Table of Contents

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q10‑Q for the period ended September 30, 2018March 31, 2019 (this “Report”) should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20172018 (“20172018 Annual Report”), filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”), to which reference is hereby made. This Report contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements often include words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “seek,” “would,” “could,” and similar words or expressions and are made in connection with discussions of future events and future operating or financial performance.

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results.  They are not guarantees of future performance.  By their nature, forward-looking statements are subject to risks and uncertainties.  Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements.  There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report.  For a discussion of certain of those risks and uncertainties and the factors that could cause our actual results to differ materially because of those risks and uncertainties, see Part I, Item 1A, Risk Factors1A. “Risk Factors” of our 20172018 Annual Report.

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we may make from time to time, and to consider carefully the factors discussed in Part I, Item 1A. “Risk Factors” of the 2017our 2018 Annual Report in evaluating these forward-looking statements.  We do not undertake to update any forward-looking statements contained herein, except as required by law.

PART I – FINANCIAL INFORMATION

MMA Capital Management, LLCHoldings,  Inc.

Consolidated Financial Highlights

(Unaudited)

INTRODUCTIONITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

Overview

MMA Capital Management, LLC was organizedHoldings, Inc. invests in 1996 as a Delaware limited liability company.debt associated with renewable energy infrastructure and real estate. Unless the context otherwise requires, and when used in this Report, the “Company,” “MMA,” “we,” “our” or “us” refers to MMA Capital Management, LLCHoldings,  Inc. and its subsidiaries. We were originally organized as a Delaware limited liability company in 1996 and converted to a Delaware corporation on January 1, 2019. 

The Company invests in debt associated with renewable energy infrastructure and real estate. We focus on investments with attractive risk-adjusted returns that generate positive environmental or social impacts.impacts, with an emphasis on renewable energy debt investments. Our investments, other assets and liabilities are organized into threetwo portfolios:

In emphasizing renewable energy debt investments, our objective is to grow the Company’s return on equity by recycling equity out of existing non-energy investments, such as bond-related investments with premiums that will otherwise decrease with the passage of time and other assets that are generating lower returns, into the Energy Capital portfolio, which we believe will generate higher returns.

Commencing on January 8, 2018, we becameWe  are externally managed by Hunt Investment Management, LLC an investment adviser registered with the SEC (our “External Manager”). In conjunction with this change, and as further discussed in the 2017 Annual Report, we completed the sale, an affiliate of the following businesses and assets to Hunt Companies, Inc. (Hunt Companies, Inc. and/orand its affiliates are herein referred to as “Hunt” and this sale transaction is hereinafter referred to as the “DispositionHunt”):. Refer to Notes to Consolidated Financial Statements – Note 13, “Related Party Transactions and Transactions with Affiliates,” for additional information.

Given these changes to our business model and effective the first quarter of 2018, weWe operate as a single reporting segment. As a result, we no longer operate, or present the results of our operations, through three reportable segments that, as of December 31, 2017, included United States (“U.S.”) Operations, International Operations and Corporate Operations.  

Proposed Conversion to a Corporation

On August 7, 2018, the Board of Directors (“Board”) approved the conversion of our legal form of organization from a limited liability company to a corporation. Since its inception, the Company has followed a corporate form of governance and, in July 2013, elected to be taxed as a corporation. The proposed conversion would conform our legal form of organization to that of our tax and governance attributes.

If the conversion is approved by our shareholders, our common shares will be converted on a one-for-one basis from common shares of a limited liability company to common shares of a corporation and our current governance framework, including Board of Directors, will remain in place. Similarly, the measurement of our assets, liabilities and other tax, financial and accounting attributes for financial reporting purposes will be unchanged. However, upon conversion, we will be governed by the Delaware General Corporation Law (the “DGCL”) and a new certificate of incorporation instead of by the Delaware Limited Liability Company Act (the “LLC Act”) and our current limited liability company operating agreement.

The proposed conversion of the Company’s legal form to that of a corporation is subject to the approval of our shareholders. Accordingly, the Company will hold a special shareholders’ meeting on November 20, 2018 at which shareholders will be provided an opportunity to vote on the Company’s proposed conversion. The Company filed a proxy statement with the SEC on September 28, 2018 that provides more information about the Company’s proposed conversion including the differences between the DGCL and our proposed corporate documents as compared with the LLC Act and our current limited liability company operating agreement.

Energy Capital Portfolio

Overview

In our Energy Capital portfolio, 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 North America.  These loans include late-stage development, construction and permanent loans.  We typically invest in these loans directly or through Renewable Energy Lending, LLC (“REL”), a wholly owned subsidiary of the Company, or with an institutional capital partner in multiple ventures that include: Solar Construction Lending, LLC (“SCL”); Solar Permanent Lending, LLC (“SPL”); and Solar Development Lending, LLC (“SDL”) (REL, SCL, SPL and SDL are collectively referred to hereinafter as the “Solar Ventures”). The investment period with our institutional capital partner extends to July 15, 2023, for SDL, SCL and SPL. 

Our External Manager provides loan origination, servicing, asset management and other management services to the Solar Ventures. Loans typically  range in size from $2 million to over $50 million, have durations between three months and five years, and are underwritten to generate internal rates of return (“IRR”) ranging from 10% to 15%, before expenses.  Through March 31, 2019, the Solar Ventures have made over 115 project-based loans that total $1.5 billion of debt commitments for the development of over 550 renewable energy project sites, which will generate over 4.2 gigawatts of renewable energy.

Investment Carrying Value

The carrying value of MMA’s equity investments in the Solar Ventures was $130.4 million and $126.3 million at March 31, 2019 and December 31, 2018, respectively. The $4.1 million increase in the carrying value of such investments was comprised of the following: (i) $52.0 million of capital contributions; (ii) $51.6 million of distributions received and (iii) $3.7 million of equity in income earned during the three months ended March 31, 2019. See Notes to Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for additional information.

Investment Income

The Company becameearned $3.7 million and $0.4 million of equity in income from the sole ownerSolar Ventures for the three months ended March 31, 2019 and March 31, 2018, respectively. The reported increase in the amount of RELequity in income from the Solar Ventures was primarily driven by (i) an increase in loan origination activity at SDL during the first quarter of 2019 and consolidates this venture for reporting purposes. Thea year-over-year increase in the Company’s allocable share of SDL’s net income and (ii) the elimination of the preferred return previously earned by the Company’s former investment partner prior to the Company’s buyout of its priorsuch interest on June 1, 2018. The favorable impact of these factors was partially offset by the effect of amortization into earnings of the purchase premium paid by the Company to buyout our former investment partner’s interestpartner, which is reported as a reduction to equity in REL enabled itincome earned by the Company. Refer to increaseNotes to Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for additional information on the amountCompany’s equity investments.

Lending Activities of equity we are able to deploy into renewable energy investments through the Solar Ventures provided the Company with full decision-making control over REL and eliminated the preferred return that was payable to our prior investment partner.

At September 30, 2018, REL holds a 50% membership interest in each of SCL and SPL that had a carrying value of $101.1 million and $2.9 million, respectively.

Upon the formation of SDL, the Company and its institutional capital partner each agreed to contribute 50% of the initial and incremental capital contributions to the partnership.  However, during the third quarter of 2017, the partners agreed that the Company would fund 10% and our capital partner would fund the remaining 90% for a particular portfolio of loans, thereby causing our ownership interest in SDL to decrease in percentage terms.  At September 30, 2018, the Company’s investment in SDL had a carrying value of $11.5 million, representing approximately a 50% ownership interest in this venture.

On July 13, 2018, the Company extended the investment period in SDL, SCL and SPL with our institutional capital partner through July 15, 2023.

At September 30, 2018,March 31, 2019, the loans that were funded through the Solar Ventures had an aggregate unpaid principal balance (“UPB”) of $178.7$232.1 million, a weighted-average remaining maturity of fivenine months and a weighted-average coupon of 9.2%10.7%.  These loans generated origination fees that ranged from 1%1.0% to 2%3.0% on committed capital and had fixed-rate coupons that ranged from 7.0% to 13.5%18.0%. The Solar Ventures had $156.1 million of unfunded loan commitments to borrowers at March 31, 2019.

As of March 31, 2019, over 90 of the Solar Ventures’ loans, totaling $1.1 billion of commitments, had been repaid, resulting in a weighted-average IRR (“WAIRR”) of 16.1% that was on average higher than originally underwritten. 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 is 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 effects of: (i) operating expenses of the Solar Ventures; (ii) the preferred return earned by the Company’s former investment partner in REL; (iii) the amortization of the purchase premium paid by the Company to buyout our former investment partner and (iv) the opportunity cost of idle capital. 

Leveraged BondsOA&L Portfolio

In our Leveraged BondsOA&L portfolio, we primarily investmanage the Company’s cash, investment in bonds and related financing, loan receivables, real estate-related investments, subordinated debt and other assets and liabilities of the Company.  An overview of the primary assets and liabilities within this portfolio follows.

Cash

As of March 31, 2019, we had $28.8 million of unrestricted cash and $5.7 million of restricted cash that was primarily pledged as collateral in connection with financial risk management and financing agreements.

Investments in Bonds and Related Financing

Our investments in bonds finance affordable housing and infrastructure in the U.S.

The bonds we hold and are fixed rate and unrated.  Our bonds are also generally tax-exempt and primarily collateralized by affordable multifamily rental properties.  Substantially all of the rental units in these multifamily properties, some of which may be subsidized by the government, have tenant income and rent restrictions.

The Company also has two one municipal bondsbond that financefinances the development of infrastructure (“Infrastructure bonds”) for a mixed-use town center development and areis secured by incremental tax revenues generated from the development.development (this investment is hereinafter referred to as our “Infrastructure Bond”).

The Company has financed its ownership of a majorityportion of its investments in bonds through total return swap (“TRS”) agreements.  These financing arrangements enable the Company to retain the economic risks and rewards of the fixed rate bonds that are referenced in such agreements and generally require the Company to pay a variable rate of interest that resets on a weekly basis.  The Company also has executed TRS agreements to synthetically acquire the total return of multifamily bonds that it does not own.  The Company has hedged a portion of the interest rate risk associated with its TRS agreements and other sources of variable interest rate exposure using various interest rate risk management agreements.

Table 1 provides key metrics related to all bonds in which we have an economic interest, including bonds in which we acquired an economic interest through TRS agreements (such bonds and TRS agreements are hereinafter referred to collectively as the “Bond PortfolioBond-Related Investments”).  See Notes to Consolidated Financial Statements – Note 6, “Debt,” and Note 7, “Derivative Instruments,” for more information about how TRS and interest rate risk management agreements are reported in the Company’s financial statements.

Table 1:  Bond Portfolio -Bond-Related Investments – Summary

The fair value of the Bond Portfolioour Bond-Related Investments as a percentage of its UPB increased from 103.3%106.0% at June 30,December 31, 2018, to 103.7%106.8% at September 30, 2018,March 31, 2019, while the weighted-average debt service coverage ratio associated with our Bond-Related Investments remained at 1.20x at March 31, 2019 compared to December 31, 2018. See Notes to Consolidated Financial Statements – Note 8, “Fair Value,” for additional information.

On January 3, 2019, the Company entered into agreements to sell one multifamily tax-exempt bond and one subordinate certificate interest in a multifamily tax-exempt bond for total net cash proceeds of the Bond Portfolio was 1.12x at both June 30, 2018 and September 30, 2018.

The contractual terms of investments in the Bond Portfolio include provisions$8.6 million that permit bonds to be prepaid at par after a specified date that is prior to their stated maturity date.  Table 2 provides information about thehad an aggregate UPB and fair value of bonds that were prepayable at par at September 30, 2018,$8.5 million and stratifies$8.6 million, respectively. The settlement of these transactions resulted in the realization of a 1.5% premium above the UPB of such information based uponbond interests and the periods in which such instruments become prepayable at par.

Interest Rate Risk Hedge Positions

We use interest rate swaps and caps to hedge interest rate risk associated with this portfolio. The netreclassification of $3.6 million of fair value gains on bond investments into earnings from accumulated other comprehensive income during the first quarter of these financial instruments was $1.8 million at September 30, 2018.

Table 2: Stratification of2019. Additionally, on March 27, 2019, the Bond Portfolio Based Upon Prepayment Features

The carrying value and weighted-average yield of these debt obligations in the OA&L portfolio was $140.2 million and 4.2%, respectively, at September 30, 2018 is provided below inMarch 31, 2019. Refer to Table 21.19, “Asset Related Debt and Other Debt,” for more information.

Interest Rate Risk Hedge Positions

We use interest rate swaps and caps to hedge interest rate risk associated with debt obligations in this portfolio.  The net fair value of these financial instruments was $5.1$2.9 million at September 30, 2018.March 31, 2019.

Interests in MGM

As consideration for the sale of our LIHTC business to Morrison Grove Management, LLC (“MGM”) in 2014, the Company received an option to acquire the LIHTC business of MGM, which primarily manages LIHTC investments on behalf of third party investors and for its own account.  This purchase option was converted on January 8, 2018, into a purchase and sale agreement that required the Company to complete the purchase of MGM subject to certain conditions precedent.  On January 8, 2018, the Company also (i) executed agreements to acquire from an affiliate of MGM certain assets pertaining to a specific LIHTC property and (ii) purchased a $9.0 million senior loan from an MGM affiliate.  This senior loan, which is secured by assets of MGM, bears interest at 11% payable quarterly.  The unpaid principal balance of this loan, which was $9.0 million as of September 30, 2018, is payable in full in June 2020.

On October 4, 2018, Hunt exercised its option to take assignmentCarrying Values of the Company’s agreements to acquire (i)OA&L Portfolio

Table 2 provides financial information about the LIHTC business of MGM and (ii) certain assets pertaining to a specific LIHTC property from affiliates of MGM (these agreements are collectively referred hereinafter to as the “MGM Agreements”). As a result of the concurrent assignment of the MGM Agreements and Hunt’s closing thereunder, the Company expects to recognize an increase in common shareholders’ equity of approximately $14.2 million in the fourth quarter of 2018, or approximately $2.35 per share based upon diluted shares outstanding at September 30, 2018.

In connectioncarrying values associated with the closing of the MGM Agreements, the Company executed a series of additional transactions completingCompany’s OA&L portfolio reported within the Company’s disposition of MGMConsolidated Balance Sheets at March 31, 2019 and other LIHTC related assets. Those additional transactions included the acquisition by Hunt of (i) the Company’s $9.0 million held for sale loan for $9.4 million of cash that theDecember 31, 2018. The Company had previously acquired from an affiliate of MGMoperates as a single reporting segment and (ii) the Company’s remaining general partner interests in two nonconsolidated LIHTC funds. In addition, the Company acquired $10.0 million in Hunt notes from the MGM principals for $5.0 million in cashas such, certain corporate assets and $5.0 million in a Company note. This purchase increased the aggregate principal balance of the Company’s existing $57.0 million note from Hunt to $67.0 million. The Company’s $5.0 million note to the MGM principals bears interest at 5.0%, is payable quarterly in arrears and has a varying amortization schedule that fully amortizes the note by its maturity date of January 1, 2026. 

Our External Manager

In conjunction with the Disposition, we entered into a management agreement with the External Manager (the “Management Agreement”) that took effect on January 8, 2018. At the time of the Disposition, all employeesliabilities of the Company were hired by(deferred compensation, accounts payable and accrued expenses, prepaid expenses and state tax receivable) have been excluded from our comparative discussion of our OA&L portfolio because such items have not been allocated to the External Manager.  In considerationOA&L portfolio and will only be reported on a consolidated basis. 

Table 2:  Carrying Values of the OA&L Portfolio

Sources of Comprehensive Income from the OA&L Portfolio

Table 3 provides financial information about sources of comprehensive income associated with the Company’s OA&L portfolio for the management services being provided bythree months ended March 31, 2019, and March 31, 2018. Consistent with the External Manager, the Company pays the External Manager (i) a base management fee, which is payable quarterly in arrears and is calculated as a percentagepresentation of Table 2, “Carrying Values of the Company’s GAAP common shareholders’ equity, with certain annual true-ups,OA&L Portfolio,” for presentation purposes, discontinued operations and (ii) an annual incentive fee equaloperating expenses (salaries and benefits, external management fees and reimbursable expenses, general and administrative, professional fees and tax related expenses) that were not directly attributable to 20%the OA&L portfolio have been excluded from our comparative discussion of the total annual returnour results of diluted common shareholders’ equity per share in excess of 7%.  However,operations. See Notes to Consolidated Financial Statements – Note 15, “Discontinued Operations,” for the first and second quarters of 2018, the base management fee was fixed at $1 million per quarter.  The Company also agreed to reimburse the External Manager for certain allocable overhead costs including costs associated with an allocable share of the costs of (i) noninvestment personnel of the External Manager who spend all or a portion of their time managingmore information about the Company’s operations and reporting as a public company (based on their time spent on such matters) and (ii)reported discontinued operations.

Table 3:  Sources of Comprehensive Income Associated with the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) based on the percentageOA&L Portfolio

SUMMARY OF FINANCIAL PERFORMANCE

Net Worth

Common shareholders’ equity increased $6.9 million in the third quarter to $193.5decreased from $212.9 million at September 30, 2018.December 31, 2018, to $212.5 million at March 31, 2019.  This change$0.4 million decrease was driven by $5.3a  $0.2 million in comprehensive income that was allocable to common shareholdersloss and by $1.6$0.2 million of other increasesdecreases in common shareholders’ equity.

Diluted common shareholders’ equity (“Book Value”) per share increased $0.94decreased to $36.11 per share inat March 31, 2019, representing a $0.09 per share decrease during the third quarter of 2018 to $32.96 at September 30, 2018.

three months ended March 31, 2019.

Refer to “Consolidated Balance Sheet Analysis”Analysis,” for more information about changes in common shareholders’ equity and other components of our Consolidated Balance Sheets.

Comprehensive (Loss) Income

We recognized comprehensive income that was allocable to common shareholdersloss of $5.3$0.2 million in the thirdfirst quarter of 2018,2019, which consisted of $8.6$2.9 million of net income that was allocable to common shareholders and $3.3$3.1 million of other comprehensive loss that was allocable to common shareholders.loss.  In comparison, primarily as a result of the Company’s sale of certain businesses and assets to Hunt in the first quarter of 2018 (the “Disposition”),  we recognized $10.0$27.5 million of comprehensive income, that was allocable to common shareholders during the third quarter of 2017, which consisted of $9.9$18.3 million of net income that was allocable to common shareholders and $0.1$9.2 million of other comprehensive income that was allocable to common shareholders.

income.

Net income that we recognized in the thirdfirst quarter of 20182019 was primarily driven by net interest income, net gains on bonds and equity in income from unconsolidated funds and ventures.ventures,  net gains on bonds and net interest income.  Refer to “Consolidated Results of Operations”Operations,” for more information about changes in common shareholders’ equity that is attributable to net income allocable to common shareholders.

Other comprehensive loss that we reported in the thirdfirst quarter of 20182019 was primarily attributable to the reclassification of unrealized holdingfair value gains out of accumulated other comprehensive income (“AOCI”) and into our Consolidated Statements of Operations due to the sale of certain bond investments.  The impact of this reclassification was partially offset by net unrealized holdingfair value gains that we recognized in AOCI during the thirdfirst quarter of 2019 in connection with our Bond Portfolio. Bond-Related Investments.  Refer to “Consolidated Balance Sheet Analysis”Analysis,” for more information about other comprehensive income.

Other Considerations

As further discussed in “Introduction – Overview” in Item 2 of this Report, the Company sold certain business lines and assets to Hunt and converted to an externally managed business model by engaging Hunt to perform management services for the Company. By executing this strategic transaction, the Company no longer recognizes:

The Disposition also resulted in the deconsolidation from the Company’s Consolidated Balance Sheets on January 8, 2018 of all guaranteed LIHTC funds and derecognition of nearly all other CFVs that were recognized in our Consolidated Balance Sheets at December 31, 2017. As a result, the Company will no longer recognize in future reporting periods revenues, expenses, assets, liabilities and noncontrolling interests associated with such CFVs.

In place of the aforementioned revenues and expenses, and notwithstanding revenues and expenses associated with assets and liabilities of the Company that were excluded from the sale transaction, the Company recognizes interest income associated with its loan receivable from Hunt and will recognize various costs set forth in the Management Agreement, including base management fees, incentive management fees and reimbursements to the External Manager for certain allocable overhead costs.

Information that is provided in this Report’s “Consolidated Balance Sheet Analysis” and “Consolidated Results of Operations” should be reviewed in consideration of the aforementioned changes.

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 34 provides a balance sheet summary for the periods presented.  For presentation purposes, assets, liabilities and equity that were attributable to noncontrolling interest holders of CFVs are presented in Table 3 as separate line items because the Company generally has a minimal ownership interest in these consolidated entities. For the periods presented, the assets, liabilities and noncontrolling interests related to these CFVs were attributable to consolidated property partnerships and certain LIHTC funds in which we guaranteed minimum yields on investment to investors and for which we agreed to indemnify the purchaser of our general partner interest in such funds from investor claims related to those guarantees. However, the Disposition resulted in the deconsolidation from the Company’s Consolidated Balance Sheets in the first quarter of 2018 of all guaranteed LIHTC funds and derecognition of nearly all other CFVs that were recognized in our Consolidated Balance Sheets at December 31, 2017. See Notes to Consolidated Financial Statements – Note 14, “Discontinued Operations,” and Note 15, “Consolidated Funds and Ventures,” for more information about CFVs.

Table 3:4:  Balance Sheet Summary