much of a Choice Financial covenants replace it it basically prohibits us from putting one point two billion dollars of debt ahead of them. So aside from the subordinated debt, the asset-backed that we have is really the revolt and the hundred and twenty million dollars worth of commitment. Today is kind of we think

A level that we could increase the maximum committed facility amount is $175. But as we indicated we are looking for some additional Capital to deploy in the facility. But it we will not get kind of leveraged up, you know 5 to 1:10 to 1 a.m. We think that this is going to be somewhere in that range of maybe a hundred and fifty maybe two hundred million dollars in total of that relative to this portfolio.

Okay, great. I guess then maybe the last one on the the solar the solar JV, you know, you're making development loans Action Loans. You're getting a fairly High, uh-huh coupon on those loans. I think it's that's generally cuz it's measured with the amount of risk that that one bears by lending to projects that have a lot of uncertainty and I think we've we've found online about you know, the types of projects that you're you're leaning against but I'm just hoping you kind of gives a sense for when you're underwriting one of these loans. I'm assuming that you're you're taking into account the potential or the probability Thursday and then you know, the loss given given default for these loans. You have to walk us through what some of your expectations are at a high level for the loss experience of portfolio like this across an entire cycle. I know you haven't had any losses yet, you know knock on wood in the the five or so years. You've been letting in a space, but I'm just curious for your kind of full cycle thoughts on God.

I'm as losses.

So you're correct in that we have not realized any losses of principal invested today, but that we've only been doing this since 2015. We don't really look at this through the lens of the theory of large numbers and think that X percent will kind of default over a long-term cycle. It's really an asset by asset underlying credit analysis. I think that we have been fortunate in that. Um, we have kind of went to good counterparties. Um, and we have been um, pretty accurate in estimating the underlying collateral that we're lending against but we have not gone through an analysis of kind of the length of a full cycle and how much losses we may kind of realize over time.

Have you?

You all looked at adjacent industry. So just lending in general for construction projects to get a feel for what that loss rate could be, you know base rate if you will for the portfolio, even though you're not, you know, uh, I guess assuming that for for your your loans

So we certainly have had experience in doing construction lending when we were primarily focused on affordable housing. I'm not sure how relevant that experience was or other Industries to this. I mean it certainly higher than 0 but I'm not sure how prudent it would be kind of compassion here kind of different Industries, um to what we're doing on the renewable side.

Okay, that's helpful. Can I keep going or the other questions in the queue?

There are some other questions in the queue. How about if we jump to those guys and then we can let go back also make you so much for answering my questions. Sure.

The next question comes from Jesse Greenfield of Greenfield Investments, please go ahead.

Hi Mike, I got on a little late. So if if you could just recap what's the story with the buyback program?

Sure, what we said is given the uncertainty in the market place right now. The board game is taking a wait-and-see attitude and we may or may not revisit the question. Well, we will revisit the question whether we act or not life or to the March 31st closing of the window is an exceedingly fluid question based in part on the way in which we operate today on the one hand. It's clear that relative to our book value share price is significantly off and it would be created to the shareholders to buy shares on the other hand the sort of lesson from the last financial crisis was every nickel of liquidity matters.

So we're kind of watching and waiting to see where markets settle down what bank stimulus looks like and you know, I I just don't know if we will be in a position to make that decision by March 31st. I can tell you that the sort of how we might return Capital to shareholders whether we might return to shareholders to Capital share life has been a constant discussion board meetings over the last six to twelve months and you know recent events. I think probably have caused us to go more slowly than we otherwise may have a dog

He didn't.

little more stable environment

Okay. Now the window is going to close at the end of the month. How long does the window stay closed?

Probably till about May 15th.

Okay, I mean in the in the normal course of events if the window would stay closed until May 15th.

Okay fine. And now the quarter that we're in right now is a tracking pretty decently meaning pretty much following what happened last quarter.

We we don't really give forward guidance. I would say, you know, one of the things we set in the in the same script was that, you know, we haven't yet seen disruptions, but we don't know where where things are going to go over the next couple of weeks off. Okay, I understand. Thank you Mike. I appreciate it. Sure.

Next question comes from Ted lieu of Ally Financial Group, please go ahead. Good morning Michael. I just wondered what the remaining amount is on the

The the unwritten up part if you will. Yes, sir.

Brooks I think of that number is or Dave I think of that number is around a hundred a hundred and eighty million is that you guys want to give me the right phone number? Yeah. I'm just looking for it. Yeah Ted if you look if you look at our foot notes to the financial statements. It's in New Jersey, which is located or it starts on page F 41. Okay just didn't get that far. Yeah, so we recognized eight fifty Seven point seven million dollar asset. I'm just looking for give me 1 second.

scanning through this disclosure here and

Brooks are you on a speaking line?

I am so so there there is there remains about $100 and call it sixty million of animals that are compared at this point. Okay. Thank you so much and congratulations on be so creative. You still my favorite stock. Thank you.

And we have a follow-up from Colin property with fetus, please go ahead. Hey, thanks for taking the follow up just to really quick ones. That should be fairly Thursday. The 1st is other than the management fee in Santa Fe and expense reimbursement for the external management contract. What do you expect recurring operating expenses to be off this this year and then thereafter so, you know for example in last year and he had ten million of additional effects aside from those three categories. I mentioned he has to walk us through you know, how the income statement will shake out off forward.

Well, we don't really give forward guidance in that regard. I think Dave or Gary it could be useful to talk about the Elegance of last year's operating expenses just to sort of give Colin a sense of which of those things are he can conclude our society in which um pressure one-time items.

Did you want to come in?

Yeah, I was just kind of pulling up the income statement. I think that for the most part the expenses on the income statement are largely based in nature right there. There certainly will be a change in the amount of expense reimbursements relating to salary and benefits in 2019 as in 2020 as a result of compared to 2019 because of the change in the cap off, but I can't think of any other significant changes. They do you see that differently.

No, I was going to Echo the same comment. So I don't think besides the the point on the cap that would expect any sort of consequential change two amounts reported this year.

a 2019

okay, very helpful. And the last one for me is just that when you look at the the discount between your your stock price and your adjusted Book value, it seems to about 30% off and as I mentioned before in the call, you know about thirty percent of your net asset value is tied up in those other, you know, non-core assets that you're slowly recycling into the the solar lending portfolio. I'm just curious you can kind of walk us through I think there's five categories there because walk us through of those, you know, five non-core assets categories, you know, some of these are cash flowing some of them are not going to give a sense for your expectation for you know on a recurring basis how much income you'll get from those from that sixty million of you know, bucket of of assets and the categories. I'm referring to the multifamily tax-exempt bonds the infrastructure Bond the investment in us real estate Partnerships the investment in the South Africa Workforce housing fund and then the real estate own category.

Sure, if you took the last three of those South Africa real estate owned and us real estate off. Those are essentially non income-producing assets and off today will at some point in the future return Capital to us maybe with a game maybe not depending on what happens in the world wage this Spanish Fort bond, which is an infrastructure Bond pays in the neighborhood of 6% off begging. You might have the exact number there and the multi-family Bond pays in the same neighborhood.

the

Multi-family buyer pays annually, though cuz it's paid out of net cash flow as opposed to paid quarterly like a normal Bond.

Is that close enough Megan Gary Dave?

I think so. Those are what I call CEO numbers which are the big round numbers. I can keep in my head. I appreciate that. That's a very helpful answer. So thank you so much, you know more questions for me. Hey, this is yeah. Just wanted a quick follow-up Point relate to your question on expenses wage. I think you may be aware eventually that for public companies that like mme qualify as smaller reporting companies the SEC just recently announced a change to how they basically the if you if you look at our opinion as of September are as of December 31st, you know, how long are external auditor KPMG is required to apply on both numbers as well as controls, but given uh a recent change to the rules related to birth.

Smaller reporting companies in terms of what external Auditors are now required to apply non. We think going in 2020 given a recent Announcement by the SEC has an opinion on internal controls will no longer be required and I mentioned that because I think when you look at expenses of the company particularly compliance costs, we think the audit costs as a result of this recent development with the SEC will likely come in. So by what number I can't really speak to but at least sort of directional I just wanted to clarify that we expect that particular type of cost to come in the reasons. I just bought

Okay, great. So then the the the cost of the audit the financial reporting that's all on the Mac income statement and not that's not covered by the expense reimbursement paid back to your external manager. Yeah, that's correct. It's a direct cost of Internet. Okay. Great. Thank you so much guys, really appreciate it.

The operator are there any other questions the next question comes from just to verify exact private investor, please go ahead good morning for the stock buyback program. Are there any things in your credit facility that prevent you from using cash for stock back right now?

we could not directly draw the line of credit by to buy shares, but I I don't think that there is an effective limit on a share buyback as a result of otherwise, it would just be our our cash on hand, which is

No.

in the neighborhood of tennis million dollars

So if you're bored decided to approve between now and March 30th.

You would roughly have ten million free if you wanted to utilize that.

If we wanted to utilize all of our cash, yes, but I don't think we would I don't think we would do that. I think it would be whatever we would do would likely be smaller than ten million dead.

Spanish Fort was supposed to or not Spanish for it South African fun. I think is supposed to pay you back roughly seven million dollars some time off. I guess it's now in April. Do you still expect that month?

expected between April and the summer

and that would that free up cash that you could use for a stock buyback if you wanted to.

It would free up cash for whatever used to sleep. Determine. Yeah, okay. So on the tax deferred asset putting that the accountants I would have you go through a long process for determining that you can utilize that so there must have been a projection for what you expect taxable income to be for at least for this year for for 2020. You you say you don't give Financial guidance, but it seems like that would have been something is there is there any way of sharing something with us for determining what you might have as far as taxable income from the I guess what I would call the the ongoing business of the solar lending business.

The rules that you have to apply to determine your net operating losses home or your deferred tax asset certainly have the elements of the forward projection in them, but they have to meet a standard which is in the Gap literature called objective verifiable. And so what we present to the board now is as the sort of internal matter wage is a forward-looking income statement based on objectively verifiable numbers and then it kind of odd addition to that of aspirations yet to sort of our forward-looking projections that the board uses birth.

But you know, the board has not made a decision to sort of make any of those numbers public at this point. And so we we are not going to speak to forward-looking information. Okay, final question about loan-to-value or loans for solar since we have not had that experience yet on loans that the construction loans the the security behind that loan is it the property itself or is are there other guarantees in that or what is the security behind each one of these loans?

Well, obviously they they sort of General they there's a high level of variability but the general package is a is a mortgage and is some sort of usually payment performance bond on construction loans. I don't know if you dad want to add anything to that description for Megan. Yeah. I mean, so there's a first lien on kind of all of the underlying value. Um, so our deposits that are made all of the underlying equipment of all of that serves as collateral. We really don't always look to offer a guarantee of the borrower really are kind of most focused on the value of the underlying project and basically have a claim to kind of birth.

Value in addition to the kind of first-lien First Mortgage position we have on all the other line collateral. Do you require the bar or two already have a month contract for selling the asset to or contract in hand for for taking the power off the project before you will end up a construction loan.

More often. Yes.

So there's no I guess the terminology and and homebuilding there's not like you're not suspect building. You're not financing aspect building.

Correct. So it's a little bit different for the late-stage development loans, but you can think of it that kind of all of the binary risks have been taken out of the equation. So they're basically permits in place and you have kind of aligned site as to kind of let the underlying project will be you may not walk or we'd have a binding contract for the takeout at the time you closed, but you may you may kind of have term sheets in place and I'm kind of an understanding because of you know, the various counterparties you proved previously work with to understand. You know, what the the underlying project will look like how will get to Market and then we can kind of lend against it.

Okay, so for whatever it's worth. Thank you. And thanks for the good performance. I I think in these times if possible. I think having the stock buyback program with the volatility in the market and a number of people particularly in the liquid stocks hitting, you know, just hitting the bed would anyway, I think it might be a good idea for shareholder value and the discounts probably the biggest it's been certainly in several years. So if you're confident going forward, then it would be great if the board War to approve the stock buyback program because the next window won't be in told May 15th whether you are in there buying or not home. Anyway, would I think it would be a good idea? That's my my opinion. Thank you.

Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Falcone any closing remarks great thanks operator obviously off and is sort of the environment which we operate looks dramatically different than the environment that existed just a few weeks ago when we did our business plan a month or two ago when we get our business plan, but at this point, you know, we feel pretty good about our ability to continue to execute on the business plan. They certainly could be some disruption over the next month or so, but you know longer-term we're excited about our future, but obviously there's a great deal of uncertainty brought on by the virus and the economic impacts of the virus and we're doing the best job.

Can to keep up with what's happening in that regard, but it frankly gives us a very cloudy picture as I'm sure most people who are trying to run companies or businesses would tell you the same thing. So, you know, thanks for your support. We continue to be dedicated to the success of this company, and we thank you all very much for your continued support as shareholders and the time you took this morning, so I am everybody be well. Thank you.

The conference has now concluded thank you for attending today's presentation. You may now disconnect.