Item 1.01 Entry into a Material Definitive Agreement.
Underwriting Agreement
On August 18, 2020, Hannon Armstrong Sustainable Infrastructure Capital, Inc.
(the "Company") entered into an underwriting agreement (the "Underwriting
Agreement") with Morgan Stanley & Co. LLC, as representative of the several
underwriters named in Schedule A thereto (the "Underwriters"), in connection
with the offer and sale by the Company to the Underwriters of $125,000,000
aggregate principal amount of its 0% Convertible Senior Notes due 2023 (the
"Base Notes"). Pursuant to the Underwriting Agreement, the Underwriters were
granted the option to purchase within 30 days of August 18, 2020 up to an
additional $18,750,000 aggregate principal amount of such notes from the Company
(the "Additional Notes," and together with the Base Notes, the "Notes"), solely
to cover over-allotments, which was exercised in full prior to the closing of
the offering on August 21, 2021. The Underwriting Agreement contained customary
representations, warranties and agreements of the Company, conditions to
closing, indemnification rights and obligations of the parties and termination
provisions.
The Company believes the Notes meet the environmental eligibility criteria for
green bonds as defined by the International Capital Market Association's Green
Bond Principles. The public offering generated net proceeds of approximately
$139.9 million, after deducting the underwriting discount and estimated offering
expenses. The Company intends to contribute the net proceeds to Hannon Armstrong
Sustainable Infrastructure, L.P. (the "Operating Partnership"), its operating
partnership subsidiary, in exchange for the issuance by the Operating
Partnership of a senior unsecured note (the "Mirror Note") with terms that are
substantially equivalent to the terms of the Notes. The Operating Partnership
intends to utilize the net proceeds of this offering to acquire or refinance, in
whole or in part, eligible green projects, which include assets that are neutral
to negative on incremental carbon emissions. In addition, these projects may
include projects with disbursements made during the twelve months preceding the
issue date of the Notes and those with disbursements to be made following the
issue date. Prior to the full investment of such net proceeds, the Company
intends to invest such net proceeds in interest-bearing accounts and short-term,
interest-bearing securities which are consistent with the Company's intention to
continue to qualify for taxation as a real estate investment trust.
The Notes were issued under an indenture (the "Base Indenture"), dated as of
August 22, 2017, between the Company and U.S. Bank National Association, as
trustee (the "Trustee"), as supplemented by a supplemental indenture, dated as
of August 21, 2020, between the Company and the Trustee (the "Supplemental
Indenture" and, together with the Base Indenture, the "Indenture").
The Notes will not bear regular interest, and the principal amount of the Notes
will not accrete. The Company may be required to pay special interest on the
Notes upon an event of default ("special interest"). The Notes will mature on
August 15, 2023 (the "Maturity Date"), unless earlier repurchased, redeemed or
converted.
If the Company undergoes a "fundamental change" (as defined in the Indenture)
involving the Company, subject to certain conditions, holders of the Notes may
require the Company to repurchase for cash all or parts of such holders' Notes.
The fundamental change repurchase price for the Notes generally will be equal to
100% of the principal amount of the Notes to be repurchased, plus accrued and
unpaid special interest, if any, to, but excluding, the fundamental change
repurchase date. Holders of the Notes may convert any of their Notes into shares
of the Company's common stock, par value $0.01 per share (the "Common Stock"),
at the applicable conversion rate at any time prior to the close of business on
the second scheduled trading day immediately preceding the Maturity Date, unless
the Notes have been previously redeemed or repurchased by the Company. Following
the occurrence of a make-whole fundamental change, the Company will, in certain
circumstances, increase the conversion rate for a holder that converts its Notes
in connection with such make-whole fundamental change.
Any conversion of Notes into shares of Common Stock will be subject to certain
ownership limitations (as more fully described in the Indenture). The initial
conversion rate for each $1,000 aggregate principal amount of the Notes is
20.6779 shares of Common Stock, equivalent to a conversion price of
approximately $48.36 per share of Common Stock, which is approximately a 27.5%
premium to the closing price of the Common Stock on August 18, 2020. The
conversion rate is subject to adjustment in certain circumstances.
The Company may redeem the Notes prior to August 15, 2023, to the extent the
Company's board of directors determines such redemption is reasonably necessary
to preserve its qualification as a real estate investment trust ("REIT") for
U.S. federal income tax purposes. If the Company determines that redeeming the
Notes is necessary to preserve its qualification as a REIT, then it may at any
time prior to maturity redeem all or part (in a principal amount that is
integral multiple of $1,000) of the Notes at a cash redemption price equal to
the principal amount of the Notes to be redeemed, plus accrued and unpaid
special interest, if any, to, but excluding, the redemption date.
Except as described in the Indenture, if an event of default with respect to the
Notes occurs, holders of the Notes may, upon satisfaction of certain conditions,
accelerate the principal amount of the Notes plus accrued and unpaid special
interest, if any. In addition, the principal amount of the Notes plus accrued
and unpaid special interest, if any, will automatically become due and payable
in the case of certain types of bankruptcy or insolvency or events of default
involving the Company.
The Notes are the senior unsecured obligations of the Company and rank (i)
senior in right of payment to any indebtedness the Company may have that is
expressly subordinated in right of payment to the Notes; (ii) equal in right of
payment to the Company's existing and future unsecured indebtedness that is not
so subordinated; (iii) effectively junior in right of payment to any of the
Company's existing and future secured indebtedness, to the extent of the value
of the assets securing such indebtedness; and (iv) structurally junior to all
existing and future indebtedness (including trade payables) and any future
preferred equity interests of the Company's subsidiaries as well as to any of
the Company's existing or future indebtedness that may be guaranteed by any of
the Company's subsidiaries (to the extent of any such guarantee), except for the
unsecured and unsubordinated indebtedness of the Operating Partnership with
which the Notes will rank equal in right of payment, including but not limited
to the Mirror Note.
The preceding description is qualified in its entirety by reference to the
Underwriting Agreement and the Supplemental Indenture, copies of which are
attached as Exhibits 1.1 and 4.1, respectively, to this Current Report on
Form 8-K and are incorporated herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an
Off-Balance Sheet Arrangement of a Registrant.
The information required by this Item 2.03 relating to the Notes and the
Indenture is contained in Item 1.01 above and is incorporated herein by
reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
No. Description
1.1 Underwriting Agreement, dated August 18, 2020, by and among the
Company and Morgan Stanley & Co. LLC, as representative of the several
underwriters named therein
4.1 Second Supplemental Indenture, dated as of August 21, 2020, between
the Company and U.S. Bank National Association, as Trustee (including
the form of 0% Convertible Senior Note due 2023)
5.1 Opinion of Clifford Chance US LLP (including consent of such firm)
8.1 Tax Opinion of Clifford Chance US LLP (including consent of such
firm)
23.1 Consent of Clifford Chance US LLP (included in Exhibit 5.1)
23.2 Consent of Clifford Chance US LLP (included in Exhibit 8.1)
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
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