Q2 2020 MMA Capital Holdings Inc Earnings Call

My name is Alyssa and I won't be your coordinator for today.

At this time all participants are they listen only mode. We will facilitate a question answer session at the end up this conference call.

Comments today will include forward looking statements regarding future events and projection of final financial performance and then make capital coatings, which are based on current expectations.

His comments are subject to significant risks and uncertainties, which include those identified in the company's filings with the Securities and Exchange Commission that could cause actual results could differ materially from those expressed in these forward looking statements.

Listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as to date hereof.

The company undertakes no obligation to update and yet the information contained in the forward looking statements I.

I would now like to turn the call over to Mr., Michael Falcone CEO of the Knight capital. Please go ahead.

Thank you Melissa good morning, everyone and welcome.

With me on the call today or did Garcia, our Chief Financial Officer, and Gary matches, our President and Chief operating Officer.

Many businesses during cold in our office is remain close them. We're taking this call from remote locations, we apologize in advance for any connectivity issues or inconvenience that may cause or my my colleagues to make sure. They are on you.

The purpose of our call today is to review and then make capital holdings 2022nd quarter financial results.

All right in overall business update.

Our second quarter report was filed with the FCC on Monday.

Updated investor presentation is available on our website.

Our call today I will begin my prepared remarks at the right for the results for the quarter.

Given the ongoing cobot 19 impacts you saw the quarter.

I'll turn the call over to Gary and Dave for a more detailed review of our operations and financial performance.

Finally, before we wrap up the prepared remarks and open the call for questions I'll provide a general update.

The Companys operating and capital plans for the near term as we continue to navigate a period of great uncertainty for the U.S. and global economies.

With respect to the financial results, we reported that the company ended the second quarter 274.5 million common shareholders' equity or book value.

Well adjusted book value, which result represents book value, excluding the carrying value of the company's deferred tax assets was 217.2 million.

Value decreased by 3.2 million in the quarter by 58 cents per share.

Adjusted book value decreased by 1.1 million or by 22 cents per share during the same period.

It's Dave will further discuss such cig decreases were primarily driven by 9 million dollar impairment recognized against our investment in the stash why Werent joint venture.

As you will recall Spanish Ford has a long time holding on real estate joint venture. This write down reduces the carrying value of our investment by just under 50% in line with changes we have seen in the general real estate market outside of multifamily always based on an update of an independent appraisal to reflect opposed to cope with world.

Yeah.

Additionally, other related stash work bonds, we recognize the 1.9 million Mark to market lost in the first quarter, primarily due to wider credit spreads on the bond.

Got it spreads improved slightly in the second quarter and therefore, the value of a bond recovered 500000 in the period with year to date Mark to market loss of 1.4 million.

Second quarter results were also marked by strong results from our investments in the solar ventures, which in large part reflected the recovery of net fair value losses related to loan investments that were recognized in the first quarter largely due to falling short term interest rates improved credit spreads on these bass.

In.

Additionally, our derivatives positions, which are generally not to protect against rising interest rates further declined in value because it's falling rates, but to a much lesser extent during the first quarter.

Finally, when excluding the effects of the impairment loss I mentioned, the operating expenses decreased 34% compared to the first quarter.

Ralph a second quarter, the company's renewable energy investments continued to perform substantially is underwritten and to date project schedules on loan payoffs at only been modestly impacted by the corporate banking crisis.

We also remain vigilant continue to focus on managing liquidity and utilizing a more conservative approach portfolio management.

The economy continues its recovery.

No the company executed two financings to increase our overall liquidity generating 22.5 million of net proceeds in the second quarter.

As previously stated the long term impact of cobot, 19 on or operational and financial performance ultimately depends on future developments, including the duration spread and intensity of Copel 19, all of which are uncertain and difficult to predict.

That's it currently we're not able to estimate the long term effects of these factors on our business to date the impact on our investments has been relatively muted other than in the case of our Spanish sports Bassman, which Gary will discuss.

This time, we got rule out the possibility of an additional impact on our business results of operations financial condition in cash flow.

Now for for a review of our investments and funding, let me turn call over to Gary Gary.

Thanks, Mike and good morning, everyone.

The company's renewable energy investments, which represented 69% of the company's investments at quarter end up with 68% at March 31st are generally made for solar adventures, where the company invest alongside an institutional capital partner in loans that mainly financed the development and construction of renewable energy projects.

Got it states.

During the second quarter, the carrying value the company's renewable energy investments increased by $18.5 million to $364.4 million at June Thirtyth.

An increase that was primarily due to equity income recognized the solar ventures.

As you will see in table three of our filings during the quarter the company recognize $13.8 million income related to its renewable energy investments.

An annualized trailing 12 month basis, we have realized an unlevered returns on these investments of 11.8% for the period ended June Thirtyth 20 versus 10.4% for the period ended March 31st 2020.

Equity and income when the solar ventures was $9.2 million were 203% higher compared to the second quarter last year.

Well at $9.2 million higher compared to first quarter.

This increase was primarily driven by the companies recognize share a fair value gains or $3.9 million related to the solar ventures loan portfolio.

Which was effectively marked at 100% of unpaid principal balance will be at June thirtyth.

98.8% at March 31st.

Fair value gains recognized by the solar ventures into second quarter, and the company's <unk> share of them nearly reversed in full that fair value losses recognized in the first quarter.

He reduction solar ventures idle capital was all swing factors improved investor returns that were reported.

As reflected in table one of the filing at June Thirtyth 2020 loans funded by solar Adventures had an aggregate U.P.B. and fair value of $758.5 million a weighted average for many maturity of seven months.

Weighted average coupon at 9.5% compared to $745.8 million of DPP fair value of $736.8 billion weighted average remaining maturity bonds at a weighted average coupon of 9.7% at March 31st.

As discussed on prior calls, we typically target loans that generate origination fees, ranging from 1% to 3% committed capital and coupons on funded long balances ranging from 7% to 14%.

Right that pandemic, the construction and development of renewable energy projects that will finance to loans made by the solar ventures have generally been on schedule.

Element in construction of such projects qualified as critical infrastructure, where central services.

Given the prevailing macroeconomic conditions uncertainty in financial markets and our dependence on a functioning renewable energy market. We have remained focused on our investment liquidity management programs.

To that end, we ended the quarter with $24.6 million would restrict of unrestricted cash.

And $10 million capacity under our revolving credit facility.

While we continue to believe that there are opportunities to invest in renewable energy and other infrastructure assets with attractive risk adjusted returns, but also meet for environmental and social investment goals. We will continue to closely monitor alone performs and in addition to expected sources of a payment will continue to explore ways to adopt.

The company's capitalization, including additional debt capital where appropriate.

Turning to other assets and liabilities, the U.P.B. and fair value, our bond related investments for $30.7 million $30.0 million respectively.

And that 300000 dollar increase in a fair value of these investments during the quarter, primarily due to changes in market yields.

Concerning the company's real estate related investments the fair value of the company's 80% ownership in Spanish <unk> joint venture at June Thirtyth was $10.1 million, which was 47% below its $19.2 million carrying value at March 31st.

The Spanish worked development, which includes hotel and retail tenants and undeveloped land parcels and whose incremental tax revenues secure infrastructure bond.

It was adversely impacted by the economic decline triggered by Cobot 19.

Based on the severity of the decline in its fair value and other factors. The company concluded that such decline with other than temporary and that's a 9 million dollar impairment was recognized in the core.

We also anticipate that we will continue to recognize equity losses of the Spanish for venture a portion of which is attributable to depreciation and other non cash expenses.

Companies, one direct investment real estate, which consist of a parcel of land located outside of Winchester, Virginia remains in the process of development.

During the first six months of 2020, the company investing $6.1 million, an additional land in Portland.

Were capitalized at June Thirtyth 2020, the carrying value of this investment is $14.5 million.

So far Cobot 19 had limited impact on this property, which road construction and utility installation continuing without interruption over the past few months.

With respect to the company's 11.85% ownership interest so our workforce, helping fund Saul.

Just a multi investor fund, whose term matured in April 2020.

However, the funding not anticipate fully exiting all its in Britain meeting in Boston until December 31st 2021.

During the second quarter. The company received a pro rata distribution from small of southern 27.2 million common shares of a residential real estate investment Trust.

Listed on the Johannesburg stock exchange.

Carrying values of the company's equity investments and saw.

Inventory were $2.0 million and $2.7 million, respectively at June Thirtyth 2020.

As long term impact its long term economic and Pat Pat Cobot 19 remains uncertain, we continue to monitor the impact on the performance of our investments and underlying real estate values remain prepared to make course corrections related to the portfolio warranted.

Separately the book value of the company debt obligations was $245.5 million at June Thirtyth.

An increase of 21.9 billion in the second quarter, primarily as a result to new debt transactions that closed in June.

First was a 10 million dollar construction loans secured by our investment in Winchester, Virginia development.

This debt at the fixed rate of interest of 4.85% Adam.

Payable quarterly pace is expected to be repaid from future sales of parcels that development.

Second thing I think transaction involved the execution of a total return swap for Trs.

Oh span Schwark bond.

Notional amount of the Trs is $23.5 million pays interest based upon SIFMA, plus 2% subject to a single floor, a 50 basis points.

Company pledged $10 million of cash received from our Trs counterparties collateral as required by the terms its prs.

At quarter end company was in compliance with all of its debt covenants.

I stated in prior quarters, we do not expect the assets and liabilities the other assets liabilities contribute consistently to quarterly income.

We will continue to pursue opportunities to recycle capital that's part of the company's balance sheet attractive levels.

With that I'll turn the call over to Dave who will discuss quarterly financial results in greater detail Steve.

Thanks, Gary Good morning, everyone.

As I provide an overview of our results I will refer to various tables and two of our form 10-Q [noise].

Book value decreased $3.2 million were 58 cents per share.

Second quarter, well adjusted book value decreased $1.1 million.

22 cents per share during the same period <unk>.

In comparison book value decreased three and a half million dollars sort of 61 cents per share in the first quarter.

Well adjusted book value decreased by $5.1 million or 90 cents per share during the same period [noise].

The second quarter decrease in book value was primarily driven by a $3.3 million comprehensive loss, which included three and half million dollars of net boss.

$200000 of other comprehensive income.

The key performance driver in the second quarter was $5.4 million net fair value losses related to certain investments in derivatives.

The most significant opponent of which was a 9 million dollar impairment loss mentioned earlier [noise].

However, this impairment loss was partially offset by the company share a fair value gains that were recognized by the solar ventures.

Unlike the first quarter that fair value losses on derivatives and bond investments were relatively insignificant.

That said, we expect changes in the fair value the company's bond investments and derivatives to remain volatile until market conditions moderate.

Besides that fair value losses, there are several other performance drivers worth noting [noise].

Gary mentioned.

Equity and income of the solar ventures increased $9.2 million in the second quarter.

With the reversal of fair value losses on the loan portfolio and a reduction in idle capital debentures accounting for much of the reported improvement.

Additionally, excluding the impact of the impairment loss mentioned earlier, the company's operating expenses decreased $1.7 million or by approximately 34% compared to the first quarter.

This decrease was primarily driven by changes in foreign exchange rates as the ran strength against the U.S. dollar the second quarter.

Resulting in a 1.3 million dollar decrease losses that were recognized in connection with the remeasurement of non dollar denominated assets into us dollars reporting purposes.

Compensation related expense reimbursements to the company's external manager also decreased in the second quarter.

I'll Gionee and professional fees were in the aggregate.

Relatively comparable to the first quarter.

Otherwise the company's cost of funding slightly increased and second quarter given increases in both the average you PBF draws from the revolving credit facility and the U.P.B. of amounts bar to the two financing transactions that closed in the second quarter.

From a liquidity and capital resources perspective, the company had $41.9 million a cash cash equivalents restricted cash at the end of the second quarter $17.3 million, which was restricted.

As reported in table eight of our filing the total amount of the company's cash cash equivalents restricted cash increased $29 million. During the first six months of the year, which was primarily driven by $44.6 million net cash flows provided pipe financing activities, including from the financing transactions.

In the second quarter that involve the company's infrastructure upon investment and direct investment real estate.

Additionally, the company generated net cash flows from operating activities of $3 million and $6.4 million in the second quarter and first six months thier, respectively.

Lastly, as discussed earlier, the long term impacts of covered 90 on the company's results of operations and financial condition are uncertain.

With specific risks posed by current 19 disclosed an item one day part two of the company second quarter filing.

With that I will turn the call back over to Mike.

Thanks, Dave.

As long as we did last quarter before we get to the QNX <unk> I wanted to provide an update on our continuing response to cope with 19.

With respect to corporate operations in the performance of the external manager since the beginning of the office closures and state government responses to cope with 19, we continue to report no disruptions in connection with the company's business operations employees of the external manager continue to work from home in the external manager still has not.

Set a formal date to reopen any of our offices.

However, we have determined it offices will remain closed and remark remote work well employed to the balance of the calendar year any subsequent decisions related to the opening of any office will be consistent with the local timing and operational guidelines set by the jurisdiction in which the offices located.

With respect to our capital allocation plan. It remains a balance in the near term conservatism in long term optimism.

In the near term, we believe our liquidity decisions since the beginning of the cobot 19 downturn.

Providing adequate liquidity to fulfill our current obligations, including any funding requirements at the solar ventures without needing to further pursue capital market activities.

That said should the right opportunity become available at the right cost, we could always pivot back to the capital markets at that time.

We will continue to be deliberate pace of originating new investments by focusing on high quality loan opportunities.

So continuing to manage outstanding commitments without significant additional capital calls on the company.

Part of the focused on liquidity management and capital allocation in the current market environment. The board continues to defer decision on any potential 2020 capital return program.

We have better visibility into the course of the economy in general.

Impact on our business in particular.

We continue to remain vigilant in the wake of Cobot 19 in the resulting economic conditions and we continue to believe that's a long term economic thesis favoring the transition to infrastructure related investments remains very much intact.

As a company our commitment to investments with positive environmental and social impact.

Not changed by the current investment environment.

There are opportunities for high return investments are to complete the recycling of capital from various legacy assets and infrastructure investments, including renewable energy, we're poised to take advantage of those opportunities.

In closing 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.

Well now open the call to questions Alyssa.

Thank you well now picking the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are you see speakerphone. Please pick up your handset before Preston Keith.

Withdraw your question. Please press Star then queue.

At this time, we will pause momentarily to assemble our roster.

Again, if you have a question. Please press Star then one.

No no question that.

This time. This concludes our question and answer session I would like to turn the conference back over to Michael Sarcone for any closing remarks.

Thank you very much alyssa.

I wanted to just take an opportunity to again, thank our shareholders for their commitment during this sort of.

Strange times in which we live or your commitment to our company is genuinely appreciated the commitment that our employees have shown.

Over the course of this.

Crisis has been pretty remarkable ER and.

I Express my gratitude to those folks as well so thank you all very much a and everybody have a good rest of this summer.

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