INTRODUCTION
--------------------------------------------------------------------------------
Overview
MMA Capital Holdings, Inc. focuses on infrastructure-related investments that
generate positive environmental and social impacts and deliver attractive
risk-adjusted total returns to our shareholders, with an emphasis on debt
associated with renewable energy projects and infrastructure. Unless the context
otherwise requires, and when used in this Report, the "Company," "MMA," "we,"
"our" or "us" refers to MMA Capital Holdings, Inc. and its subsidiaries. We
were originally organized as a Delaware limited liability company in 1996,
converted to a Delaware corporation on January 1, 2019 and are externally
managed by Hunt Investment Management, LLC (our "External Manager"), an
affiliate of Hunt Companies, Inc. (Hunt Companies, Inc. and its affiliates are
hereinafter referred to as "Hunt").
Our current objective is to produce attractive risk-adjusted returns by
investing in the large, growing and fragmented renewable energy market in the
United States ("U.S."). We believe that we are well positioned to take advantage
of these investment opportunities because of our External Manager's origination
network built off of extensive relationships and credit expertise gathered
through years of experience. We also seek to increase the Company's return on
equity by prudently deploying debt and recycling equity out of lower yielding
investments that are unrelated to renewable energy.
In addition to renewable energy investments, we continue to own a limited number
of bond investments and real estate-related investments, as well as have
subordinated debt with beneficial economic terms. Further, we have significant
net operating loss carryforwards ("NOLs") that may be used to offset future
federal income tax obligations, a portion of which were reported as deferred tax
assets ("DTAs") in our Consolidated Balance Sheets at March 31, 2020 and
December 31, 2019. Effective December 31, 2019, we no longer organize our assets
and liabilities into discrete portfolios (in each Quarterly Report on Form 10-Q
that was filed in 2019, assets and liabilities of the Company were allocated to
one of two portfolios, "Energy Capital" and "Other Assets and Liabilities").
We operate as a single reporting segment.
COVID-19 and Related Business Impacts
General
In December 2019, a novel coronavirus ("COVID-19") was reported to have surfaced
in Wuhan, China. Following its spread to over 100 countries, including the U.S.,
the World Health Organization declared a global pandemic on March 11, 2020. On
March 13, 2020, the U.S. declared a national emergency with respect to COVID-19.
In many countries, including the U.S., the outbreak of COVID-19 has adversely
impacted overall economic activity and contributed to significant volatility and
negative pressure in financial markets. The global impact of the outbreak is
rapidly evolving and many countries, including the U.S., have instituted
quarantines, business closures, governmental agency closures and restrictions on
travel to contain COVID-19.
The long-term impact of COVID-19 on our operational and financial performance
will depend on future developments, including the duration, spread and intensity
of COVID-19, all of which are uncertain and difficult to predict. Due to the
speed with which the situation is developing, we are not able at this time to
estimate the long-term effects of these factors on our business, but the adverse
impact on our business, results of operations, financial condition and cash
flows could be material. Given such uncertainty, we have updated the risk
factors included in our 2019 Annual Report to reflect risks posed by COVID-19.
Refer to Part II, Item 1A. "Risk Factors" of this Report for additional
information.
5
Table of Contents
Business Operations
We are managed by our External Manager. We also rely upon other third-party
vendors to conduct business operations, including vendors that provide
information technology services, legal and accounting services or other support
services.
Through May 4, 2020, there were no disruptions to the services provided by the
External Manager and support provided by other third parties in connection with
our business operations.
Renewable Energy Investments
Through May 4, 2020, the construction and development of renewable energy
projects that have been financed through loans made by the Solar Ventures (as
defined below) were generally on schedule as the development and construction of
such projects qualified as critical infrastructure or essential
services. Furthermore, most of the unpaid principal balances associated with the
Solar Ventures' loans related to projects that are located in rural and less
populated areas allowing for required social distancing. While we have not
encountered any significant supply chain issues to date due to COVID-19, the
shutdown of manufacturing plants in China in January and February had a minor
impact on delivery schedules to certain renewable energy projects financed by
the Solar Ventures. Although production levels in China have subsequently
returned to near normal levels, supplies were also sourced during the first
quarter of 2020 from other countries, such as Mexico and India, where production
levels were not consequentially impacted by COVID-19.
At May 4, 2020, all loans made by the Solar Ventures were assessed to be
adequately secured and were currently expected to be repaid in full. In most
cases, the repayment of the Solar Venture loans, or their "take-out," is
dependent upon the refinancing of a given loan or the sale of an underlying
renewable energy project to third-parties, both of which typically require some
combination of tax credit equity, sponsor equity and construction or permanent
debt financing. Given deteriorating macro-economic conditions, uncertainty in
the financial markets and our dependence on a functioning renewable energy
finance market, we will continue to closely monitor loan performance and
expected sources of repayment.
Given adverse economic and market conditions that stemmed from COVID-19,
origination volumes at the Solar Ventures between April 1, 2020, and May 4,
2020, declined compared to the volume of loans originated by the Solar Ventures
during the same timeframes in 2019. Disruption to origination activities at the
Solar Ventures is not expected to be long term.
Market yields associated with certain funded loans at the Solar Ventures
increased in the first quarter of 2020 as credit spreads widened given
deteriorating economic conditions. As a result, the fair value of the loan
portfolio of the Solar Ventures, particularly those loans with longer remaining
terms than average and without take-out financing commitments, declined during
such reporting period by $9.0 million, or 1.2%, of outstanding unpaid principal
balance ("UPB") of the loan portfolio at March 31, 2020. The Company recognized
its share of such unrealized losses ($4.0 million) and other components of net
income of the Solar Ventures in the first quarter of 2020. Given performance
expectations and the short tenor of loans at the Solar Ventures, we currently
expect these unrealized loan losses to reverse over time upon the repayment of
such loans. Nonetheless, the measurement of fair value of the loan portfolio of
the Solar Ventures in future reporting periods is expected to remain volatile
until market conditions moderate.
DTAs
The Company's assessment of the likelihood of realizing tax benefits related to
DTAs recognized in the fourth quarter of 2019 did not change in the first
quarter of 2020. That is, while COVID-19 caused a sharp deterioration in
macro-economic conditions, the potential amount and permanence of long-term
impacts of those conditions on the Company's business was uncertain at March 31,
2020. Consequently, the Company did not make an adjustment in the first
quarter of 2020 to the carrying value of DTAs that were recognized at December
31, 2019. However, given such uncertainty, we believe it is reasonably possible
that, within the next 12 months, a reduction to the carrying value of recognized
DTAs that is material to the Company's financial statements could be recognized.
However, the exact timing and amount of loss recognition depends upon future
circumstances and, therefore, cannot be predicted at this time.
6
Table of Contents
In the first quarter of 2020, the Company recognized a $1.7 million increase in
the carrying value of recognized DTAs due to incremental tax benefits stemming
from the recognition of a $3.5 million comprehensive loss during such reporting
period. Refer to the comparative discussion of our Consolidated Results of
Operations for more information about the Company's results in the first quarter
of 2020.
Other Investments and Hedging Instruments
Market yields associated with the Company's bond investments generally increased
in the first quarter of 2020 given deteriorating conditions associated with the
economy. Consequently, the Company recognized $1.8 million of net unrealized
fair value losses in the first quarter associated with such investments. Changes
in the fair value of these investments are expected to remain volatile until
market conditions moderate.
Given decreases in benchmark interest rates that generally stemmed from actions
taken by central banks to stem the tide of the economic downturn, the fair value
of interest rate hedge positions of the Company decreased by $2.8 million in the
first quarter of 2020 while, given its terms, the Company's foreign exchange
hedge position increased by $1.1 million. Changes in the fair value of these
instruments are expected to remain volatile until market conditions moderate.
The Company's real estate-related investments are accounted for at cost, in the
case of our one land investment, or follow the equity method of accounting, in
the case of our equity investments in unconsolidated funds or ventures. None of
such investments were assessed to be other-than-temporarily impaired at March
31, 2020. However, with respect to the Company's 80% ownership interest in a
joint venture that owns a mixed-use town center development and undeveloped land
parcels and whose incremental tax revenues secure our Infrastructure Bond
(hereinafter, the "SF Venture"), the downturn in the economy that stems from
COVID-19 could impair the underlying real estate value. In this regard, we
anticipate that we will continue to recognize equity in losses from the SF
Venture related to our equity investment and that such losses may increase,
possibly significantly, as the SF Venture consists of hotel tenants, retail
tenants and undeveloped land parcels. However, the severity and duration of
expected losses cannot be currently quantified due to uncertainty about the
duration of COVID-19 and restrictions on business openings and operations.
Nonetheless, we believe that it is reasonably possible that, within the next 12
months, a loss that is material to the Company's financial statements could be
recognized due to the residual economic effects of the measures taken to combat
COVID-19, which could weigh on the performance of the development and underlying
real estate value. However, the exact timing and amount of loss recognition is
based upon future circumstances and, therefore, cannot be predicted at this
time.
Liquidity and Capital Resources
The Company is committed to make additional capital contributions to certain of
its investments in partnerships and ventures. Through May 4, 2020, the Company
has honored all such commitments and we believe that we will continue to do so
as these commitments arise.
Through May 4, 2020, the Company was in compliance with all its debt covenants.
Renewable Energy Investments
We invest in loans that finance renewable energy projects to enable developers,
design and build contractors and system owners to develop, build and operate
renewable energy systems throughout the U.S. Renewable energy debt in which we
invest is primarily structured as senior secured fixed rate loans that are made
through joint ventures or directly on our balance sheet. These loans, which are
generally short term in nature, are typically made to borrowers when they are in
the late stages of development or construction of their commercial, utility and
community solar scale photovoltaic ("PV") facilities that are located across
different states and benefit from various state and federal regulatory programs.
The short duration of loans in which we invest also helps us to efficiently
manage interest rate risk, mitigate long-term risks such as credit exposure to
off-take counterparties and provide us flexibility to target investments.
We generally invest in renewable energy investments through the following joint
ventures: Solar Construction Lending, LLC ("SCL"); Solar Permanent Lending, LLC
("SPL"); Solar Development Lending, LLC ("SDL"); these joint ventures together
with our wholly owned subsidiary, Renewable Energy Lending, LLC ("REL"), are
hereinafter referred to as the
7
Table of Contents
"Solar Ventures." We are a 50% investor member in the renewable energy joint
ventures in which we invest though, on occasion, we may periodically become a
minority investor as a result of non-pro rata capital contributions made by our
capital partner pursuant to non-pro rata funding agreements between our capital
partner and us. At March 31, 2020, we were a minority investor in SDL and SCL
with a 44.5% interest in such ventures.
Lending Activities of the Solar Ventures
The Solar Ventures typically lend on a senior secured basis collateralized by
solar projects, but may also invest in subordinated loans and revolving loans
and may finance non-solar renewable technologies such as wind and battery
storage, or provide equipment financing and other customized debt solutions for
borrowers. The Solar Ventures have historically targeted loans that are
underwritten to generate internal rates of return ("IRR") ranging from 10% to
15%, before expenses, with origination fees that range from 1.0% to 3.0% on
committed capital and fixed-rate coupons that range from 7.0% to 14.0%. These
loans generally range in size from $2 million to over $50 million.
Since their inception in 2015, the Solar Ventures have invested in more than 180
project-based loans that total $2.6 billion of debt commitments for the
development and construction of over 660 renewable energy project sites. When
completed, these projects will contribute to the generation of over 6.2
gigawatts of renewable energy, thereby eliminating approximately 178 million
metric tons of carbon emissions over their project lives. The Solar Ventures
closed $287.1 million of commitments across 11 loans during the first quarter
of 2020 as compared to $210.0 million and 18 loans during the fourth quarter
of 2019.
Through March 31, 2020, $1.5 billion of commitments across 121 project-based
loans had been repaid with no loss of principal, resulting in a weighted-average
IRR ("WAIRR") of 17.0% that was on average higher than originally underwritten
loan IRRs. Additionally, for the three months ended March 31, 2020, 10 loans
totaling $207.1 million of commitments had been repaid, resulting in a WAIRR of
16.1%. WAIRR is measured as the total return in dollars of all repaid loans
divided by the total commitment amount associated with such loans, where (i) the
total return for each repaid loan was calculated as the product of each loan's
IRR and its commitment amount and (ii) IRR for each repaid loan was established
by solving for a discount rate that made the net present value of all loan cash
flows equal zero. WAIRR has been higher than the net return on the Company's
investments in the Solar Ventures because it is a measure of gross returns
earned by the Solar Ventures on repaid loans and does not include the impact of
certain items, including: (i) operating expenses of the Solar Ventures; (ii) the
amortization of the purchase premium paid by the Company in the second quarter
of 2018 to buyout our former investment partner's interest in REL; and (iii) the
opportunity cost of idle capital.
At March 31, 2020, loans funded through the Solar Ventures had an aggregate
UPB of $745.8 million and total fair value ("FV") of $736.8 million or 98.8% of
UPB, a weighted-average remaining maturity of eight months and a
weighted-average coupon of 9.7%. At December 31, 2019, loans funded through the
Solar Ventures had an aggregate UPB and total fair value of $654.4 million, a
weighted-average maturity of 10 months and a weighted-average coupon of 10.8%.
Table 1 provides financial information about the composition of the Solar
Ventures' loan portfolio at March 31, 2020 and December 31, 2019.
Table 1: Composition of the Solar Venture's Loan Portfolio
At At
March 31, December 31,
(in thousands) 2020 2019
Late-stage development $ 224,901 $ 298,609
Construction 484,180 321,809
Permanent 8,960 23,597
Other loans associated with renewable energy 27,715 10,345
Total UPB $ 745,756 $ 654,360
8
Table of Contents
The Solar Ventures had $435.0 million of unfunded loan commitments that required
borrowers to meet various conditions set forth in governing loan agreements in
order for funding to occur. At March 31, 2020, $217.9 million of such
commitments were attributable to the Company based upon its interest in these
ventures. Unfunded loan commitments that qualify for funding are anticipated to
be funded primarily by capital within the Solar Ventures through a combination
of existing loan redemptions and idle capital. To the extent capital within the
Solar Ventures is not sufficient to meet their funding obligations, additional
capital contributions by the members of the Solar Ventures would be required.
Investment Interests and Related Carrying Values
The carrying value and income-related information related to investments that we
have made in, or related to, the Solar Ventures are further discussed below.
During the first quarter of 2020, the Company and our capital partner in SDL and
SCL executed various non-pro rata funding agreements pursuant to which our
capital partner contributed $36.5 million of $83.0 million in SDL capital calls
and $61.0 million of $97.5 million in SCL capital calls, while the Company
contributed the balance. In addition, our capital partner in SDL and SCL
received distributions of $32.0 million and $37.5 million, respectively, while
the Company received $15.0 million and $10.5 million, respectively. As a
consequence of these non-pro rata capital contributions and distributions during
the first quarter of 2020, our ownership interest in SDL and SCL increased in
percentage terms from December 31, 2019. At March 31, 2020, through MMA Energy
Holdings, LLC, the Company held ownership interests of 44.5%, 50.0%, 44.5% and
100% in SCL, SPL, SDL and REL, respectively.
In addition to investments in the Solar Ventures, in the fourth quarter of 2019,
the Company invested in a loan originated by our External Manager with a $2.1
million commitment made to a special purpose entity that is secured by land,
which is subject to a 25-year ground lease to a community solar project, and by
the equity interests in the borrower. The UPB and fair value of this loan, which
bears interest at a fixed rate of 8.0% and matures in December 2022, was $1.3
million at March 31, 2020.
Table 2 provides financial information about the carrying value of the
Company's renewable energy investments at March 31, 2020 and December 31, 2019.
Table 2: Carrying Values of the Company's Renewable Energy Investments
At At
March 31, December 31,
(in thousands) 2020 2019
Equity investments in the Solar Ventures $ 344,601 $ 289,123
Loan receivable 1,271 500
Total carrying value $ 345,872 $ 289,623The carrying value of the Company's equity investments in the Solar Ventures
increased $55.5 million during the three months ended March 31, 2020 as a
result of $51.0 million of net capital contributions made, which were sourced
primarily from the $53.6 million repayment of the secured loan receivable from
Hunt. Such increase was also driven in part by $4.5 million of equity in income
in the Solar Ventures that was recognized during the three months of March 31,
2020.
Investment Income and Return on Investment
The Company applies the equity method of accounting to its equity investments in
the Solar Ventures, which are not consolidated by the Company for reporting
purposes. Accordingly, the Company recognizes its allocable share of the Solar
Ventures' net income based on the Company's weighted-average percentage
ownership during each reporting period. Separately, the Company recognizes
interest income associated with the aforementioned loan using the interest
method.
Table 3 summarizes income recognized by the Company in connection with our
renewable energy investments for the periods presented.
9
Table of Contents
Table 3: Income Recognized from Renewable Energy Investments
For the three months ended
March 31,
(in thousands) 2020 2019
Equity in income from the Solar Ventures $ 4,542 $ 3,720
Interest income 19 -
Net losses on loans (9) -
Total investment income $ 4,552 $ 3,720Equity in income from the Solar Ventures recognized by the Company in the first
quarter of 2020 included its allocable share, or $4.0 million, of $9.0 million
of net fair value losses that were recognized by the Solar Ventures related to
its loan portfolio. The Company generated an unlevered net return on investment
from our renewable energy investments, as measured on an annualized twelve-month
trailing basis, of 10.4% and 9.3% for the three months ended March 31, 2020 and
March 31, 2019, respectively. These returns were measured by dividing total
investment income from renewable energy investments by the average carrying
value of renewable energy investments on a trailing four quarter basis.
Refer to the comparative discussion of our Consolidated Results of Operations
for more information about income that was recognized in connection with the
Company's renewable energy investments.
Leveraging our Renewable Energy Investments
On September 19, 2019, MMA Energy Holdings, LLC ("MEH" or "Borrower"), a wholly
owned subsidiary of the Company, entered into a $125.0 million (the "Facility
Amount") revolving credit agreement with various lenders. During the first
quarter of 2020, the maximum Facility Amount was increased to $175.0 million and
the committed amount of the revolving credit facility increased from $100.0
million to $120.0 million upon the joinder of an additional lender and an
increase in commitment by one of the existing lenders.
Obligations associated with the revolving credit facility are guaranteed by the
Company and are secured by specified assets of the Borrower and a pledge of all
of the Company's equity interest in the Borrower through pledge and security
documentation. Availability and amounts advanced under the revolving credit
facility, which may be used for various business purposes, are subject to
compliance with a borrowing base comprised of assets that comply with certain
eligibility criteria, and includes late-stage development, construction and
permanent loans to finance renewable energy projects and cash.
Borrowing on the revolving credit facility bears interest at the one-month
London Interbank Offered Rate ("LIBOR"), adjusted for statutory reserve
requirements (subject to a 1.5% floor), plus a fixed spread of 2.75% per annum.
The Borrower has also agreed to pay certain customary fees and expenses and to
provide certain indemnities. In certain circumstances where the interest rate is
unable to be determined, including in the event LIBOR ceases to be published,
the administrative agent to the credit agreement will select a new rate in its
reasonable judgment, including any adjustment to the replacement rate to reflect
a different credit spread. The maturity date of the credit agreement is
September 19, 2022, subject to a 12-month extension solely to allow refinancing
or orderly repayment of the facility.
At March 31, 2020, the UPB and carrying value of amounts borrowed under the
revolving credit facility was $120.0 million and the Company recognized $1.3
million of related interest expense in the Consolidated Statements of Operations
during the three months ended March 31, 2020.
The liquidity accessed by the Company through the revolving credit
facility has increased the amount of capital invested in the Solar Ventures.
10
Table of Contents
Deferred Tax Assets
Deferred taxes arise from differences between assets and liabilities measured
for financial reporting versus income tax return purposes. DTAs are recognized
if we assess that it is more likely than not that tax benefits, including NOLs
and other tax attributes, will be realized prior to their expiration.
At March 31, 2020, the reported carrying value of the Company's net DTA was
$59.4 million. A valuation allowance was also maintained at such reporting date
against the portion of our DTAs that correspond to federal and state NOL
carryforwards that we expected will expire prior to utilization based upon our
forecast of pretax book income.
Investments in Bonds
The Company has one unencumbered tax-exempt municipal bond that financed the
development of infrastructure for a mixed-use town center development in Spanish
Fort, Alabama and is secured by incremental tax revenues generated from the
development (this investment is hereinafter referred to as our "Infrastructure
Bond"). At March 31, 2020, the Infrastructure Bond had a stated fixed interest
rate of 6.3% and had a UPB and fair value of $26.9 million and $23.5 million,
respectively.
At March 31, 2020, we also held one subordinate unencumbered tax-exempt
multifamily bond investment with a UPB and fair value of $4.0 million and $6.1
million, respectively.
Real Estate-Related Investments
At March 31, 2020, we were an equity partner in a real estate-related investment
with an 80% ownership interest in the SF Venture. The carrying value of this
investment was $19.2 million at March 31, 2020.
At March 31, 2020, the Company maintained an 11.85% ownership interest in the
South Africa Workforce Housing Fund ("SAWHF"). SAWHF is a multi-investor fund
whose term matured in April 2020. However, the fund does not anticipate fully
exiting all its remaining investments until December 31, 2021. The carrying
value of the Company's investment in SAWHF was $4.8 million at March 31, 2020.
At March 31, 2020, we also owned one direct investment in real estate consisting
of a parcel of land that is currently in the process of development. This real
estate is located just outside the city of Winchester in Frederick County,
Virginia. On January 15, 2020, the Company invested $5.9 million in additional
land improvements that were capitalized, increasing the carrying value of our
investment. As of March 31, 2020, the carrying value of this investment was
$14.3 million.
Debt Obligations
At March 31, 2020, the Company's nonrenewable energy debt obligations included
the subordinated debt, notes payable and other debt used to finance the
Company's 11.85% ownership interest in SAWHF, and debt obligations to the
Morrison Grove Management, LLC ("MGM") principals.
The carrying value and weighted-average yield of the Company's nonrenewable
energy debt obligations was $103.7 million and 3.7%, respectively, at March 31,
2020. Refer to Table 9, "Debt," for more information.
11
Table of Contents
SUMMARY OF FINANCIAL PERFORMANCE
Net Worth
Common shareholders' equity ("Book Value") decreased $3.5 million in the first
quarter of 2020 to $277.7 million at March 31, 2020. This change was driven by
$3.5 million of comprehensive loss.
Book Value per share decreased $0.61, or 1.3%, in the first quarter of 2020 to
$47.82 at March 31, 2020.
Book Value adjusted to exclude the carrying value of our net DTAs ("Adjusted
Book Value") decreased $5.1 million in the first quarter of 2020 to $218.3
million at March 31, 2020. This change was driven by $4.2 million of Net loss
from continuing operations before income taxes and $0.9 million of other
decreases in Book Value.
Adjusted Book Value per share decreased $0.90, or 2.3%, in the first quarter of
2020 to $37.59 at March 31, 2020.
Refer to "Use of Non-GAAP Measures" for more information regarding the
reconciliation of Adjusted Book Value and Adjusted Book Value per share to our
most comparable GAAP measures.
Comprehensive Loss
We recognized a comprehensive loss of $3.5 million during the first quarter of
2020, which consisted of $3.1 million of net loss and $0.4 million of other
comprehensive loss. In comparison, we recognized $0.2 million of comprehensive
loss in the quarter ended March 31, 2019, which consisted of $2.9 million of net
income and $3.1 million of other comprehensive loss.
The $3.1 million net loss recognized in the first quarter of 2020 was primarily
driven by $5.7 million of net fair value losses that were recognized in
connection with derivative instruments and the Company's interests in loans of
the Solar Ventures. Refer to "Consolidated Results of Operations," for more
information.
Net loss from continuing operations before income taxes in the first quarter of
2020 was $4.2 million, or $0.73 per share, as compared to $2.9 million net
income in the first quarter of 2019.
Other comprehensive loss of $0.4 million that we reported in the first quarter
of 2020 was primarily attributable to net fair value losses that we recognized
in connection with our bond investments.
12
Table of Contents
CONSOLIDATED BALANCE SHEET ANALYSIS
This section provides an overview of changes in our assets, liabilities and
equity and should be read together with our consolidated financial statements,
including the accompanying notes to the financial statements.
Table 4 provides Consolidated Balance Sheets for the periods presented.
Table 4: Consolidated Balance Sheets
© Edgar Online, source Glimpses
MMA CAPITAL HOLDINGS, INC. 
