Q4 2020 MMA Capital Holdings Inc Earnings Call
Project, one was not able to.
Provide it's contracted power.
During a period of time.
Net.
The shortfall in that power generation with monetize at market pricing that was at historic levels right basically the cash right.
Right and.
It was kind of a perfect storm in that respect.
But we don't have any reason to believe that the performance of the project that is currently operational project, one as well as the other projects wouldn't wouldn't performance under it and going forward.
As per megabyte.
With respect to you know what happened you know what with project one with that shortfall.
I guess you know.
I guess, what's what I guess is there any plan for mitigation like what if there's another winter storm like it does the same thing next year, we'll say.
And and like where it's like you know.
This is one of the Star Wars was pretty costly.
If that happens again in another time like how how would you mitigate that.
In the future.
So.
Basically.
True.
There's a lot of things going on right now in ERCOT that May result, in some mandate, who knows relative to state legislators and kind of perspective kind of requirements.
We're not.
I'm not sure what we could.
True to mitigate them.
Cloud cover for a period of time when market pricing is off the cap.
We're certainly conscious of trying to as our Counterparties are maintained at the power is being generated to its maximum capacity.
Do it it's not as if.
We had issues that were basically impacting other power producers, whether that was natural gas or coal fired plants.
That will really.
Producing a lot of the issue with respect to supply.
Today that coincided with a peak of demand, which caused the pricing to go up.
I'm not sure there's much we could do to mitigate a perfect storm in the future.
Other than to make sure that panels were clear and you're kind of able to produce as much power as possible.
Again. This is not this is not something that can be insured.
Yeah.
At this point I'm not sure if it can be.
Okay.
[noise].
Ah Okay.
And then.
And then and then the the owners and sponsors.
For each of the project.
Do you can you can you just.
Provide any.
Any color on their on their credit worthiness.
You know that project to you know you know hopefully there.
It's something that you guys are very confident the deal is going to go through may 15th.
Project, one in and I guess project three I'd, probably isn't what you're looking for the owner sponsor but.
You know what.
What's sort of the credit where credit worthiness.
Your assessment of the credit worthiness of volt.
The sponsor owner of.
Wanted to I guess.
So we like again, probably can't get into all that many specifics, but you can kind of.
Connect the.
Right, it's basically a single sponsor that exists for all three projects.
And we have kind of noted in our filing that.
The operating shortfall that exists.
Project, one is going to require.
The solar ventures to likely provide capital in order to cover its its operating shortfall coming out of the storm. So.
When we underwrite projects, we certainly are focused on the sponsor and whether or not they have the.
Wired to.
From the projects and get things down to the point that I think are operational and we can get repaid.
But we spend most of our underwriting assessment on the value of the project.
This is no different in ERCOT I think that.
The ability what is different in ERCOT is how we got as concentrated as we became and it is certainly not something that.
That we wanted to do from the beginning it was really a confluence of a couple of different events.
That caused us to become concentrated right we were.
Originally a late stage development lenders and Ah, we actually had done four projects with the sponsor.
The first one kind of was originated and then was.
Repaid.
Effectively everything at.
We're from underwritten then maybe slightly even better considering the point.
Performance of the loan level IRR.
The remaining three obviously.
Obviously did not go as planned and it was really a combination of.
The softening of the ERCOT market.
Which really was a result of kind.
Kind of so much.
True.
Project.
Supply coming online it caused a little bit of saturation that demand didn't really keep up that.
That caused some softening of the market and then about a year ago that was exacerbated by the effects of COVID-19.
<unk>, new which you may recall about a year ago. There was a lot of uncertainty as to what the general economy was going to do.
And many of the tax equity investors took a pause on commitments until they fully appreciated the impact of the economy on their tax liability.
And as we were going along.
We felt it was very important to continue to invest into the project. So that it could stay on schedule and get to it.
<unk> of substantial completion.
And that did require us to upsize our loan commitments to the project from.
Sponsor, but we still felt pretty good about the recovery based upon project value.
If not for the winter storm in February we probably would be talking about a reasonably good set of results for the fourth quarter.
From two to and not all that much if anything about the first quarter granted our concentration is up it was up.
September 30 day, but it was really a function of kind of the.
The confluence of events, where we became more and more concentrated we're still exposed to an operation.
<unk> project and then the winter storm here.
And it is certainly not lost on us that this.
Is it meaningful.
Impact to the company and we're certainly not happy about it but.
We have been reasonably successful with this business model to date.
Operational EBITDA in our Investor presentation, we've been able to generate.
The COVID-19, 7% loan level IRR since the inception of this kind of business.
Through the end of the year and if we were to layer in this kind of $4 per share impact on that likes to day performance.
It would still be in the upper teens so is.
Is it unfortunate that we.
May have some project losses from some reasonably high yielding investments certainly.
We hope to mitigate that going forward definitely but it hopefully provide some context.
Just kind of what has happened in the first quarter.
Right right very helpful. Thank you. My last question is just I just want to confirm the you expect project III to be to meet its target make take chemical completion date I just want to confirm that.
Yeah.
Yeah, that's correct, yes, Okay you expect.
<unk> done on time, Okay. Okay got it thank you very much.
Got it.
Everything that happened, but I appreciate you answering answering my questions. Thank you very much.
Thank you very much Jerome.
Your next question is from Mark Marcon I private Investor. Please go ahead.
Hi, Good morning, I, certainly wouldn't say that.
But the MMA ceded control of the workout process.
The so the capital partner.
Hi.
How like numeration, new origination portfolio management decisions are handled at the solar ventures.
So that.
Just kind of a friendly the minority partner in those ventures.
And if the capital partner has made more pro rata contributions like I guess in addition to you doesn't become even more.
Minority partners since the February storm.
Sure so.
Yes, a couple of different things on that day.
<unk>.
The Investor remember partner and MMA jointly approved new investments and.
The new investing.
Do not find their way into the solar ventures, unless both partners approved so.
And that is been the case from the beginning of time and I think that Theres only been one instance, where there was not.
Not a consensus to approve a loan.
Moving on and at Mountain MMA approved it and made it the whole loans and made that repaid substantially it was underwritten.
And I think I just wanted to kind of point that out that we generally use things very similarly through kind of a credit line.
You're correct that when.
May became a minority investor in the solar ventures.
That decision control over workouts was ceded to that investor number.
But I think it's also important to note that.
Kinda Hunt has the.
Expertise.
Hanging relative to this business right that the loans that get originated in asset managed are all done by hunt.
Hunt on behalf of.
The solar ventures, and while decision control for work out has been ceded to the investor member.
On the.
Remember.
Today, I kind of generally followed the lead of.
<unk>.
And I think that we probably would have kind of made the same decisions.
If we were kinda co decision makers.
Throughout the process since we have been a minority investing.
Industrial with respect to your question is too.
Where the.
The investment ratio is since the February storm, there have been additional investments I'm looking for it in the K.
From the Investor member disproportionately to earn in.
And I can see on page five of our filing we noted that.
<unk>.
And amaze investment interest economic investment interest in S. T Alpha in SDL, that's fallen to about 38 per cent.
And with 24 and as that happens since the February.
A storm or or before I guess my question is more is your cap to the.
Partner like still fully committed.
I'm kind of after these events.
Still.
Inserting new capital into the solar ventures.
Yes, they are.
And then I.
Curious I touched on this before but the kind of risk management and deadlines and constraints that resulted in you know over half of the U P b being with the single sponsor in a single market. I guess are there any changes that have happened to those two I guess the portfolio management guidelines to a.
This.
The chance of something like this happening in the future and then kind of along side of that is there any risk to the revolving credit facility going into the fall as a result of these three.
I guess projects potentially being.
Workout status.
And no longer being eligible for the for the revolving credit facility borrowing base.
Sure. So I'll take the first part May ask Megan kind of fill in some of the color on the second.
So.
There are a variety of lessons learned.
One is market based rate with ERCOT kind.
Kind of.
It's a little different than kind of the rest of the markets. The silicate solar projects that we lend to throughout the country.
And we're currently not.
Looking to originate any.
And future investments in ERCOT.
Until kind of we can get greater insight on potential.
Legislator performed and also taking into accounts all sorts of litigation that is kind of active in that market right. Now I think the other thing that we have.
Kind of learned.
This process is.
Net focused focusing on large projects.
The early stage.
We did in this kind of late stage development.
One for each of these projects.
It carries risk relative to.
And from.
If there is not a an ability to flip the project.
It was originally anticipated this this sponsor and not uniquely but this sponsored had a business model where they basically.
Gathered all of the puzzle pieces.
So that.
The puzzle.
The final project could be put together that they basically were looking to flip the project at NTP notice to proceed for construction.
And they had been very successful and as I said, you know successful with the first loan.
Kind of with them.
But.
The the lesson learned is that you may need to commit additional capital to keep the project on schedule. If there isn't an ability to flip N T P and Cogs construction financing to kind.
We did hey to late stage development loans.
There are other lessons learned but that's probably the most significant both respect to the market and the product type.
With respect to the revolver.
We're constantly kind of in discussions with.
The lenders.
In that credit facility to make sure that it works.
We hope it would.
Megan can kind of speak to the details relative to the impact of these loans to that facility but.
I don't think you should you should definitely troubled at all by kind of that.
And of that facility.
Lenders and Megan.
Yeah. Thanks, Gary I guess generally we're in compliance with all of our kind of debt covenants.
Managing a revolving credit facility and our borrowing base too.
You know appropriately capture the troubled status of deep learning and you're correct that we are not getting barring base.
Credit.
But you know can remain compliant.
Kind of with a with a borrowing base requirement and their facility in general fell it's actively being managed.
Okay. Thank you and then I guess, just one kind of broader question.
Kleban investor for seven or eight years.
It depends on who may see like kind of since the hunt transaction.
And I think that was done like 33, and a half dollars an hour.
I used to know or pro forma.
36.
Yeah.
Alright.
35, and a half after the floor dollar potential hit.
And I'm trying to get a persistent discount that that kind of all time.
Even had any real benefit from the hunt platform in terms of new investment verticals, we can't seem to.
Market the stock to ESG investors, despite the incredible tailwind from that.
Theme.
And we have about a $90 million GAAP now between kind of what I would call pro forma book value and where the market share of market cap is free.
Termination fee of Hunt is about $25 million like I guess what.
What kind of strategic.
Like what's the strategic plan I mean, it almost looks like it makes.
Listen to me that.
We could put this company into a fully in the run offs and in makeup.
It makes it make a considerable investment.
From where the current share.
Share prices.
So great question.
I think that from.
It's safe to say that.
The board is constantly looking at opportunities to.
And the shareholder value.
And it's very focused on the GAAP between.
Share price and kind of the value of the company. However, you define that whether that's adjusted book value per share or some other metrics.
In the past we had been.
Thinking about.
Kind of a return of capital policy that has not been put in place.
At the moment, but the board is looking at kind of all kind of avenues to two.
To enhance value, including raising the stock price.
Where.
It's difficult in that the company is small and it doesn't have.
A formal following among an analyst pool.
And that has been a problem for quite some time.
With respect to.
That we're not doing equity offerings.
Would very much just like the shareholders, we'd like to get the stock price up so that.
Additional.
Equity could be offered in an accretive way.
Hunt is compensated based upon a management fee on the.
Adjust.
<unk> book value.
But it's difficult right. There there are certain constraints relative to the Nols is too.
Trying to preserve that value. So that we don't have to pay tax liability in the near term.
But it is difficult.
<unk> and.
I think that.
Adjusted net G tailwind.
I've been there for a bit.
I think what they probably gotten stronger since the new administration came in with respect to solar.
But obviously, we have not been able to get traction.
On that and kind of the events in February to kind of make that.
The ear difficult at the moment.
Thank you, let's put it on that those are all my questions.
Thanks again for taking.
Yeah no problem. Thank you Matt.
The next question is from Matthew range with <unk>. Please go ahead.
Sure.
Hi, Thanks.
Somewhat presentation, well a lot of my questions have been entrants who already.
But I just wanted to clarify on the full dollar share loss that you expect from project one two and three.
For Q1.
That's the does that include.
Thanks Aviv.
The gain that you expect to make on the remainder of the portfolio.
And make sure how do you see.
The remainder of the portfolio are bearing.
And that's performing loans or would you expect.
He says Nashville.
Uh huh.
Thanks, Matthew and.
We'll try to be as clear as we can right.
The.
The estimate that was provided.
Does he referenced is up to $4.
So.
Whether or not we kind of hit the top end of that range.
Or something lower.
We're gonna have to wait and see how kind of the evaluation of the <unk>.
Investments as of 331 shakes out.
Obviously, we did have a disclaimer relative to kind of things that we don't yet know about.
But we were attempting and.
Policies again for filing.
Styling right up against the deadline and then having this call.
On a good Friday morning, but we were attempting to be as transparent as we could with respect to things that we knew about.
Kind of largely the retail Investor base review things and.
I have a call because we have typically done.
36 hours or so after filing.
The we obviously didn't kind of and we haven't historically provided any prospective guidance kind of what we think performance will be but this range of up to $4.
And it was really our attempt to provide shareholders insight as to the potential losses, resulting from.
The first quarter of that is really in February about and.
Some of that obviously has to do with value that was in.
Or is from book value or adjusted book value per share as of 12 31 right to the extent that there is a loss on the.
The loan that the solar ventures expect to make.
To cover the operating losses. The project, one that's really going to be coming out of the equity value that existed as of 12.
<unk>.
There is other pieces of that.
Up to $4 range that are somewhat prospective in that they have to do with the lack of.
Interest.
Where fees that we anticipate getting going forward.
31 that those numbers were not in the 12 31.
Adjusted book value per share and they will be realized kind of in the future somewhat as an opportunity cost.
But.
We've not provided a breakdown of those two numbers, but you can probably.
On the math alone on the 'twenty, two and a half million dollars piece.
Net.
Kind of the breakdown of that.
But Matthew we've not kind of gone any further than that and say this is what we think the performance for the first quarter will be this is what we think the performance for the for the year will be.
Notwithstanding that range of up to $4 and the disclaimer that we had about things, we just do not yet know about.
Yes.
Yeah Okay.
Fair enough, thank you for that and for us.
Projects free Hull.
How do you see the most likely.
What do you see being the most likely outcome.
Free would that be.
I've seen enough denial such as.
Project, one where you youll eventually.
Has to provide a sense alone.
How do you see predict free kind of.
Hi.
Hmm.
Yeah.
So as.
As Meghan said earlier right we were expecting.
Kind of by May 15th kind of some.
Kind of recapitalization there.
Megan do you want to kind of speak to the future of the bridge.
In Florida construction loans.
And then leading up to that and then after that.
Sure I think the project Q is.
Targeted for the second quarter repayment and no longer from sorry.
Yeah. So it's a project spring I think has been said in the filing.
This project even now.
The fall in the first quarter.
Originally development line you know we've made the assessment that it is important to continuous construction and have continued to advance.
Hi, Jack keep it on schedule and it is targeted.
To be complete later this year I think it is still unknown exactly what the future capitalization of the project holdings, but you know our assessment has shown that we should continue to tick up the project.
To the P&L in order to maximize ultimate recovery.
Yeah right.
Yes. My question comes from the fact that you know.
The up to a photo of our share loss I guess it does not include any impending debt.
You could have.
On project free.
<unk>.
Just trying to vote share how how much loss, we should kind of.
Expect from that one resolved.
Yes.
So we are not I mean, obviously, if we thought it was impaired at year end, we would have highlighted that.
Okay.
We just don't.
Have any perfect visibility into kind of how that will ultimately.
Be recapitalized at the end of the year.
But.
It's probably the extent of what I can say, what we can say about that.
Yeah.
And one last question from from my side with regards to.
The storm in February is it possible.
Receivable could there be any kind of.
Grants or subsidies.
Bye bye.
Is that kind of any plan been taken.
That's fair.
I mean, it is certainly possible.
We were glad to see that within the.
The announcement of the administration about the kind of infrastructure spending bill that there may be.
Taking that opportunity to have a.
A 10 year extension of our <unk>.
Tax credits or some type of cash grant in lieu of tax equity.
That would be.
Michigan benefit not only to the investments.
And Ah in ERCOT, but to the platform in total.
About.
Theres a lot between the cup and the lip as our former CEO used to sorry between that outline of the spending bill and something that actually gets consummated but.
There is a possibility that the.
The tailwind that we have seen already from this administration, which were evidenced by.
The freezing of the step down of the solar investment tax credit.
We will continue to benefit this platform, but there's nothing specific.
Yes.
Announced since December.
Alright, well thanks, a lot for that that was that was good. Thank you.
Thank you and back to you.
The next question is from Ken <unk> with Cemetery. Please go ahead.
Hi, great.
Several pretty basic questions here from some follow ups.
I was hoping to go through.
The first to start with Eric Hot one.
Just just to simplify.
Or so.
110, and a half.
Million alone.
What's the collateral here, what's the total project value what's the cash.
Capital structure and tell it looks like where the mezz financing in this one.
Yeah.
Again, we've not gone into a lot of kind of project level details.
In the filing and I'm not exactly sure how to.
Describe this in a way that.
It doesn't compromise what we've.
Well, what we have not disclosed to date.
Okay.
I apologize.
Okay. So why is the second question why is the financing partner funding and it looks like 90 per cent of the operating loss.
And are we receiving any compensation.
For funding those operating losses.
Yeah. So.
Obviously kind of the advances that the solar ventures or expecting to make.
We will likely come with.
Some type of solution with respect to work out of ownership.
Yeah.
That has not yet been consummated.
But it is kind of sorting through the.
The fact that obviously the solar ventures are making.
In advance to cover those shortfalls in the sponsor is not.
And kind of that will kind of lead to.
Some conclusion.
We'll see how much we can get through between now and the next time, we talk but certainly if there is a must.
Material event between now and kind of mid May when we report first quarter results.
We will certainly kind of include that.
Form 8-K.
Okay.
Got it so.
Not a lot of color there, but ERCOT to.
Yeah.
The.
I'm guessing you can't provide any insight into the collateral against the $45 million zone.
Hum.
Syed.
From project value.
I'm not sure how much additional insight, we can kind of speak to.
Yes, Gary.
Michael.
Yeah, I would just say on project Q3.
If those loans are.
Kind of our core business typical loans, where we typically see them kind of senior secured by all.
And value of the project.
It is the only project one that the sponsor equity loudly.
Any subordinate position after.
Wayne.
[noise] excuse me tax equity in and back leverage on that.
[laughter].
Hopefully you heard that.
Yeah Yeah.
Okay. So just so I understand this so.
So we have to project Q, we got 45.
After exposure today.
We're gonna commit with 30 million bridge loan facility.
And then potentially a $9 million mezz loans.
For the.
The.
The party that May take this project out.
Once.
Uh huh.
The project.
Is complete.
And assuming.
Net the buyout is complete by May 15 deadline.
What is our.
Our remaining exposure is at $9 million or will we be will be do you expect.
Her role.
Our investment.
Yeah.
Okay and can you take that one.
Yeah.
Yeah, So wood.
The kind of the $9 million mezzanine loans.
That discipline.
Subject to kind of final negotiations and approval.
It's not guaranteed that at board that it would.
The in place however, it that way.
That could be the only kind of piece of continuing investment in project Hill.
Okay.
The $30 million.
That is.
Has that been capped already or.
That will that will be.
Cap between now and the projected sale date of May 15.
[noise].
D. The French loan was committed.
Bridging early March as the filings now and if so what is anticipated.
Can be accessed prior Kim.
Ne.
Okay.
Okay.
And then can you help me understand how did this.
Default is it a coincidence.
That this happened.
Like ERCOT, one I understand.
<unk>.
The operating shortfall dishes are an ongoing project that wasn't.
So what caused aircraft to get upside down if it's not yet operating.
It was really a function of just not having takeout commitment in place by certain dates.
And is that.
So this is clearly not due to winter storm. So right. So is it due to the tax equity market or what.
What what would you attribute that to.
But once I got it right.
Sure.
Yeah, it's it's kind of the confluence of events right.
Yes.
Initially the supply demand imbalance because there were so many ERCOT power facilities coming online and kind of exceeded demand created from the softness that delay.
Certainly impact or that imbalance certainly impact to come up with a lag.
Kind of the Covid economy.
About a year.
And it certainly caused other delays relative to tax equity commitments come into play.
And the winter storm certainly didn't help because it's kind of caused people to kind of reassess things. So I think it's just a function of kind of those three events stacking on one another.
Causing delays in what were originally.
[noise] ago simply stated to be short term loans kind of.
Redeemed at and T K.
So it's really just a function of delays.
Okay.
Sure.
So ERCOT free.
Uh huh.
Originally.
Can you remind me to when do we expect so we recently secured a takeout commitment when do we expect this one to close.
Later this year.
And.
Well MMA is exposure be once the deal is closed you anticipate rolling and he is the net capital and also so stepping back so 179, and we're gonna put another $80 million in here.
Here, an additional well I guess, we already.
In Q1.
So.
How will that shake out post take out commitments.
Time will tell is the short answer.
We.
Did that have any certainty of how that will shake out over the course of.
Kind of the balance of the loans through the time of.
Kind of substantial completion.
Right.
Okay, and so into back.
Don't have my question on timeline construction completion. That's also later this year.
Correct.
[laughter].
Okay and so on this.
This one is this merely a technical default on the covenants requiring the permanent take out or.
As the project like dramatically over budget has the power purchase agreement and disrupt what is there something is it does it.
Purely coincidental timing thing or.
What's going on here.
Again, the original commitment was four.
Or a reasonably short term late stage development loans.
Which has not been taken out and.
The.
That timing delay is.
What's kind of causing the defaults.
Okay.
And I would also point you to you know.
Sure.
U P b and fair value instead of Iran that we disclosed for projects.
And I think as you can see there that may help get comfort in the fact that many of these additional advances kill the project into construction and stay on track are being made.
Kind of because you know, we expect that as the way to maximize the ultimate recovery in kind of that underlying project value. So.
Ports that.
Got it.
Okay.
A philosophical question is from.
When I look at.
Unpaid downtime U P b.
Uh huh.
$700 million share.
And about half are in these late stage development projects.
It seems and I.
Just picking up on a comment you made earlier.
They were underwriting projects not necessarily sponsors.
But but one half of our book is secured essentially by promises.
Versus projects.
Is that a disconnect that requires some rethinking.
Eric.
Sorry, I'm not sure I.
Fully followed the promises versus the projects.
So what are what are we collateralized by in the development loans real and these are mezzanine or these are essentially equity loans for sponsors.
All right.
Or is that an incorrect.
So.
<unk> one there is a sponsor equity loans right for them basically operating project.
Everything else in the portfolio.
We are basically lending against project.
And if Megan noted basically we basically have all kind of the collateral of the underlying project.
Obviously, there is some kind of sponsor component to that.
But we really are looking at the project value.
But you're entirely correct right we have.
We have become.
Really concentrated.
In kind of these loans in ERCOT to the sponsor.
And are kind of actively trying to mitigate risk and exposure.
Best we can as kind of a projects go through their life cycle.
Okay. So why.
Belvieu.
These are against.
Yeah, the actual collateral are.
Hmm.
Literally the project and purchase agreements all of these things, it's not not merely the promise of the equity sponsor.
Correct correct.
Okay.
Switching gears to the Spanish Fort I, just have a very quick question on this.
No.
This is on the books per page F 'twenty two for.
$11 million.
$24 million. So it was a little bit of a confusion, but I think it's 11 am.
N.
So that has actually increased.
With.
Approximately $4 million impairment offset by an approximately $5 million write up from exiting a below market lease agreement is that correct.
Yeah, there is theres two investments associated with the Spanish for once.
And kind of our mortgage revenue bond and one's an equity interest in.
The project through a joint venture.
Yes, you you stated all that correctly.
Okay.
I have a very generic question on financing.
<unk>.
What's your philosophy on hedging.
Our exposure to rising interest rates I see we have some it looks like caps and swaps in place.
Yes, we have.
Historically attempted to hedge.
Hum.
A good portion of our floating rate exposure I mean, most of that exposure.
It relates to our subordinate debt.
But there also is some floating rate exposure relative to our.
Financing of.
The Spanish court.
Sean relative to a total return swap as well as our revolver.
And we have kind.
Kind of deployed both swaps and caps are historically.
We asleep.
Yeah.
Kaps require cash out.
For fault lay upfront.
And.
Occasionally we'll have pretty significant cost depending on where the strike is largely viewed as you know a lottery ticket risk.
Especially when interest rates are as low as they are now.
We've also deployed cap or swaps in the past.
And the risk of swaps, obviously as collateral calls.
To the extent that interest rates.
Kind of fall further from where you entered into a swap and depending on the strike.
But.
It's really.
Something that is reviewed with the board.
And.
Asking about layering in.
Either ladders or extensions as existing caps and swaps burn off.
There's not a kind of a.
Black and white.
Our hedging policy per se, it's really kind of a subject to a review really quarterly with the board.
Okay.
Well, thank you for your time.
It.
Sure Alyssa in in the interest of time.
And considering the number of questions that we've had.
On kind.
ERCOT I might suggest that.
We try to field any questions folks may have on non ERCOT related matters.
And our folks continue to have questions about ERCOT.
Sneakers to herself available offline.
Okay.
And the next question.
It comes from Joshua <unk> with pneumatic how are your partners.
Yeah.
Hey, Thanks for taking my question.
Yeah good morning.
Yes, so Matt the private Investor asked most of my questions.
So I guess to to us to further go on.
Kind of broader.
Question.
Is how active I.
I guess I should say a dedicated his time to closing the value gap of.
Of the shares.
So.
I think extremely right.
Everyone that has had a speaking part on this call and who manages the affairs of the MMA.
As a hunter employee obviously.
And as I mentioned, there's a very clear economic incentive.
Someone gets paid on a management fee.
Okay.
<unk>.
Shareholders' equity before the effect of the DTA.
So it's not specifically tied to share price.
But one of the desires that.
Entering the unmade board and hunt.
Going into this relationship.
From the beginning of 2018 was to get.
Get the share price up to the point that additional shares could be.
Offered to increase the size of.
I think the company and obviously that has benefits.
Benefits in lots of different ways, not only shareholder value.
Is near and Dear to all of our Hearts that our shareholders also.
But also right.
It's a small.
Publicly traded company.
And there's a fair.
Mount of overhead that is being allocated over a reasonably small base.
And.
It is something that.
Hey, Dan it's constantly discussed.
Between Hunt and the board right.
Whether it is.
But there were small weather.
The complicated.
C Corp. It doesn't pay taxes, we're not paying dividends.
Yes.
It is something that is constantly being Scott.
Yeah, I don't fully understand the.
The rules around net.
We're courses, but like could you drive by a business and take advantage of those.
With the help of sponsor right.
Yes, certainly so some of the issues with respect to wanting to preserve the nols kind of get into whether or not.
Operating income, there's a tax termination and one of the Safe Harbor rules is that you can have.
A greater than 50 per cent change in the shares outstanding and any rolling three year period.
So the amount of capital that would be available too.
Say by a new business.
It is somewhat limited to that limit so as to preserve the Nols, but the other thing right at this point in time raising shares at this share price would be pretty dilutive without doing right now.
So.
It is something that we.
Think about with respect to could we pivot to kind of debt capital markets.
In a way that would make more capital available that would enable the asset base to go up and have more earnings too.
Accelerate.
The benefit of the Nols.
Uh huh.
Issuing equity at this point.
Probably not something that is likely in the near term.
Yeah I agree Okay. I guess the last question is Uh huh.
The real estate development in Virginia.
<unk> zone.
As I said in the script, there's not been much development there.
We have.
Colleagues at Hunt that are kind of focused on the land development opportunity, but right. It has been going.
Virginia going slow I think in part because of.
Covid.
Things are just somewhat delayed, but there's still progress relative to kind of the road construction out there, but there's just not much news to report.
Got you okay. Thanks for the questions.
No worries thank you.
Going.
And next question is from Smith with Ghana Free capital. Please go ahead.
Hi, How're you doing Gary.
Got it got a question.
My questions are primarily been answered, but I think this sort of goes into your your.
Very much last item there and it has to do with the operating cost.
One thing I've noticed or what's your what's your outlook on that and is there any ways.
<unk> cost to be reduced which I think would you know from our overall perspective, what are sort of allow that work because I know in your filings.
Do you remember the previous filings you said, you're looking at ways to.
Potentially try to reduce costs.
First of all wanted to see you.
Your 2020 causes about what your clients are going to be going forward.
Second what did you.
What's your view on sort of operating costs going forward.
No worries. So we I think I as I said earlier, we really do not provide much guidance.
Kind of expectations relative to performance, but I think as Dave.
Noted.
The significant components of operating expenses.
Yeah with the management fee, obviously, that's tied to a pretty specific number relative to.
2% annually on adjusted book value.
But there's also kind of the.
Salary and benefit expense reimbursement, which is now subject to a cap of $3 $5 million.
I have to do there's probably not much variability and in the other expenses.
MMA.
Cause the business model is largely one that is.
It's continuing to at the current moment.
Investing in kind of a renewed.
Well energy platform.
Obviously, there are expenses at the solar ventures, and MMA has its.
<unk> share of those.
But we have been.
Being able to kind of keep the solar ventures substantially invested.
Based upon the <unk>.
Renewal kind of staffing that we have had to date.
Has there been any discussions or talks with the board about adjusting the management fee since both parties interest is to get the share price zone.
So there.
I'm not privy to.
Conversations that may exist at the board level in executive session.
But I think that the board.
It is constantly looking at all things.
Management agreement.
Is one component, which I'm not sure it's directly in.
Impactful to the share price.
The margin if it were to be reduced.
But I think that the the impacts to that might affect the share price you're probably.
Kind of more significant into other ways capital return policy for example.
Yeah, I mean I'm I'm.
Just thinking of just the signal that it could get.
Where there are holders of if that's sort of what you know hunter wants to do one way to do it may be you know, possibly reduce the fee until we asked them to get to a certain size and then make some adjustments there to at least provide a signal that.
Is it.
Just an idea you know, but that's just something.
Net to show a signal they can get provided that and share the board's probably taken a look at a bunch of stuff.
This is an idea right yep yep. Thank.
Thank you.
The next question is from Zach Liggett with.
And then we get lump advisors. Please go ahead.
Oh, great. Thank you thanks for.
In this morning and.
Stances.
Most of my questions have been answered I have two left.
Why did I thought you had an interesting statement in there.
The press release that that you believe the renewable energy portfolio still has the ability to perform.
All the child.
For the balance of the year.
And so.
I guess I'm wondering is is that.
Confidence or beliefs.
Based on the premise that you think.
Eric had issues.
It will be.
Figure it out here in Q1 and.
And your downside.
Downside scenarios from there is.
Is limited.
Or is it because he believes that the non ERCOT.
Exposures you have in opportunities you have going forward remains strong I guess I'm trying to understand a little better what's behind that statement.
You know for.
Getting beyond Q Q1, then I have a followup.
Sure.
So Doug I think it's a bit of.
Both.
I think and I don't have the press release immediately in front of me, but I think with the press release was.
Speaking.
Hum.
The performance of the portfolio outside of ERCOT.
<unk> continues to perform well and generally is underwritten and I think that that.
Is true not only for the existing investments, but with respect to opportunities that we see in the pipeline.
Hum.
But I also think that we are hopeful.
But we will be able to kind of work through.
The issues that we are kind of.
Spoken significantly about both.
The 10-K.
During this call.
I think that there probably will be some impact.
On performance.
As we kind of have capital tied up in.
<unk> kind of ERCOT and that kind of limit some of the <unk>.
Ability.
To churn and capital and make investments.
Net generate.
Fees or do you think is most people previously heard we.
We are able to generate.
We're reasonably attractive quite attractive loan level of IRR, it's because we get paid kind of these upfront for the committed.
But the committed capital is not outstanding entirely over a reasonably short period of time or loans used to think of it.
But I think that we're we're still confident as measured by our marks as of 12 31 on aircraft loans that we.
We were.
Cap way.
Marketing things out.
P D or slightly better and.
Our company will be able to work out most of the ERCOT issues, but.
Again, the context of <unk>.
Seeing loan level Irr's fall.
From the $19 72.
Large.
High teens.
Is is an indication that we do still believe in the business model.
It's unfortunate that we're likely to experience losses and break our track record of no losses.
But we still are confident in the business going forward.
Great. Thanks for.
And then my last question.
So soon.
Assuming assuming.
They are public company.
Going forward and it sounds like the board is constantly are taking a hard look at that.
Would you consider improving the disclosures at this.
Within solar ventures to help investors just better understand.
Where are your concentrations are to sponsor to markets.
I think that could be helpful longer term.
It's discounts in.
And we've been shareholders for years that the discounts persistence.
And you've mentioned many of the factors for that but I think one of them is also the relative lack of disclosure on.
Whats inside the main asset with them within our company here and so I.
I would just ask you. If you guys have considered that or if you're looking at that especially in lieu of what happened recently.
Recently, but if you're thinking about that going forward per.
<unk>.
Just a better granularity.
So that investors, perhaps can can make better.
I guess I meant sun on these concentration risks.
Yeah, I think that's good feedback.
To date, we have not provided.
Basically portfolio specific information by loan for a variety.
Heidi of different reasons.
Our judge right one is.
PMA is not investing directly in those loans, it's through the equity investment in the solar ventures.
Two is that the loans are so short right, it's not like a.
Our loan book that has a 20 year average life.
And you can kind of see.
A particular investment may be in the portfolio for years.
There would be a lot of volatility things going in and out that's not at least not to do it but it's.
Kind of highlight there would be a fair amount of noise. If we did.
We tried to give some insight.
Through kind of where projects are located on the map in the investor presentation.
The other piece of this puzzle is.
Not that.
Other people don't have secret sauce, but sharing loan level detail.
Without the margin compromise some of our competitive advantage in the marketplace.
Two is that.
We're not able to disclose things about the solar ventures and its investment.
Without the consent of the Investor remember partner.
Unless it's mandated.
Or kind of SEC filing purposes. So it's really all of those factors that go into play as to why.
Good morning, Greg.
And the in the last year your cash.
Permanent financing for our solar loan portfolio has grown astronomical.
$24 million to almost $180 million.
Are any of those permanent.
From two.
Your some of your current borrowers on these construction loans.
Yeah.
So.
Megan correct me if I got this wrong, but I believe that the sponsor equity loans to kind of per cop project one.
It is reflected in the Permian.
Net loss accounts.
Yes, that's correct because it does the underlying project is operating.
So.
What is the rate of return.
What.
Tell us about the permanent loans, what's the length of the permanent loan.
Yeah.
The interest rate or the structure of the loans.
On the permanent loans.
So.
I apologize, Craig, but we really have not.
Gone into any loan level details.
I mean historically.
I.
What's the why there has not been all that much activity in problem loans.
Our directly originated and Thats because unlike the late stage development and the construction loans.
The permanent loans.
Or an extremely competitive market.
Can space.
And the return profiles are significantly lower.
Measured in five or 6% returns.
And.
We always thought the business model was going to allow us to kind of put.
Market per hour early in a life cycle for a sponsor and have a bite at the Apple not only for.
Construction, but also perm, if we were to do late stage development.
But.
Considering the opportunities that we were seeing at the earlier stage and given the return profile.
Money, which we thought were quite attractive relative to the risks.
We have not been looking to originate.
Perm loans, because the amount of debt that you would probably have to put on them.
To make them attractive for free.
Our kind of public company purposes.
Profile, who don't have the cheapest source of cheap cheapest cost of capital for Perm debt. So it would be hard to be competitive because it's really part of.
Our secret sauce is enabling.
Sponsors to benefit from our understanding of the marketplace and how the bill becomes a law.
More than.
We all have the the capital that we provide.
The.
Sponsor equity loans with respect to ERCOT, one is not atypical of term loans.
It is.
One that is.
Got it very different return profile.
And you know it.
Just can bet, we're hopeful that as things start to solidify in the ERCOT market.
We will be able to exit at some point in time in the future.
But there is a fair amount of work to do yet to kind of make sure that.
Things kind of start the uncertainty in the.
Something like it starts to kind of wane.
But we are certainly monitoring that.
Yes.
Okay.
So I still don't understand.
$880 million one.
Not at rates of.
IRR rates of.
Markets high teens.
Why would you come at any of our capital.
Do those unless I hate to sales Gary but.
Yes.
It's not part of it was not part of the business plan to do that the part of the business plan is to recycle capital.
Two.
Higher short term loans do we know what is the language.
The portfolio that's in permanent loans, how long do we go out how long do we lend for.
What's the security behind that permanent loans.
Is that a potential problem in the future.
And based on interest rates going up.
Sue.
I hear you Greg we we just have not made kind of that specific information public.
Well your does your board of directors listen to these calls.
Because they do you you you constantly.
Talk about trying to have the disconnect between our book value of $47 a share.
And where we are today.
And it seems to me like everybody scratching their heads thinking well what why is there a disconnect. This is part of the reason Gary that there's part of it just because we have no idea.
$180 million is tied up who it's with what the length of those loans are.
You guys did this 10 years ago with your.
With your.
Limited partnerships, where you essentially restructure loans and you put them on the books.
We've taken a problem short term loans and.
Idea of putting it into a long term permanent loans.
How many of these permanent loans, how much of that permanent loans goes to the problem that you're having a problem with right now.
Is there concentration with other people.
Others, you know how diversified is that portfolio, how do you plan to get out of that portfolio of permanent loans.
And you play called capital at a higher value.
And you find that you can't tell us but.
How do we put a valuation you have a tax deferred asset on your book.
That you claim that you are going to be able to utilize that over the next couple of years. When are your accounts kind of come back.
Teresa look likely you'd better take you better take the asset off the books.
You just reported your book value add this.
Yes.
You said, a great Gary Europe.
You've been a puzzle for years your board of directors either try to unscramble. The puzzle that you say you can't disclose things about loans.
Safe because of your of your association with the other party.
Well.
Maybe your board I don't think about or maybe I'll talk to the other parties day, we got to have more disclosure as a public company.
Was there any disclosure last year.
About the concentration of these loans.
In ERCOT with this one entity.
That yes that you had a high concentration of risk.
I haven't gone back and look but.
In November when you had your call you said that you were going to have to take some write offs, possibly at the end of the year.
The write offs.
And if you were assuming two were writing down Spanish Fort.
Correct.
And then.
I see the day that you also wrote up the value because of a below market lease.
Has that already been re leased that has that property re leased at a higher value.
So I think not yet.
Why would you why would you disclose stuff like that you haven't done it yet.
But you <unk> you pull out something that we think this book there's been no development of Spanish Court the best of my knowledge.
But you are saying, we have a below market lease and we're going to write up the asset we're gonna right.
Do you think the value is.
Why would you not wait until you've already.
The property and tell us that we've released that at you know 50% higher per square foot.
Yeah, great interest.
Yeah.
If I might just.
Clarified the disclosure.
With the filing related to.
The property and leasing question actually.
It's true of below market lease with a tenant that was terminated.
And if you actually looked at.
The books and records of adventure and the impact of terminating that lease.
The the increase to the book value of MMA as interest was a byproduct.
The net income.
<unk>.
She did with lease terminations. So it's not so the impact that you're referring to is.
Sort of backwards looking it wasn't sort of sports watching just to clarify.
I'm not trying to take away from your broader point, but I'm just just to.
I don't really know what your accounts with let you put that in there.
Do you have a tenant you have a tenant that's why you have a tenant that's left the property vacated the property.
You're not collecting rent but.
Prospectively.
Do you think that if you rent the property at what current lease rates are in the area that it'll be it'll be at a higher valuation. So therefore, you can write up the value of the property.
Is that do I have that right.
It's really a function of.
But they kind of a below market lease and the basis associated with that lease.
That caused.
The accounting conclusion, which I must admit it is odd.
But is nonetheless mandated and was audited by KPMG.
<unk>.
So the accounts made you do it you couldn't say lets well no I mean, there are financial statements no. There there are financial statements and we need to comply with GAAP and it did and we got a clean audit.
Yeah.
Yeah, Greg I think the I think the accounting at the venture.
It does.
Entirely consistent with GAAP I.
I think I think the disclosure point.
That where we've made here was to help clarify.
To investors why the book value increased which candidly.
Candidly played into.
The related impairment that.
He was also taken in the same reporting period. So in other words, the bookkeeping effect that you're sort of pointing to which caused the book value of MMA as equity to increase.
It was also a prompt if you will for US to then take a step back.
12, 31, and just like we do with any equity investments.
Its recoverability.
And it kind of going through that process.
<unk>.
<unk> assessed that the that the book value was not fully recoverable, which led to.
Measuring its fair value.
Back to 12, 31, and then taking a $3 $7 million impairment charge to get it to where it now sits at year end, which is true a little bit north of $11 $2 million in here, but again just on the equity so that net I'm not sure. If that's off a clarification, but that that was the from a disclosure perspective, why we wanted to help people.
You have to understand kind of the up and down if you will that occurred in the fourth quarter excuse me in relation to that investment.
As an investor in your company I would've preferred that your weighted till you released the property instead of giving me a perspective that you think youre going to be able to lease it.
People valuation at least that's what that's how does that I'm, taking I'm, sorry, that's but that's not what that's not what the disclosure sang.
The disclosure is merely articulating.
The book keeping impact at the venture level of having.
An anchor tenant.
And a related lease associated with an.
At a higher being terminated.
Theres nothing forward looking.
About the disclosure, it's merely trying to help.
Illuminate what occurred from a bookkeeping perspective at the venture level. When obviously MMA has an equity stake.
And trying to help folks better understand.
The impact on the fourth quarter from an equity investor perspective, if theres nothing forward looking about it just to just to be clear.
Okay. So the value of the $22 million that you have tied up in the tax free bonds there.
Has that been impaired since J C penney's left.
Okay.
Now.
The bond I think head up.
Fair value at 12, 31 of just north of 24 million Bucks.
And.
There's a the holdings, we wouldn't assess that investment or a bond for.
Unless.
If you look at where that bond is marked at relative to its cost basis.
Unless it was an unrealized holding loss per spec position.
Position.
But if you actually look at this particular this particular bond.
In a holding gain position. So you know the word impairment.
Apparently enter sort of the reporting equation.
So that's why I'm asking is why wouldn't you sell that bond and recycling the capital.
Particularly if it's at a gain and you're and you're incurring losses.
Okay.
It doesn't we have certainly looked into selling the bonds as well as selling the equity position Greg.
But we don't have anything to report on at this moment.
But you think you can sell the bond for the stated value on your balance sheet.
That we.
Value kind of all of the investments are based upon a variety of valuation.
Models and policies and that's what we think it is worth.
What's the word certain what's the market value not what you think it's worth what's the market value.
What will the market pay for it.
We've seen good interest.
Okay. Sorry go ahead, that's not bad.
Although I was just gonna just.
Reemphasize the point that Gary made Greg, which is that if you look at it.
Any asset on MMA is balance sheet that is.
<unk> reported at fair value.
The construct.
In terms of establishing quote fair value is not based upon what it is that from a and MMA perspective, it's <unk>.
GAAP is pretty clear that that has to be from a market participant perspective. So.
The measurement of.
24 plus million dollars that.
We've ascribed to that particular asset.
Is.
Consistent with our our view of what we believe a market participant.
It would trade at.
At 12 31.
Okay.
So let's get back from the permanent loans.
What's the disclosure there for us the $180 million.
You've you've you've taken capital that's supposed to be short term and it looks like it's now long term committed capital at lower interest rates.
Am I correct.
It is long term.
Capital and.
I've gone through why we got to the sponsor equity loans.
And a fair amount of detail.
I did not say that it was.
Kind of a 5% to 6% coupons that I was kind.
Referring to newly originated.
Perm loans in the marketplace.
This is <unk>.
Not necessarily exactly like a term loan it has a lot of different characteristics.
But you are correct, we are invested in a longer dated.
Bonds or equity.
We have characterized as a perm loans and it is limiting our ability to recycle capital in a manner that we had done in the past with shorter dated loans.
We and our Investor member.
We got to this point after assessing all of the various opportunities too.
Take what was initially a late stage development loans.
And make the best of it while protecting the value of the underlying collateral by getting the project built and operating.
We have not provided any loan level details, but I will certainly take it into consideration.
To your point is a good one relative to wanted to be transparent about performance of the portfolio going forward.
Don't you think shareholders would want to know that in order to value Your company.
So anything that's a key component and the shift that youre doing with our capital.
Yeah.
Yeah, Mike.
My perspective, you've taken a problem short term loans.
And you've shifted a problem short term loans.
Into a permanent.
Loans.
That.
The only alternative was to convert.
To a permanent loans in order to make the short term construction loans or development loans.
Yeah.
Yes.
Commvault, but you didn't have to take a charge for it because they couldn't get financing anywhere else in our business model. What's been described as not to do that.
<unk> when do we get a 180 million when do we get $180 million capital back to recycle it at Europe higher rates of return.
He's tied up a lot of our book value and the permanent loans.
To cover <unk>.
Short term construction loans.
They couldn't find it find financing anywhere else.
Youre correct Greg.
And we know none of that and we know none of the details of those loans.
And you Wonder why we trade at a discount.
Yeah.
Would you invest in something if you didn't know.
So I hear you loud and clear Greg.
I think that we have made disclosures relative to the fair value of all our investments.
As of year end.
And we have noted kind of the impact of the.
February storm.
As best we can and as transparent away as possible.
In aggregate level.
Relative to what we know of with respect to first quarter results.
At this point I'm not sure it's all that productive.
To continue this dialogue relative to non-GAAP.
Measures on specific loan investments that I very much hear you loud and clear and we will certainly take it into advisors coming forward.
Does your board listened to this call.
I think I've already answered that yet.
They do.
You want to hire.
<unk> valuation you gotta become more transparent.
It's that simple.
Understood. Thank you very much thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over day carrying in Tucson for any closing remarks.
Thank you Melissa and thank you all very much again I apologize for intruding on.
You're good Friday morning.
We very much didn't want to.
To do that but we did want to give folks the time and opportunity to digest what was from.
Rather atypical disclosure.
Hi.
Relative to the 10-K, we very much appreciate your interest and support of the company.
And we look forward to being in touch soon thank.
Thank you very much and have a great holiday weekend.
Okay.
The conference has now concluded thank you for attending today's presentation.
You may now disconnect.