Q3 2024 HA Sustainable Infrastructure Capital Inc Earnings Call
[music].
[music].
[music].
Operator: Greetings and welcome to HSE's third quarter 2024 earnings conference call and webcast. At this time, all participants are in a listen-only mode.
Greetings and welcome to Hercules third quarter, 'twenty 'twenty four earnings conference call and webcast.
At this time all participants are in a listen only mode.
Operator: A brief question and answer session will follow the formal presentation.
A question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded.
If anyone wants you to require operator assistance during the conference. Please press Star then zero on your telephone keypad.
As a reminder, this conference is being recorded.
Aaron Chew: It is now my pleasure to introduce your host, Aaron Chew, Senior Vice President of Investor Relations. Thank you, operator, and good afternoon to everyone joining us today for HACI's third quarter conference call. Earlier this afternoon, HACI distributed a press release reporting our third quarter 2024 results. a copy of which is available on our website, along with the slide presentation we will be referring. The conference call is being webcast live on the Investor Relations page of our website where a replay will be available later.
It does not object to introduce your host arent your senior Vice President of Investor Relations.
Thank you operator, and good afternoon to everyone joining us today for <unk> third quarter conference call.
Earlier. This afternoon has he distributed a press release reporting our third quarter 2024 result.
A copy of which is available on our website along with the slide presentation, we will be referring to today.
This conference call is being webcast live on the Investor Relations page of our website, where a replay will be available later today.
Aaron Chew: Some of the comments made in this call are forward-looking statements, which are subject to risks and uncertainties described in the risk factors section of the company's Form 10-K and other filings. Actual results may differ materially from those misstated. Today's discussion also includes some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is available in our earnings release.
Some of the comments made in this call are forward looking statements, which are subject to risks and uncertainties described in the risk factors section of the company's Form 10-K, and other filings with the SEC.
Actual results may differ materially from those stated phased discussion also includes non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is available in our earnings release and presentation.
Aaron Chew: Joining me on today's call are Jeff Lipson, the company's President and CEO, and Mark Pangburn, our CFO, as well as Susan Nickey, our Chief Client Officer, who will be available for the Q&A portion of today's call.
Joining me on today's call are Jeff Lipson, the company's president and CEO and Mark Pangbourne, our CFO as well as Susan Nicky our China, our chief cleanup, who will be available for the Q&A portion of our presentation now.
Jeff Lipson: Now I'd like to turn the call over to our President and CEO, Jeff Lipson. Thank you, Aaron. And thanks to everyone joining us today for our third quarter 2024 conference call. I'm going to begin on slide three. The third quarter of 2024 was another solid quarter for HSE on the key elements that drive our long-term value creation. We've closed $1.2 billion of new investments here to date as of 9.30. And including an active start to the fourth quarter, new investments are at $1.7 billion, year-to-date as of today. Our managed assets have grown 14% in the last 12 months and now exceed $13 billion.
Now I'd like to turn the call over to our President and CEO, Jeff Lipson Yeah.
Thank you Erin and thanks to everyone joining us today for our third quarter 'twenty 'twenty four conference call.
Going to begin on slide three.
The third quarter of 'twenty 'twenty four with another solid quarter for Hep C. On the key elements that drive our long term value creation.
Close to $1.2 billion of new investments year to date as of 930.
And including an active start to the fourth quarter, new investments or at one $7 billion year to date as of today.
Our managed assets have grown 14% in the last 12 months and now exceed $13 billion.
Jeff Lipson: New asset yields have been approximately 10.5% year-to-date, which have increased their overall portfolio yield to 8.1%. An adjusted earnings per share of $0.52 in the quarter has driven our EPS through the first three quarters of 2024 to $1.83, representing 8% growth over the first three quarters of 2023. We continue to remain confident in our guidance of annual adjusted EPS growth between 8 and 10 percent through 2026, with our dividend payout ratio targeted between 60 and 70 percent over this period. As a reminder, our long-term goal is for 10% annual EPS growth and a 50% payout ratio by 2030.
You asked that yields have been approximately 10, 5% year to date.
Each have increased our overall portfolio yield to eight 1%.
And adjusted earnings per share of 52 cents in the quarter, it's driven our EPS through the first three quarters of 'twenty 'twenty four to $1.83, representing 8% growth over the first three quarters of 2023.
We continue to remain confident in our guidance of annual adjusted EPS growth between eight and 10% through 2020 six so our dividend pay out ratio targeted between 60 and 70% over this period.
As a reminder, our long term goal is for 10% annual EPS growth and a 50% payout ratio by 2030.
Jeff Lipson: Before we discuss the quarter in more detail, I'd like to pivot to discussing the election impact following Tuesday's results and interest rates following today's Fed meeting. These are certainly not new discussion topics for us. In various investor forums over the past 18 to 24 months, I have repeatedly reminded investors that HASE can be equally successful in Republican administrations and when interest rates are higher as we are during Democratic administrations and when rates are lower. In fact, this is not just a theory, it has already been demonstrated. We achieved strong earnings growth during the first Trump administration and have continued to thrive in this period of higher rates that began in 2022.
Before we discuss the quarter in more detail I'd like to pivot to discussing the election impact following tuesday's results and interest rates following today's fed meeting.
These are certainly not new discussion topics for us.
In various investor forums over the past 18 to 24 months I repeatedly reminded investors that has he can be equally successful in Republican administrations and when interest rates are higher.
As we are doing Democratic administrations, and when rates are lower in.
In fact this is not just a theory it has already been demonstrated.
We achieved strong earnings growth during the first Trump administration and have continued to thrive in this period of higher rates that began in 2022.
Jeff Lipson: Turning to page four, a few more thoughts on the election impact. Investors tend to conclude a strong correlation between election results and the success of the clean energy industry. On one hand, this makes sense, given the heavy involvement of government in the energy markets in general and the influence of policy, taxes, and incentives on the energy transition in particular. On the other hand, a closer look at the data reveals some interesting facts, as shown on slide four. namely that investment in clean energy has undergone secular growth this century that transcends political administration. In fact, clean energy investment adjusted for inflation has grown in every successive presidential administration.
Turning to page four a few more thoughts on the election impact.
Investors tend to conclude a strong correlation between election results and the success of the clean energy industry.
On one hand, it makes sense given the heavy involvement of government in the energy markets in general and the influence of policy taxes and incentives on the energy transition in particular.
On the other hand, a closer look at the data reveal some interesting facts as shown on slide four.
Namely that investment in clean energy has undergone secular growth this century that transcends political administrations.
In fact clean energy investments adjusted for inflation has grown in every successive presidential administration from.
Jeff Lipson: From Bush to Obama to Trump and now Biden, underscoring how the market has been propelled not only by public policy, but increasingly over the last two decades by economic. The simple truth is that renewables have not only become the lowest levelized cost of energy, but also offer comparatively rapid deployment, which has helped transform them into the preferred source of incremental energy. In addition, the forecasted demand for power over the next several decades will inevitably result in an all-of-the-above energy strategy in this country. The corresponding elevated investment and supply to meet this demand will ensure our clients maintain strong development pipeline.
And Bush to Obama Trumping now Biden underscoring how the market has been propelled.
Not only by public policy, but increasingly over the last few decades by economic factors.
The simple truth is that renewables I'm not only become the lowest level of life cost of energy.
But also offer comparatively rapid deployment, which has helped transform them into the preferred source of incremental energy.
In addition, the forecasted demand for power over the next several decades.
Inevitably result, and in all of the above energy strategy in this country.
The corresponding elevated investment in supply to meet this demand we will ensure our clients maintain strong development pipeline.
Jeff Lipson: This dynamic extends not only across presidential administrations, but also across geographic lines as well. As the table at the bottom of the slide indicates. Cumulative deployments of renewable power in this country are split quite evenly between Republican and Democratic states, and in fact lean slightly in favor of states that voted Republican in 2020. Perhaps more importantly, investment in clean energy projects announced since the IRA was enacted a few years ago. excuse heavily in favor of states that voted Republican in 2020. I would note we could have used a variety of data points on this slide, and they would have all resulted in the same conclusion.
This dynamic extends not only across presidential administrations, but also across Geos geographic lines as well.
As the table at the bottom of the slide indicates.
Cumulative deployments of renewable power in this country are split quite evenly between Republican and Democratic States and in fact lean slightly in favor of states that voted Republican in 'twenty 'twenty.
Perhaps more importantly investment in clean energy projects announced since the I R. A was enacted a few years ago.
Skews heavily in favor of states that voted Republican in 2020.
I would note we could have used a variety of data points on this slide and they would have all resulted in the same conclusion.
Jeff Lipson: The energy transition is an economically viable macro trend that will continue for many decades, regardless of election results.
Energy transition is an economically viable macro trend that will continue for many decades, regardless of election results.
Jeff Lipson: Turning to page five, a reminder that our business is not dependent on low interest rates. We continue to prove the thesis that in all rate environments, high, low, flat, steep, or inverted, our business can thrive. In 2020 and 2021, rates were unusually low, followed by a rapid increase in 2022 and 2023, during which the Fed raised interest rates by 500 basis points, and the yield curve was persistently inverted. In 2024, a rate cut cycle has started again and the curve has steepened. Throughout this period of rate volatility, we have maintained a consistent and disciplined approach to interest rate risk management.
Turning to page five.
I'll remind you that our business is not dependent on low interest rates.
We continue to prove the thesis that in all rate environments high low flat steep or inverted or business can thrive.
In 'twenty 2020 'twenty, one rates were unusually low followed by a rapid increase in 2022 and 2023 during which the fed raised interest rates by 500 basis points and the yield curve was a persistently inverted.
In 2020 for a rate cut cycle has started again and the curve has steepened.
Throughout this period of great volatility, we have maintained a consistent and disciplined approach to interest rate risk management.
Jeff Lipson: As noted on the slide, our margins have remained attractive as we have consistently invested at an adequate spread to our debt cost. Likewise, we have consistently increased adjusted earnings throughout this period of rate volatility. Quite simply, the lengthy track record of our business is that we generally invest at an average of treasuries plus five to 6%. And now as an investment grade debt issuer, we can fund ourselves at treasuries plus two to two and a half percent. This resulting margin has created a sustainable, predictable, and consistently profitable business.
As noted on the slide our margins have remained attractive asps.
We have consistently invested in an adequate spread to our debt costs.
Likewise, we have consistently increased adjusted earnings throughout this period of great volatility.
Quite simply the lengthy track record of our business is that we generally invest at an average of treasuries plus 5% to 6%.
And now as an investment grade debt issuer, we can fund ourselves at treasuries, plus 2% to 2.5%.
This resulting margin.
Has created a sustainable predictable and consistently profitable business.
Jeff Lipson: Turning from slide five detailing our margin history to slide six, I would like to emphasize that our outlook for margins over the next several quarters remains robust as we continue to close transactions with double-digit yield and our long-term public bonds are trading at roughly six and a half percent.
Turning from slide five detailing our margin history.
Slide six I would like to emphasize that our outlook for margins.
For the next several quarters remains robust as we continue to close transactions with double digit yields and our long term public bonds are trading at roughly six 5%.
Jeff Lipson: I'd also like to provide a brief update on two other items. Our CCH1 partnership with KKR continues to progress entirely within our expectations. We have closed a number of additional transactions in the vehicle in the third and early fourth quarter with no modifications of our internal process. KKR continues to be an ideal and constructive partner, and we remain on track to complete the $2 billion investment target by year-end 2025. Finally, I would note that our SunStrong joint venture has transitioned and we have a new partner that has purchased 50% of the JV following the SunPower Bankruptcy.
I'd also like to provide a brief update on two other items.
Our CCH one partnership with KKR continues to progress entirely within our expectations.
We have closed a number of additional transactions in the vehicle in the third and early fourth quarter with no modifications of our internal processes.
KKR continues to be an ideal and constructive partner and we remain on track to complete the $2 billion investment target by year end 'twenty 'twenty five.
Finally, I would note that our son strong joint venture as transition and we have a new partner that is purchased 50% of the JV following the sunpower bankruptcy.
Jeff Lipson: The JV continues to effectively service the legacy leases and our corresponding asset-secured loans are performing as expected.
The JV continues to effectively service the legacy leases and a corresponding asset secured loans are performing as expected.
Mark Pangburn: And with that, I will pass the call over to Mark. Thank you, Jeff. I'll start on slide 7. Our pipeline remains at more than $5.5 billion and is well-diversified across our end market. Listed on the right are three items I'd like to highlight.
Mark: And with that I will pass the call over to Mark.
Thank you Jeff.
Mark: I'll start on slide seven.
Speaker Change: Our pipeline remains at more than five 5 billion is well diversified across our end markets.
Speaker Change: Listed on the right are three items I'd like to highlight most.
Mark Pangburn: Most notably, we anticipate onboarding approximately 10 new clients. These additions are across all three of our markets. I have previously summarized our growth coming from three primary avenues, growing with existing clients. adding new clients. The investment this year into expanding our client base will continue to drive our future operations. Next, as an example, the grid-connected investments in our pipeline have typically completed a two-plus-year development. requires a meaningful capital investment from our entry point into these investments de-risk both development and provides clarity on near-term pipeline, regardless. Finally, in the FTN market, we continue to see R&G as the primary driver of growth, we continue to build off our existing partnership with leaders like Amoresco, and broaden to other key players like Vision R&G as we announced a few weeks ago.
Speaker Change: Notably, we anticipate Onboarding approximately 10, new clients this year.
Speaker Change: These additions are across all three of our markets.
Speaker Change: Previously summarized our growth coming from three primary Avenue.
Speaker Change: Growing with existing clients.
Speaker Change: Adding new clients.
Speaker Change: Like what.
Speaker Change: The investment this year and two expanding our client base will continue to drive our future opportunities.
Speaker Change: Next as an example.
Speaker Change: Grid connected and investments in our pipeline have typically completed a two plus year development.
Speaker Change: Which requires a meaningful capital investment from our clients.
Speaker Change: Our entry point into these investments Derisked both development delays.
Speaker Change: And provides clarity on near term pipeline, regardless of the political environment.
Speaker Change: Finally in the F. T end market, we continue to see R&D as the primary driver of growth.
Speaker Change: They need to build off our existing partnership with leaders like MRI scope broaden to other key players like vision R&D as we announced a few weeks.
Mark Pangburn: Our optimism is supported by the growing forecast for U.S. power which we see positively impacting our pipeline and portfolios.
Speaker Change: Our optimism is supported by the growing forecast for U S power demand, which we see positively impacting our pipeline and portfolio today.
Mark Pangburn: Moving on to slide eight, year to date, we have closed 1.2 billion of transactions. As you can see in the table, these closings are well diversified among our underlying Managed assets have grown to $13.1 billion and the portfolios increased to $6.3 billion. For the year, we expect to exceed $2 billion in transaction closings consistent with our One other positive item I'd like to highlight, portfolio growth reflects our asset rotation initiative where we have rotated out of more than $400 million of investments which were on the balance sheet at a weighted average yield of less than $6 We also rotated out of these investors.
Speaker Change: Moving onto slide eight year to date, we have closed 1.2 billion of transaction.
Speaker Change: As you can see in the table. These closings are well diversified among our underlying assets.
Speaker Change: Managed assets have grown to $13 1 billion in the portfolios increased to $6 3 billion.
Speaker Change: For the year, we expect to exceed 2 billion in transaction closings consistent with our expectation.
Speaker Change: One other positive item I'd like to highlight portfolio growth reflects our asset rotation initiative, where we have rotated out of more than $400 million of investments, which were on the balance sheet at a weighted average yield of less than six and a half per se.
Speaker Change: We also have rotated out of these investments at a gain.
Mark Pangburn: The Placing Lower Yielding Investments with Higher Yielding Investments will Drive a More Profitable Company into the Future.
Speaker Change: Replacing these lower yielding investments with higher yielding investments will drive a more profitable company into the future.
Mark Pangburn: on slide nine. Given the size of our portfolio, it takes time for new investments to impact our overall portfolio yield, but you are starting to see that impact with the portfolio yield rising to 8.1% from 8% a quarter ago and 7.9%. In addition, while higher interest rates have increased our cost of debt relative to 23, it's worth noting that it has declined incrementally from 5.7% in Q1 of 2020. Meanwhile, ROE year-to-date has grown to 12.4% with the rise supported by our gain-on-sale trend.
Speaker Change: On slide nine.
Speaker Change: Given the size of our portfolio. It takes time for new investments to impact our overall portfolio yield, but you were starting to see that.
Speaker Change: In fact with the portfolio yield rising to eight 1% from 8% a quarter ago and seven 9% last year.
Speaker Change: In addition, while higher interest rates have increased our cost of debt relative to 'twenty three it's worth noting it has declined incrementally from five 7% in Q1 of 'twenty four.
Speaker Change: Meanwhile, our ROE year to date grown to 12, 4% with the rise supported by a gain on sale transaction.
Mark Pangburn: Turning to slide 10 to cover our financial In Q3, we are reporting adjusted EPS of $0.52 and a gap EPS loss of $0.17. Year-to-date 24 versus 23, we grew adjusted NII to $192 million, up 20%. Occurring Capital Light Income, $19 million at $43 percent. upfront capital aid income. $65 million of 19 Year-to-date, our adjusted EPS has increased 8% over the prior year period.
Speaker Change: Turning to slide 10 to cover our financial results for Q3, we are reporting adjusted EPS of <unk> 52 cents and a GAAP EPS loss of 17.
Speaker Change: Year to date 24 versus 23, we grew adjusted NII of 192 million up 20% recurring capital light income 19 million up 43% in upfront capital light income.
Speaker Change: 65 million up 19%.
Speaker Change: Year to date, our adjusted EPS has increased 8% over the prior year period.
Mark Pangburn: There are two items I'd like to explore further. First, the gap loss was driven by mark-to-market impacts related to power contracts, some of our underlying project... These power contracts provide revenue stability to the project. As power prices increase, the projects are worth more, but the power contracts are worth Over time, these projects will sell power at higher rates, offsetting the market-to-market impact. Second, gain on sale has been consistent when viewed in annual cycle. We remain on track to meet or exceed our prior commentary around being generally in line with 22 and 23 gain on sales.
Speaker Change: There are two items I'd like to explore further.
Speaker Change: First the GAAP loss was driven by mark to market impacts related to power contracts some of our underlying project in Boston.
Speaker Change: These power contracts provide revenue stability to the project.
Speaker Change: As power prices increase the projects are worth more but the power contracts are worth less.
Speaker Change: Over time these projects will sell power at higher rates offsetting the mark to market impacts.
Speaker Change: Second gain on sale has been consistent when viewed in annual site.
Speaker Change: But will vary quarter to quarter as seen in Q3.
Speaker Change: We remain on track to meet or exceed our prior commentary around being generally in line with 'twenty, two and 'twenty three gain on sale.
Mark Pangburn: Wrapping up my section on slide 11, our balance sheet at the end of the quarter leaves us in an excellent position to achieve our near-term growth target. At September 30, our liquidity was $1.3 billion and our debt-to-equity ratio remained at 1.8 times comfortably, and our 1.5 to 2 times target As you can see on the chart on the right, there have been no major changes to our ladder maturity profile with no significant near-term maturities. The $200 million convertible note due next year can be paid off with our As a reminder, we expect our investment grade status to enable us to refinance our 26 and 27 bonds with longer.
Speaker Change: Wrapping up my section on slide 11, our balance sheet at the end of the quarter leaves us in an excellent position to achieve our near term growth targets.
Speaker Change: At September 30, our liquidity was $1 3 billion and our debt to equity ratio remained at one eight times comfortably in our one and a half to two times target range.
As you can see on the chart on the right there have been no major changes to our ladder maturity profile with no significant near term maturities.
Speaker Change: And the 200 million convertible note due next year can be paid off with our revolver.
As a reminder, we expect our investment grade status to enable us to refinance our 26 and 27 bonds with longer tenors.
Mark Pangburn: We have positioned the company well to capitalize on what is a traditionally a very busy quarter at year end.
Speaker Change: We have positioned the company well to capitalize on what is a traditionally a very busy quarter at year end.
Jeff Lipson: With that, I'll pass it back to Jeff for closing remarks. Thank you, Mark. Turning to slide 12, as always, we detail various sustainability and impact items, including a top-tier sustainability assessment from S&P. the greenest specially financed designation by Newsweek. and are reaching a cumulative 8 million metric tons of annual carbon emissions avoided annually.
Speaker Change: With that I'll pass it back to Jeff for closing remarks.
Jeff: Thank you Mark.
Jeff: Turning to slide 12, as always we detailed various sustainability impact items.
Jeff: Leading a top tier sustainability assessment from S&P.
Jeff: The green, especially finance designation by Newsweek.
Jeff: And are reaching a cumulative 8 million metric tons of annual carbon emissions avoided annually.
Jeff Lipson: And finally, wrapping up on slide 13. The energy transition continues to be an extraordinary investment opportunity, providing an enormous addressable market and attractive return. ASSE remains uniquely positioned to benefit, given our experience, expertise, and recent improvements in our access and cost of capital.
And finally wrapping up on slide 13.
Jeff: The energy transition continues to be an extraordinary investment opportunity.
Jeff: Providing an enormous addressable market and attractive returns.
Jeff: I see remains uniquely positioned to benefit given our experience expertise and recent improvements in our access and cost of capital.
Jeff Lipson: I would like to thank our talent team for another outstanding quarter as we look forward to closing out another successful year in 2024.
Jeff: I would like to thank our talented team for another outstanding quarter as we look forward to closing out another successful year in 2024.
Operator: Operator, please open the line for questions. Thank you.
Speaker Change: Operator, please open the line for questions.
Speaker Change: Okay.
Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key.
Speaker Change: Thank you.
Speaker Change: We'll now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star and then one on your telephone keypad.
Speaker Change: Shang will indicate your line is in the question can you.
Speaker Change: You May press Star and then T. If you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it might be necessary to pick up your handset before pressing the star keys.
Operator: One moment please, while we poll for questions.
Speaker Change: One moment, please while we poll for questions.
Jack Hurley: The first question we have is from Jack Hurley of Mizzou Securities. Please go ahead. Hi. I just had a quick question regarding the technology partners. How big is R&G in the FTN market, relatively speaking? And can it support if there's any declines in the solar and wind market?
Speaker Change: The first question we have is from Jack Henry asked Mizuho Securities. Please go ahead.
Speaker Change: Yeah.
Jack Henry: Hi, I just had a quick question regarding their technology partners are how big is RMG in the F. T N market relatively speaking and can it support if theres any declines in the solar and wind market and then I have a one follow up if I may.
Jack Hurley: And then I have one follow-up, if I may.
Jeff Lipson: The R&G market is very large and growing, and I think there's been an acknowledgement that natural gas is going to be a big part of the energy future. So, the idea of converting, obviously, wasted gas and dairy products and landfill to renewable natural gas has become a very big business, and a lot of the large developers and even large private equity firms are making big investments in renewable natural gas. So, for a business like ours that prides itself on diversity, it can become a meaningful part of our business.
Speaker Change: The Orange market is very large and growing and I think theres been an acknowledgment that natural gas is going to be big part of the energy future.
Speaker Change: So the idea of converting obviously waste of gas and dairy products and landfill to renewable natural gas.
Speaker Change: <unk> has become a very big business and a lot of the large developers and even large private equity firms are making big investments in renewable natural gas so.
Speaker Change: For a business like ours that prides itself on diversity it because it can become a meaningful part of our business I wouldn't necessarily compare it to wind and solar from a size perspective will very likely continue to do wind solar and orangey, but I think it's it's emerging as a very large market.
Jack Hurley: I wouldn't necessarily compare it to wind and solar from a size perspective. We'll very likely continue to do wind, solar, and R&G, but I think it's emerging as a very large Thanks.
Mark Pangburn: And can you remind us of the rate hedges and the impact of rising interest rates on your earnings power, relatively speaking?
Thanks, and can you remind us of the rate hedges and the impact of rising interest rates on your earnings power relatively speaking.
Mark Pangburn: And then, if anything, you can provide regarding SunStrong for the new OEM partner, any cost savings there possible as you get a new partner on board?
Speaker Change: And then if anything you can provide regarding such strong, but the new OEM partner any cost savings there are possible as you get a new partner on board.
Speaker Change: Sure Jack Thanks, This is mark.
Mark Pangburn: This is Mark. We have implemented a few different styles of hedges on our liability portfolio, primarily either current swaps that are in place for some of our floating rate facilities, namely the TLA and the revolver. And then we also have forward starting swaps in place to hedge out base rate for the refinancing. of our future liabilities, primarily the 26. So, in terms of earnings power, the hedges that are in place today on our floating rate facilities are generally in the money and supporting earnings, and then on the forward-starting swaps, it's primarily focused around just ensuring we are maintaining a duration profile that fits more closely with the estimates.
Speaker Change: We have implemented a few different styles of hedges on our liability portfolio, primarily either our current swaps that are in place for some of our floating rate facilities, namely the T. L. A and the revolver and then we also have forward starting swaps in place to hedge out the.
Speaker Change: Base rate for the refinancing of.
Speaker Change: Our future liabilities, primarily to 'twenty six 'twenty seven.
Speaker Change: So in terms of earnings power of the hedges that are in place today on a floating rate facilities are generally in.
Speaker Change: In the money and supporting earnings and then on the forward starting swaps, it's primarily focused around just ensuring we are maintaining our duration profile that fits our more closely with the asset side by extending those 26 and 27 program.
Mark Pangburn: extending those 20 on on SunStrong.
Speaker Change: On on Sun's strong the partner that Jeff was referring to was the came in and bought the equity interests.
Jeff Lipson: The partner that Jeff was referring to was the came in and bought the equity interest. In terms of servicing the lease portfolio, the JV will continue to do that on a go forward basis and has largely transitioned away Got it.
In terms of servicing the lease portfolio. The JV will continue to do that on a on a go forward basis and has.
Speaker Change: Largely transitioned away from Sunpower.
Julian Demerlin-Smith: Thanks. The next question we have is from Julian Demerlin-Smith of Jeffreys. Please go ahead.
Speaker Change: Got it thanks.
Speaker Change: The next question, we have is from Julien Dumoulin Smith of Jefferies. Please go ahead.
Hannah: Hey, this is Hannah on for Julian. Thank you for the question. How do you all think about limiting your exposure to some of the volatility associated with the RIN credits as I understand some of these R&D projects are used for transportation offtake? I think the primary way we insulate ourselves a bit from RIN risk is that in our R&G business, we are senior debt. So we've underwritten these transactions from a cash flow and coverage perspective. And it's not that we don't have any RIN risk, but I think by being senior debt with good cash flow coverage, we have somewhat mitigated the RIN risk.
Speaker Change: Hey, this is Hannah on for Julien. Thank you for the question.
Speaker Change: Or any other portfolio, how do you all think about limiting your exposure to some of the volatility associated with the RIN credits as I understand some of these LNG projects are used for transportation offtake.
Speaker Change: I think the primary way, we insulate ourselves a bit from RIN risks is that in our RMG business. We are senior debt. So we've underwritten underwritten these transactions.
Speaker Change: From a cash flow and coverage perspective, and it's not that we don't have any RIN risk, but I think by being senior debt with good cash flow coverage.
Speaker Change: We have somewhat mitigated the risk.
Hannah: Okay, got it. Thank you.
Speaker Change: Okay got it. Thank you and then just one last question really quick I was a bit late to the call. So I don't know if you all talked at all about the KKR partnership if you announce any projects funded out of that JV or maybe Hollywood see that reflected in some of the statements. Thank you.
Mark Pangburn: And then just one last question really quick. I was a bit late to the call, so I don't know if you all talked at all about the KKR partnership, if you announced any projects funded out of that, JV, or maybe how we would see that reflected in some of the statements. Thank you. Sure, we did touch on it very briefly to say that we have, in the third quarter and early fourth quarter, added additional investments to the vehicle, and that the vehicle is operating exactly as designed and the partnership is working quite well. As the vehicle gets larger, we'll have more disclosure, but for now it remains relatively small, so there's not a lot of specific disclosures we're making just yet on the assets in the vehicle.
Speaker Change: Sure we did touch on it very briefly to say that we have in the third quarter and early fourth quarter added additional investments to the vehicle and that the vehicles operating exactly as designed in the partnership.
Speaker Change: He is working quite well as the vehicle gets larger.
Speaker Change: We'll have more disclosure, but for now it remains relatively small so there's not a lot of specific disclosures, we're making just yet.
Speaker Change: On the assets are in the vehicle.
Hannah: Sorry, thank you.
Speaker Change: Alright, thank you.
Noah Kaye: Thank you. The next question we have is from Noah Kaye of Oppenheimer & Company. Please go ahead. Hey, thanks for taking the questions. Maybe housekeeping follow-up on that last one. I think in the press release there is a line around the, I think it's $74 million held in co-investment vehicles. Is that the right number to be looking at in terms of, you know, the assets that are currently from a HASE perspective in that co-investment vehicle? That's the yes, no, that's the KKR dollar amount. That's the KKR portion of the vehicle that's disclosed in that table.
Speaker Change: Thank you.
The next question. We have is from now Okay of Oppenheimer <unk> Company. Please go ahead.
Speaker Change: Thanks for taking the questions maybe housekeeping follow up on that last one I think I think in the press release. There is all aligned around the I think its 74 million held and co investment vehicles is that the right number to be looking at in terms of you know the assets that are currently from a hashi perspective.
Speaker Change: And in that co investment vehicle.
Speaker Change: That's the yes, no that's the KKR dollar amount that's the KKR portion of the vehicle that's disclosed in that table.
Mark Pangburn: And when I said we'll have more disclosure, I just meant in terms of what, and that's the funded disclosure, there's a there's a fair amount of commitments.
Speaker Change: And when I say, we will have more disclosure I just meant in terms of what.
Speaker Change: And that's the funded disclosure, there's a there's a fair amount of commitments.
Mark Pangburn: and CCH1 have not been funded yet, so I'll make that clarification as well. And when I say we'll have more disclosure, we might have a, you know, more descriptive rather than just a balance there over time. That's what I meant in the presentation. All right, thank you.
Speaker Change: N C C H, one they've not been funded yet so I'll make that clarification as well.
Speaker Change: Oh, when I said, well have more disclosure who might have a you know more descriptive.
Speaker Change: Descriptive rather than just a balance there over time, that's what I mentioned in the previous question.
Mark Pangburn: Just pointing out that that gives us a starting point. So to reiterate $2 billion of originations for the year, given the year to date, just talk to us about the visibility to doing roughly $700 million this quarter. Were you able to get a substantial portion of that done already? What's sort of the confidence level there?
Speaker Change: Alright, Thank you that theyre, just pointing out that that gives us a starting point.
Speaker Change: So to reiterate 2 billion of originations for the year given the year to date I'm just talk to us about the visibility to doing well at roughly 700 million. This quarter were you able to get a substantial portion of that done already.
Speaker Change: You know, what what's what's sort of the confidence level there.
Jeff Lipson: It was in the very early moments of my script, you may have missed it, but I did say that we're at $1.7 billion as of today. So we did have quite an active October and early part of November, so I think we have very good visibility on closing out the rest of that amount to get to $2 billion. Okay, excellent.
Speaker Change: Sure. It was in the very early moments of my script, who may have missed it but I did say that we're that we're at a 1 billion seven as of today. So we did have quite an active October and in early part of November. So I think we have very good news.
Speaker Change: <unk> ability on closing out the rest of that amount to get to $2 billion.
Mark Pangburn: And then I guess the last one, you know, I think the previous question touching on the refi, just to unpack it a little bit further, now that you have investment grade, you know, credit rating, you know, we are seeing that showing up, you know, in the bonds here, but, you know, certainly as we see, you know, some of the movements around the yield curve and longer term notes go a bit higher, how does that change your thinking at all about, you know, managing, you know, asset versus liability duration risk, and the timing of when you might go to market around the refi?
Speaker Change: Okay excellent.
Speaker Change: And then I guess the the last one.
Speaker Change: I think the previous question touching on on the refi just to unpack it a little bit further now that you have investment grade credit rating and we are seeing that showing up you know in the bonds here, but you know certainly as we see you know some of the movements around the yield curve and.
Speaker Change: And longer term notes go a bit higher.
Speaker Change: How does that change your thinking at all about you know managing you know asset versus liability duration risk and the timing of when you might go to market around a refi.
Speaker Change: Yeah.
Mark Pangburn: Sure. Thanks, Noah, Mark. The fact that the long end of the curve might be moving around doesn't necessarily change our approach to I think we've mentioned this a few times, but we generally focus on a duration approach. where our asset cash flows generally fall. 10 years of code. So we like it. yield market at shorter ten Attaching the forward So our goal is to minimize the impacts of those services.
Speaker Change: Okay.
Speaker Change: Sure. Thanks, Noah spark.
Speaker Change: It.
Speaker Change: The fact that the long end of the curve might be moving around doesn't necessarily change our approach to managing interest rate risk. What we I think we've mentioned this a few times, but we generally focus on a duration approach.
Speaker Change: Where our asset cash flows generally fall in the.
Speaker Change: 10 years of code. So we like to focus on either issuing 10 year bond or when we were in the high yield market had shorter tenors.
Speaker Change: These forward starting swaps to extend that duration. So our goal is to minimize.
Speaker Change: The impacts of those curve movements on it.
Jeff Lipson: And then on the front end side of that, it's This is Jeff Doherty. focusing on that. In terms of timing for the market, that's less around movements. rate curve and more focused. Our liquidity, and of course, we have a sizable revolver. Right.
Speaker Change: And then on the front end side of that as Jeff already talked about focusing on that T plus investing approach of investing at T plus.
On average five.
Speaker Change: In terms of timing for the market that's less around movements.
Speaker Change: On the rate curve and more focused on managing our liquidity and of course, we have a sizable revolver, which gives us flexibility to go to market. When the market is relatively attractive so it's more of an opportunity.
Noah Kaye: Maybe just sneak one more, and I apologize, because I think, you know, for some folks, it's been a number of quarters since we actually saw a gap equity method loss. I think the last one was 4Q22.
Speaker Change: Right, maybe just sneak one more in I apologize because I think you know for some folks had spend a number of quarters. Since we actually saw our GAAP equity method loss I think the last time was for Q 'twenty. Two so just just for all of our benefits. The simple answer here is that the projects.
Mark Pangburn: So just for all of our benefits, the simple answer here is that the projects should be worth more because power prices have gone up, but, you know, the contracts don't reflect that yet. They have to recontract, and so there'll be more revenue later on, but you have to mark it as a loss from an HLBV method, right? So essentially, the assets you're invested in are now more valuable. Is that a fair way to think about it?
Speaker Change: It should be worth more because power prices have gone up but you know the contracts don't reflect that yet they havent. After re contracting so there'll be more revenue later on but you have to market as a loss from an H L. B B method right. So essentially yes.
Speaker Change: Assets have you invested in and are now more valuable is that a fair way to think about it.
Speaker Change: Yeah.
Mark Pangburn: Yes, the power contracts are essentially treated like Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: Yeah. The hour contract are essentially treated like hedges and our mark to market, whereas the actual underlying asset projects or not.
Operator: Thank you all for joining us today. Appreciate the clarification. Thank you. Thanks a lot.
Speaker Change: And so those assets will realize the benefit of higher power prices over time, whereas in the contracts are mark to market and flow through in the period.
Speaker Change: Great I appreciate the clarification. Thank you.
Nina: Thank you thanks Nina.
Operator: Ladies and gentlemen, just a final reminder, if you would like to ask a question, you're welcome to press star and then 1. We will pause a moment if you have any further questions.
Ladies and gentlemen, just a final reminder, if he would like to ask a question Youre welcome to pay Star then one.
We will post amendment to have any further questions.
Tyler bisset: We have a question from Brian Lee of Goldman Sachs. Please go ahead.
Nina: We have a question from Brian Lee of Goldman Sachs. Please go ahead.
Tyler bisset: Hey guys, this is Tyler Bisset on for Bryan. Thanks for taking our question. I have just one question on the pipeline. You got, it looks like you had a strong shift towards grid connected and a shift away from DTM. Anything to call out on driving that?
Speaker Change: Hey, guys. This is Tyler bisset on for Brian. Thanks for taking my question.
Speaker Change: And just one question on the pipeline you've got it looks like you had a strong shift towards grid connected.
Speaker Change: The shift away from D T M and.
Speaker Change: Anything to call out on driving that.
Mark Pangburn: Not really.
Mark Pangburn: You know, the pipeline can get a little lumpy, particularly on the grid connected side as we typically look at some larger transactions there. So some quarter to quarter movements. between BTM and grid connectives should not necessarily be interpreted as a long-term theme. I don't think there's really much of anything to read in there.
Not really a you know the pipeline can get a little lumpy, particularly on the grid connected side as we.
Speaker Change: Typically looked at some larger transactions there so some quarter to quarter movements.
Speaker Change: Between B T M and grid connect is should not necessarily be interpreted as a long term theme I don't I don't think there's really much of anything to read in there.
Mark Pangburn: All right, thank you.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Operator: At this time, there are no further questions, and with that, this concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Speaker Change: At this time there are no further questions and with that this concludes today's conference. Thank you for joining US you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Uh-huh.
Speaker Change: [music].
Speaker Change: Uh huh.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
[music].
Speaker Change: Uh huh.
Speaker Change: Yeah.