| | | | | CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | 2 | | | | | | | PART I – FINANCIAL INFORMATION | 3 | | | | | 3 | | | | | | | | Item 1. | Financial Statements (Unaudited) | 22 | | | | | 27 | | | | | | | | | (a)(a)
| Consolidated Balance Sheets at SeptemberJune 30, 20192020 and December 31, 20182019 | 22 | | | | | 27 | | | | | | | | | (b)(b)
| Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 20182019 | 23 | | | | | 28 | | | | | | | | | (c) | Consolidated Statements of Comprehensive (Loss) Income for the three and ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 20182019 | 25 | | | | | 30 | | | | | | | | | (d) | Consolidated Statements of Equity for the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 20182019 | 26 | | | | | 31 | | | | | | | | | (e) | Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 20182019 | 28 | | | | | 32 | | | | | | | | | (f) | Notes to Consolidated Financial Statements | 30 | | | | 34 | | | | | | | | ItemItem 2.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 | | | | | 5 | | | | | | | | ItemItem 3.
| Quantitative and Qualitative Disclosures About Market Risk | 63 | | | | | 61 | | | | | | | | ItemItem 4.
| Controls and Procedures | 6361 | | | | | | | PART II – OTHER INFORMATION | 64 | | | | | 62 | | | | | | | | Item 1 | Legal Proceedings | 64 | | | | | 62 | | | | | | | | ItemItem 1A.
| Risk Factors | 64 | | | | | 62 | | | | | | | | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 64 | | | | | 63 | | | | | | | | Item 3.3. | Defaults Upon Senior Securities | | 64 | | | | | | | | Item 4. | Defaults Upon Senior SecuritiesMine Safety Disclosures
| 64 | | | | | 64 | | | | | | | | Item 4.5. | Mine Safety DisclosuresOther Information
| 64 | | | | | 64 | | Item 5.
| Other Information
| 64 | | | | | | | Item 6.Item 6.
| Exhibits | Exhibits
| 65 | | | | | | | SIGNATURES | S-1 |
Cautionary Statement Regarding Forward LookingForward-Looking Statements This Quarterly Report on Form 10‑Q10-Q for the period ended SeptemberJune 30, 20192020 (this “Report”) should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20182019 (“20182019 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 “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “see,” “seek,” “should,” “will,” “would,” 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.uncertainties including the uncertain aspect of the novel strain of coronavirus pandemic, known as COVID-19. 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. RisksFor a discussion of certain risks and uncertainties and the factors that could cause our actual results to differ materially include, but are not limited to, changes in market ratesbecause of return, additional competitors entering the marketplace (which would reduce nominal rates of return from competition for new borrowers), limits on access to investible capital that would limit new investments that could be made by the Company, changes in the law and the Company’s dependence on a small, specialized team of the External Manager for underwriting activities, as well as thethose risks and uncertainties, described insee Part II, Item 1A. “Risk Factors” of this Report and Part I, Item 1A. “Risk Factors” of our 20182019 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 II, Item 1A. “Risk Factors” of this Report and Part I, Item 1A. “Risk Factors” of our 20182019 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 Holdings, Inc. Consolidated Financial Highlights (Unaudited) | | | | | | | | | | | | As of and for the three months ended | (in thousands, except per common share data) | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | Selected income statement data | | | | | | | | | | Net interest income | | $ | 554 | | $ | 559 | | $ | 2,276 | Non-interest income | | | 12,587 | | | 2,429 | | | 10,666 | Other expenses | | | 14,689 | | | 7,237 | | | 4,213 | Net (loss) income from continuing operations before income taxes | | | (1,548) | | | (4,249) | | | 8,729 | | | | | | | | | | | Income tax (expense) benefit (1) | | | (1,960) | | | 1,191 | | | 60,571 | Net (loss) income | | $ | (3,508) | | $ | (3,058) | | $ | 69,300 | | | | | | | | | | | Earnings per share data | | | | | | | | | | Net (loss) income: Basic and Diluted | | $ | (0.60) | | $ | (0.53) | | $ | 11.84 | | | | | | | | | | | Net (loss) income from continuing operations before income taxes per share: Basic and Diluted | | $ | (0.27) | | $ | (0.73) | | $ | 1.49 | | | | | | | | | | | Average shares: Basic and Diluted | | | 5,807 | | | 5,804 | | | 5,855 | | | | | | | | | | | Market and per common share data | | | | | | | | | | Market capitalization | | $ | 131,884 | | $ | 141,021 | | $ | 181,322 | Common shares at period-end | | | 5,811 | | | 5,807 | | | 5,805 | Share price during period: | | | | | | | | | | High | | | 29.00 | | | 32.70 | | | 33.00 | Low | | | 22.11 | | | 20.00 | | | 29.01 | Closing price at period-end | | | 23.12 | | | 24.73 | | | 31.80 | Book Value per common share: Basic and Diluted | | | 47.24 | | | 47.82 | | | 48.43 | Adjusted Book Value per common share: Basic and Diluted (2) | | | 37.37 | | | 37.59 | | | 38.49 | | | | | | | | | | | Selected balance sheet data | | | | | | | | | | Cash and cash equivalents | | $ | 24,554 | | $ | 23,164 | | $ | 8,555 | Investments in debt securities | | | 29,988 | | | 29,645 | | | 31,365 | Investment in partnerships | | | 375,200 | | | 368,598 | | | 316,677 | Deferred tax assets, net | | | 57,336 | | | 59,394 | | | 57,711 | Loans held for investment | | | 1,291 | | | 1,271 | | | 54,100 | All other assets | | | 38,567 | | | 26,000 | | | 17,234 | Total assets | | $ | 526,936 | | $ | 508,072 | | $ | 485,642 | | | | | | | | | | | Debt | | $ | 245,532 | | $ | 223,653 | | $ | 201,816 | All other liabilities | | | 6,917 | | | 6,750 | | | 2,701 | Total liabilities | | | 252,449 | | | 230,403 | | | 204,517 | Common shareholders' equity ("Book Value") | | $ | 274,487 | | $ | 277,669 | | $ | 281,125 | | | | | | | | | | | Rollforward of Book Value | | | | | | | | | | Book Value - at beginning of period | | $ | 277,669 | | $ | 281,125 | | $ | 212,910 | Net (loss) income | | | (3,508) | | | (3,058) | | | 100,977 | Other comprehensive income (loss) | | | 229 | | | (453) | | | (30,064) | Common share repurchases | | | — | | | (41) | | | (2,730) | Other changes in common shareholders' equity | | | 97 | | | 96 | | | 32 | Book Value - at end of period | | $ | 274,487 | | $ | 277,669 | | $ | 281,125 | | | | | | | | | | | Less: Deferred tax assets, net | | | 57,336 | | | 59,394 | | | 57,711 | Adjusted Book Value (2) - at end of period | | $ | 217,151 | | $ | 218,275 | | $ | 223,414 |
| | | | | | | | | | | | | | | As of and for the three months ended | (in thousands, except per common share data) | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 | | December 31, 2018 | Selected income statement data | | | | | | | | | | | | | Net interest income | | $ | 2,131 | | $ | 2,630 | | $ | 1,679 | | $ | 2,260 | Non-interest income | | | 7,581 | | | 24,460 | | | 6,111 | | | 19,662 | Other expenses | | | 4,110 | | | 3,820 | | | 4,888 | | | 4,084 | Net income before income taxes | | | 5,602 | | | 23,270 | | | 2,902 | | | 17,838 | | | | | | | | | | | | | | Income tax (expense) benefit | | | (26) | | | (50) | | | (13) | | | 54 | Net income (loss) from discontinued operations, net of tax | | | — | | | (1) | | | (7) | | | 13,384 | Net income | | $ | 5,576 | | $ | 23,219 | | $ | 2,882 | | $ | 31,276 | | | | | | | | | | | | | | Earnings per share data | | | | | | | | | | | | | Net income: Basic | | $ | 0.95 | | $ | 3.95 | | $ | 0.49 | | $ | 5.34 | Diluted | | | 0.95 | | | 3.95 | | | 0.49 | | | 5.25 | | | | | | | | | | | | | | Average shares: Basic | | | 5,887 | | | 5,884 | | | 5,882 | | | 5,859 | Diluted | | | 5,887 | | | 5,884 | | | 5,882 | | | 5,954 | | | | | | | | | | | | | | Market and per common share data | | | | | | | | | | | | | Market capitalization | | $ | 173,366 | | $ | 193,400 | | $ | 175,009 | | $ | 145,586 | Common shares at period-end | | | 5,889 | | | 5,887 | | | 5,884 | | | 5,882 | Share price during period: | | | | | | | | | | | | | High | | | 33.97 | | | 35.50 | | | 33.88 | | | 27.45 | Low | | | 28.05 | | | 30.00 | | | 20.02 | | | 25.00 | Closing price at period-end | | | 30.00 | | | 33.47 | | | 30.29 | | | 25.20 | Book value per common share: Basic and Diluted | | | 37.29 | | | 36.46 | | | 36.11 | | | 36.20 | | | | | | | | | | | | | | Selected balance sheet data (period end) | | | | | | | | | | | | | Cash and cash equivalents | | $ | 10,837 | | $ | 10,590 | | $ | 28,773 | | $ | 28,243 | Investments in debt securities | | | 34,121 | | | 35,236 | | | 81,102 | | | 97,190 | Investment in partnerships | | | 222,567 | | | 185,679 | | | 159,145 | | | 155,079 | Loans held for investment | | | 87,267 | | | 80,878 | | | 67,299 | | | 67,299 | All other assets | | | 19,165 | | | 13,378 | | | 20,022 | | | 16,575 | Total assets | | $ | 373,957 | | $ | 325,761 | | $ | 356,341 | | $ | 364,386 | | | | | | | | | | | | | | Debt | | $ | 151,340 | | $ | 107,868 | | $ | 140,239 | | $ | 149,187 | All other liabilities | | | 3,022 | | | 3,267 | | | 3,635 | | | 2,289 | Total liabilities | | | 154,362 | | | 111,135 | | | 143,874 | | | 151,476 | Common shareholders' equity | | $ | 219,595 | | $ | 214,626 | | $ | 212,467 | | $ | 212,910 | | | | | | | | | | | | | | Rollforward of common shareholders' equity | | | | | | | | | | | | | Common shareholders' equity - at beginning of period | | $ | 214,626 | | $ | 212,467 | | $ | 212,910 | | $ | 193,547 | Net income | | | 5,576 | | | 23,219 | | | 2,882 | | | 31,276 | Other comprehensive loss | | | (673) | | | (21,143) | | | (3,140) | | | (13,288) | Common share repurchases | | | — | | | — | | | — | | | (1,810) | Common shares issued and options exercised | | | — | | | — | | | — | | | 5,462 | Cumulative change due to change in accounting principle | | | — | | | — | | | (267) | | | — | Other changes in common shareholders' equity | | | 66 | | | 83 | | | 82 | | | (2,277) | Common shareholders' equity - at end of period | | $ | 219,595 | | $ | 214,626 | | $ | 212,467 | | $ | 212,910 |
| (1) | The Company recognized a net $57.7 million deferred tax asset (“DTA”) in the fourth quarter of 2019 that was driven by an increase in the amount of net operating loss carryforwards (“NOLs”) that, at December 31, 2019, the Company assessed were more likely than not to be utilized prior to their expiration. |
| (2) | Book Value excluding deferred tax assets (“Adjusted Book Value”) and Adjusted Book Value per share are financial measures that are determined other than in accordance with generally accepted accounting principles in the United States of America (“GAAP”). These non-GAAP financial measures are used to show the amount of our net worth in the aggregate and on a per-share basis, without giving effect to changes in Book Value due to the partial release of our deferred tax asset valuation allowance as of June 30, 2020, March 31, 2020 and December 31, 2019. Refer to “Use of Non-GAAP Measures” for more information, including a reconciliation of these non-GAAP financial measures to the most directly comparable historical measures determined under GAAP. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Overview MMA Capital Holdings, Inc. invests infocuses 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 infrastructure including renewable energy infrastructure and real estate.projects. 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, and converted to a Delaware corporation on January 1, 2019. We focus on investments with attractive risk-adjusted returns that generate positive environmental or social impacts, with an emphasis on renewable energy debt investments. Our assets2019 and liabilities are organized into two portfolios:
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| | Energy Capital – This portfolio includes indirect investments in loans that finance renewable energy projects and revolving debt that we utilize to leverage such investments; and
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| | Other Assets and Liabilities (“OA&L”) – This portfolio includes our investments in bonds, certain loan receivables, cash, real estate-related investments, subordinated debt and the balance of the Company’s assets and liabilities (investments in bonds and related financings, which were previously identified as their own portfolio in each Quarterly Report on Form 10-Q that was filed in 2018, were reallocated to the OA&L portfolio as of December 31, 2018).
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Given the depth of opportunities we see in the renewable energy market, our objective is to grow the Company’s return on equity by recycling equity out of existing investments in the OA&L portfolio that are generating lower returns, into the Energy Capital portfolio, which we believe will generate higher returns. In this regard, we actively seek out ways to support additional growth in the Energy Capital portfolio by optimizing how the Company is capitalized, including through the efficient deployment of leverage. As further discussed below, the Company established a revolving credit facility with various lenders in the third quarter of 2019 that was executed for purposes of leveraging its investments in the Energy Capital portfolio.
We 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.”). ReferWe believe that we are well positioned to Notestake advantage of these and other 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 and other infrastructure projects. 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 Financial Statements – Note 13, “Related Party TransactionsBalance Sheets at June 30, 2020 and Transactions with Affiliates,” for additional information.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 continues to evolve as many countries, including the U.S., continue to institute 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. While we are not able to estimate the long-term effects of these factors on our business at this time, the adverse impact on our business, results of operations, financial condition and cash flows could be material. Refer to Part II, Item 1A. “Risk Factors” of this Report for additional information about risks to our business that are posed by COVID-19. 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. As of June 30, 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 As of June 30, 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 and financed projects did not experience any significant supply chain issues during the second quarter of 2020. All loans made by the Solar Ventures were assessed to be adequately secured and were expected at June 30, 2020 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. Origination volume at the Solar Ventures during the second quarter of 2020 was generally comparable to the amount of loans originated during the second quarter of 2019, while origination volume during the first six months of 2020 exceeded loan originations made during the first six months of 2019. During the second quarter of 2020, market yields associated with certain funded loans at the Solar Ventures, particularly those that had longer remaining terms than average and were without take-out financing commitments, decreased. Consequently, the overall fair value of the loan portfolio of the Solar Ventures increased and the Company recognized its allocable share of related unrealized gains, or $3.9 million, during the second quarter of 2020. Net fair value gains recognized by the Solar Ventures in the second quarter of 2020 nearly offset the amount of unrealized loan losses, including the Company’s share thereof, that were recognized during the first quarter of 2020. Other Investments and Hedging Instruments Market yields associated with the Company’s bond investments generally decreased in the second quarter of 2020. Consequently, the Company recognized $0.5 million of net unrealized fair value gains in the second 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 in the second quarter of 2020 by $0.3 million. Additionally, the Company’s foreign currency forward exchange hedge position decreased by $0.2 million as the rand appreciated modestly against the U.S. dollar during the second quarter of 2020. While these positions are effective at mitigating the Company’s exposure to certain interest rate and foreign currency risks, 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. The Company’s 80% ownership interest in a joint venture, which owns a mixed-use town center development that consists of hotel tenants, retail tenants and undeveloped land parcels and whose incremental tax revenues secure our tax-exempt municipal bond (“Infrastructure Bond”) (hereinafter, the “SF Venture”), was determined to be other-than-temporarily impaired during the preparation of our second quarter financial statements as of June 30, 2020, given the impacts of the downturn in the economy stemming from COVID-19. As such, this investment was written down to its fair value at June 30, 2020, using valuation inputs that were sourced from a third-party specialist. Consequently, the Company recognized a related $9.0 million impairment loss in its Consolidated Statements of Operations in the second quarter of 2020. The balance of the Company’s real estate-related investments was not assessed to be other-than-temporarily impaired at June 30, 2020. We are monitoring the economic impact of the COVID-19 pandemic on the performance of our investments and underlying real estate values. Although we have not recognized impairment charges other than that for the SF Venture discussed above, we believe it is reasonably possible that we may be required to recognize one or more material impairment charges over the next 12 months, particularly if underlying economic conditions continue to deteriorate. Because any such impairment charge will be based on future circumstances, we cannot predict at this time whether we will be required to recognize any further impairment charges and, if required, the timing or amount of any impairment charge. 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 at June 30, 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 June 30, 2020. Consequently, the Company did not make an adjustment in the second quarter of 2020 to the carrying value of DTAs that were recognized at December 31, 2019. However, given such uncertainty and other factors, we believe it is reasonably possible that, within the next 12 months, a reduction to the net carrying value of DTAs that is material to the Company’s financial statements could be recognized. However, whether we recognize such a loss and the exact timing and amount of loss recognition depends upon future circumstances and, therefore, cannot be predicted at this time. In the second quarter of 2020, the Company recognized a $2.1 million decrease in the net carrying value of DTAs. This decrease was primarily attributable to deferred income tax expense that was recognized in the second quarter of 2020 to establish a valuation allowance against deferred tax benefits stemming from the $9.0 million impairment loss associated with the Company’s equity investment in the SF Venture. The corresponding DTA was assessed to not be realizable because the decline in fair value of our investment was determined to be other-than-temporary. Liquidity and Capital PortfolioResources OverviewThe Company is committed to make additional capital contributions to certain of its investments in partnerships and ventures. Through June 30, 2020, the Company has honored all such commitments and we believe that we will continue to do so as these commitments arise.
In ourThrough June 30, 2020, the Company was in compliance with all its debt covenants and, as further discussed below, the Company closed two additional financing transactions in the second quarter of 2020.
Renewable Energy Capital portfolio, weInvestments 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. 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 in 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 loans, which include late-stage development, construction and permanent loans, through joint ventures (such joint ventures, together with our wholly owned subsidiary, Renewable Energy Lending, LLC (“REL”), are hereinafter referred to as the “Solar Ventures.”). In this regard, through our External Manager’s relationships, We are a 50% investor member in the renewable energy joint ventures in which we invest though we may periodically have a minority economic interest 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. Distributions from such ventures are generally made in proportion to the members’ respective economic interests but may be made disproportionately to our capital partner, when our capital partner has made non-pro rata capital contributions, until such time that the amount of equity invested by the Company and its capital partner have come back into equal balance. At June 30, 2020, we had a large, segmented market that is growingminority economic interest in SCL and that we believe to be underserved, which has enabled us to achieve attractive risk-adjusted returns.SDL of 44.2% and 43.6%, respectively. 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 which we have invested include: Solar Construction Lending, LLC (“SCL”); Solar Permanent Lending, LLC (“SPL”); Solar Development Lending, LLC (“SDL”);subordinated loans and REL. Carrying valuerevolving loans and income-related information related to investments that we have made in,may finance non-solar renewable technologies such as wind and battery storage, or related to, theprovide equipment financing and other customized debt solutions for borrowers. The Solar Ventures are further discussed below. Our External Manager provides loan origination, servicing, asset management and other management services to the Solar Ventures, which typically targethave 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 have fixed-rate coupons that range from 7.0% to 14.0%. These loans also generally 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. million.
Through September 30, 2019,Since their inception in 2015, the Solar Ventures made over 150have invested in more than 190 project-based loans that total $2.1$2.8 billion of debt commitments for the development and construction of over 640760 renewable energy project sites that, whensites. When completed, these projects will generatecontribute to the generation of over 6.26.3 gigawatts of renewable energy.
energy, thereby eliminating approximately 181.3 million metric tons of carbon emissions over their project lives. The Solar Ventures closed $358.3$247.5 million of loan commitments across 12 loans during the thirdsecond quarter of 2019 and, at September2020 as compared to $287.1 million across 11 loans during the first quarter of 2020. Through June 30, 2019,2020, $1.6 billion of commitments across 132 project-based loans funded through the Solar Ventures had an aggregate unpaidbeen repaid with no loss of principal, balanceresulting in a weighted-average IRR (“UPBWAIRR”) of $362.7 million, a weighted-average remaining maturity of nine16.7% that was on average higher than originally underwritten loan IRRs. For the three months and a weighted-average coupon of 10.8%. At Septemberended June 30, 2019, the Solar Ventures, of which the Company is a 50% member, had $446.8 million of unfunded loan commitments to borrowers, which were anticipated to be funded primarily by capital within the Solar Ventures through a combination of idle capital and existing loan redemptions. 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 in proportion to their interests would be required. Through September 30, 2019, 1072020, 11 loans totaling $1.2 billion$133.3 million of commitments had been repaid, resulting in a weighted-average IRR (“WAIRR”) of 17.1% that was on average higher than originally underwritten.12.9%. 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 effects of:impact of certain items, including: (i) operating expenses of the Solar Ventures; (ii) the preferred return earned by the Company’s former investment partner in REL through the second quarter of 2018; (iii) the amortization of the purchase premium paid by the Company in the second quarter of 2018 to buyout our former investment partnerpartner’s interest in REL; and (iv)(iii) the opportunity cost of idle capital.
Investments Related toAt June 30, 2020, loans funded through the Solar Ventures
had an aggregate unpaid principal balance (“UPB”) and total fair value (“FV”) of $758.5 million, a weighted-average remaining maturity of seven months and a weighted-average coupon of 9.5%. At September 30,December 31, 2019, loans funded through the Company held 50%, 50%, 44.7%Solar Ventures had an aggregate UPB and 100% equity interests in SCL, SPL, SDLtotal fair value of $654.4 million, a weighted-average maturity of 10 months and REL, respectively. Additionally, the Company held a 5.1% equity interest in SDL at September 30, 2019, that was acquired in the second quarterweighted-average coupon of 2019 from Hunt through a transaction that was reported as a secured lending transaction. While cash paid to settle this purchase was recognized as a loan receivable and the acquired equity interest in SDL was deemed to be collateral that did not get financial statement recognition, the Company acquired all legal rights and obligations related to such 5.1% ownership interest. During July 2019, the Company and its capital partner in SDL executed a non-pro rata funding agreement pursuant to which our capital partner contributed 98% of a $30.0 million capital call and the Company contributed the balance. However, on September 20, 2019, the Company contributed 100% of a $28.8 million capital call, which caused the non-pro rata funding agreement with our capital partner in SDL to terminate.10.8%.
Table 1 provides financial information about the composition of the Solar Ventures’ loan portfolio at June 30, 2020 and December 31, 2019. Table 1: Composition of the Solar Venture’s Loan Portfolio | | | | | | | At | | At | | June 30, | | December 31, | (in thousands) | 2020 | | 2019 | Late-stage development | $ | 206,272 | | $ | 298,609 | Construction | | 516,025 | | | 321,809 | Permanent | | 8,961 | | | 23,597 | Other loans associated with renewable energy | | 27,259 | | | 10,345 | Total UPB | $ | 758,517 | | $ | 654,360 |
The Solar Ventures had $427.4 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 June 30, 2020, $214.1 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 At June 30, 2020, through MMA Energy Holdings, LLC, the Company was a 50% investor member but held economic interests of 44.2%, 50.0% and 43.6% in SCL, SPL and SDL, respectively, and was the sole member in REL. The carrying value of MMA’sand income-related information related to investments that we have made in, or related to, the Solar Ventures are further discussed below. During the second quarter of 2020, the Company and its capital partner in SCL and SDL funded various non-pro rata capital calls pursuant to which our capital partner contributed $63.5 million of $72.9 million in SCL capital calls and $4.5 million of $4.5 million in SDL capital calls, while the Company contributed the balance. In addition, in accordance with a non-pro rata funding agreement between the Company and our capital partner, our capital partner in SCL and SDL received distributions of $45.0 million and $10.6 million, respectively, while the Company received $9.4 million of distributions from SDL. As a consequence of these non-pro rata capital contributions and distributions during the second quarter of 2020, our economic interest in SCL and SDL decreased in percentage terms from 44.5% and 44.5% in SCL and SDL, respectively, at SeptemberMarch 31, 2020. 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 June 30, 20192020. Table 2 provides financial information about the carrying value of the Company’s renewable energy investments at June 30, 2020 and December 31, 2018.2019. Table 1:2: Carrying Values of the Company’s Renewable Energy Investments Related to the Solar Ventures | | | | | | | | | | | | | At | | At | | June 30, | | December 31, | (in thousands) | 2020 | | 2019 | Equity investments in the Solar Ventures | $ | 363,070 | | $ | 289,123 | Loan receivable | | 1,291 | | | 500 | Total carrying value | $ | 364,361 | | $ | 289,623 |
| | | | | | | | | | | | | At | | At | | September 30, | | December 31, | (in thousands) | 2019 | | 2018 | Equity investments in the Solar Ventures | $ | 194,647 | | $ | 126,339 | Loan receivable from Hunt | | 19,968 | | | ─ | Total carrying value | $ | 214,615 | | $ | 126,339 |
9 The carrying value of the Company’s equity investments in the Solar Ventures increased $68.3$73.9 million during the ninesix months ended SeptemberJune 30, 2019,2020 as a result of $163.9$55.6 million of net capital contributions made, which were sourced primarily from the $53.6 million repayment of the secured loan receivable from Hunt, amounts drawn on our revolving credit facility and $14.3proceeds received in the second quarter of 2020 from financing transactions involving the Infrastructure Bond and the Company’s direct investment in real estate that is in process of development. Such increase was also driven in part by $18.3 million of equity in income earned, partially offset by $109.9 million of distributions receivedin the Solar Ventures that was recognized during the ninesix months ended SeptemberJune 30, 2019. See Notes to Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for additional information.2020. The carrying value of the Company’s loan receivable from Hunt related to the Company’s acquisition of equity interests in SDL, which had an effective interest rate of 17.3%, increased $8.7 million since its originationInvestment Income and Return on April 1, 2019, primarily as a result of net incremental funding associated with the loan to which the acquired interest in SDL relates. Refer to Notes to Consolidated Financial Statements – Note 13, “Related Party Transactions and Transactions with Affiliates,” for more information about this transaction.
Income from Investments Related to the Solar VenturesInvestment
The Company applies the equity method of accounting to its equity investments in the Solar Ventures.Ventures, which are not consolidated by the Company for reporting purposes. Accordingly, the Company recognizes its allocable share of the Solar Venture’sVentures’ net income.income based on the Company’s weighted-average percentage ownership during each reporting period. Separately, the Company recognizes interest income associated with itsthe aforementioned loan receivable from Hunt using the interest method. Table 23 summarizes income recognized by the Company in connection with our renewable energy investments related to the Solar Ventures for the periods presented.
Table 2:3: Income Recognized from Renewable Energy Investments Related to | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | | For the six months ended | | | | | | June 30, | | | | | June 30, | | | | (in thousands) | | 2020 | | 2019 | | | Change | | 2020 | | 2019 | | | Change | Equity in income from the Solar Ventures | | $ | 13,728 | | $ | 4,529 | | $ | 9,199 | | $ | 18,270 | | $ | 8,249 | | $ | 10,021 | Interest income | | | 26 | | | 426 | | | (400) | | | 45 | | | 426 | | | (381) | Net gains on loans | | | 20 | | | — | | | 20 | | | 11 | | | — | | | 11 | Total investment income | | $ | 13,774 | | $ | 4,955 | | | 8,819 | | $ | 18,326 | | $ | 8,675 | | $ | 9,651 |
Equity in income from the Solar Ventures | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Equity in income from the Solar Ventures | | $ | 6,022 | | $ | 2,032 | | $ | 14,271 | | $ | 4,004 | Interest income from the Hunt loan receivable | | | 839 | | | ─ | | | 1,265 | | | ─ | Total investment income | | $ | 6,861 | | $ | 2,032 | | $ | 15,536 | | $ | 4,004 |
recognized by the Company in the second quarter of 2020 included its allocable share, or $3.9 million, of $8.9 million of net fair value gains that were recognized by the Solar Ventures related to its loan portfolio (the recognition of these net fair value gains reversed nearly in full the Company’s allocable share of net fair value losses recognized by the Solar Ventures in the first quarter of 2020). The Company generated an unlevered net return on investment from our renewable energy investments, as measured on an annualized twelve-month trailing basis, of 11.8% and 10.7% for the six months ended June 30, 2020 and June 30, 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 investments related to the Solar Ventures.renewable energy investments. Leveraging our Renewable Energy Investments Related to the Solar Ventures 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 that initially provided for a $70.0 million revolving credit facility, which may be increased up to $125.0 million (the “Facility Amount”) afterlenders. During the initial closing date uponfirst quarter of 2020, the joinder of additional lenders. Themaximum Facility Amount may be expanded by upwas increased to an additional $50.0$175.0 million subject to the agreement of the participating lenders and satisfaction of certain other customary conditions. On October 11, 2019, the committed amount of the revolving credit facility increased from $100.0 million to $100.0$120.0 million upon the joinder of twoan 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, all of which are customary for such financings.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.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 SeptemberJune 30, 2019,2020, the UPB and carrying value of amounts borrowed fromunder the revolving credit facility was $45.0$110.0 million whileand the Company recognized $0.1$2.9 million of related interest expense in the Consolidated Statements of Operations during the threesix months ended SeptemberJune 30, 2019. As of November 1, 2019,2020. The liquidity accessed by the UPB and carrying value ofCompany through the revolving credit facility was $53.5 million. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information. Throughhas increased the Company’s access to additional liquidity from the revolving credit facility, we expect to increase the overall amount of capital invested in the Solar Ventures, which is expected to result in meaningful growth in our income generatedVentures.
Deferred Tax Assets Deferred taxes arise from the Solar Ventures. Moreover, we expect our returns to further improve as a result of leverage and a reduction in both the time and amount of idle capital since our access to the revolving credit facility will enable our equity capital to be more fully invested. OA&L Portfolio
In our OA&L portfolio, we manage the Company’s cash, investments in bonds, loan receivables, real estate-related investments, subordinated debt and otherdifferences 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 June 30, 2020, the reported carrying value of the Company. An overviewCompany’s net DTA was $57.3 million. A valuation allowance was also maintained at such reporting date against the portion of the primary assetsour DTAs that correspond to federal and liabilities within this portfolio follows.state NOL carryforwards that we expected will expire prior to utilization based upon our forecast of pretax book income. Hunt NoteInvestments in Bonds
The Company has a secured loan receivable from Hunt (the “Hunt Note”) that had a carrying value of $67.0 million and bore interest at a rate of 5.0% per annum at September 30, 2019. The Hunt Note is prepayable at any time and will amortize in 20 equal quarterly payments of $3.35 million beginning on March 31, 2020. Refer to Notes to Consolidated Financial Statements — Note 13, “Related Party Transactions and Transactions with Affiliates,” for more information.
Investments in Bonds
At September 30, 2019, we held two unencumbered tax-exempt multifamily bond investments with a UPB and fair value of $6.2 million and $8.7 million, respectively. On November 6, 2019, one of our remaining tax-exempt multifamily bond investments, that had a UPB and fair value of $2.2 million and $2.8 million at September 30, 2019, respectively, was fully redeemed at its reported fair value.
The Company also has one unencumbered tax-exempt municipal bond that financesfinanced 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”).development. At SeptemberJune 30, 2019,2020, the Infrastructure Bond had a stated fixed interest rate of 6.3% and had a UPB and fair value of $27.2$26.7 million and $25.4$23.9 million, respectively. As further discussed below, the Company closed in the second quarter of 2020 a financing transaction that involved the sale of this bond investment to a third party with which the Company contemporaneously-executed a total return swap (“TRS”) agreement that also referenced such bond investment. Given the economic interest retained in such bond investment through the TRS agreement, the Company reported the conveyance of such investment as a secured borrowing and, therefore, continued to recognize the Infrastructure Bond on the Company’s Consolidated Balance Sheets.
At June 30, 2020, we also held one subordinated 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 SeptemberJune 30, 2019,2020, we weremaintained an equity partnerinterest in foura real estate-related investments consisting of (i) an 80.00%investment through our 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 “Infrastructure Venture”) and (ii) three limited partner interests in partnerships that own affordable housing and in which our ownership interest ranged from 74.25% to 74.92%.SF Venture. The carrying value of these four investmentsthis investment was $20.4$10.1 million at SeptemberJune 30, 2019.2020. At SeptemberJune 30, 2019,2020, the Company maintained an 11.85% ownership interest in the South Africa Workforce Housing Fund (“SAWHF”). SAWHF is a multi-investor fund that will maturewhose term matured in April 2020. However, the fund does not anticipate fully exiting all its remaining investments until December 31, 2021. On May 22, 2020, the Company received a pro-rata distribution from SAWHF of 7.2 million common shares of a residential real estate investment trust (“REIT”) that is listed on the Johannesburg Stock Exchange. These REIT shares are reported at their fair value and is currentlyare denominated in the process of exiting its investments.South African rand. The carrying valuevalues of the Company’s investmentequity investments in SAWHF was $7.5and the REIT were $2.0 million and $2.7 million, respectively, at SeptemberJune 30, 2019.2020. At SeptemberJune 30, 2019,2020, we also owned one direct investment in real estate consisting of a parcel of land that is currently in the process of infrastructure development. This real estate is located just outside the city of Winchester in Frederick County, Virginia. During the first quartersix months of 2019,2020, the Company invested $4.4$6.1 million forin additional land improvements andthat were capitalized, increasing the carrying value of our investment. As of June 30, 2020, the carrying value of this investment was $8.4 million at September 30, 2019.$14.5 million. Deferred Tax Assets
Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. Deferred tax assets (“DTAs”) are recognized if we assess that it is more likely than not that tax benefits, including net operating losses (“NOLs”) and other tax attributes, will be realized prior to their expiration. Other Debt Obligations
At December 31, 2018, the carrying value of our DTAs was $124.5 million although such assets were fully reserved at such reporting date because of management’s assessment that it was not more likely than not thatJune 30, 2020, the Company would realize its DTAs. We evaluate our DTAs for recoverability using a consistent approach that considers the relative impact of negative and positive evidence, including our historical profitability and projections of future taxable income. The Company’s DTAs remain fully reserved at September 30, 2019. The Company believes there is more than a remote but less than likely chance that, within the next 12 months, the portion of DTAs for which a valuation allowance is maintained could materially change due to potential changes in the Company’s investment strategy andhad other factors.
Debt Obligations
At September 30, 2019, the debt obligations in our OA&L portfoliothat included the Company’s subordinated debt, notes payable and other debt used to finance certain non-interest bearing investments and asset related debt that was used to finance interest bearing investments. As further discussed below, in the Company’s 11.85% ownership interestsecond quarter of 2020, the Company closed a $10.0 million lending arrangement that is secured by our direct investment in SAWHFreal estate that is in process of development and debt obligation to the Morrison Grove Management, LLC (“MGM”) principals.
a $23.5 million financing arrangement associated with its Infrastructure Bond investment. The carrying value and weighted-average yield of the Company’s other debt obligations in the OA&L portfolio was $106.3$135.5 million and 4.2%3.0%, respectively, at SeptemberJune 30, 2019.2020. Refer to Table 8,9, “Debt,” for more information. Sources of Comprehensive Income from the OA&L Portfolio
The primary sources of comprehensive income associated with our OA&L portfolio include: interest income on loan receivables; interest expense associated with debt obligations; non-interest income from real estate-related investments, debt obligations and derivative instruments used for risk management purposes; and other expenses. Refer to “Consolidated Results of Operations,” for a comparative discussion of income and expenses recognized in connection with assets and liabilities of the OA&L portfolio.
SUMMARY OF FINANCIAL PERFORMANCE Net Worth Common shareholders’ equity increased $5.0(“Book Value”) decreased $3.2 million in the thirdsecond quarter of 20192020 to $219.6$274.5 million at SeptemberJune 30, 2019.2020. This change was primarily driven by $4.9$3.3 million of comprehensive incomeloss and $0.1 million of other increases in common shareholders’ equity. Diluted common shareholders’ equity (“Book Value”) per share increased $0.83,decreased $0.58, or 2.3%1.2%, in the thirdsecond quarter of 20192020 to $37.29$47.24 at SeptemberJune 30, 2019.2020.
Book Value adjusted to exclude the carrying value of our net DTAs (“Adjusted Book Value”) decreased $1.1 million in the second quarter of 2020 to $217.2 million at June 30, 2020. This change was driven by $1.5 million of “Net loss from continuing operations before income taxes” and $0.4 million of other decreases in Book Value. Adjusted Book Value per share decreased $0.22, or 0.6%, in the second quarter of 2020 to $37.37 at June 30, 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 IncomeLoss We recognized a comprehensive incomeloss of $4.9$3.3 million induring the thirdsecond quarter of 2019,2020, which consisted of $5.6$3.5 million of net incomeloss and $0.7$0.2 million of other comprehensive loss.income. In comparison, we recognized $5.3$2.1 million of comprehensive income in the third quarter of 2018,ended June 30, 2019, which consisted of $8.6$23.2 million of net income and $3.3$21.1 million of other comprehensive loss. Net income that weThe $3.5 million net loss recognized in the thirdsecond quarter of 20192020 was primarily driven by a $9.0 million impairment charge recognized on our equity investment in the SF Venture, as described above, other interest expense, operating expenses and income from unconsolidated funds and ventures,tax expense, the net gainseffect of which was largely offset by the impact of strong returns on bondsrenewable energy investments and net interest income. Refer to “Consolidated Results of Operations,” for more information about changesinformation.
Net loss from continuing operations before income taxes in common shareholders’ equity attributablethe second quarter of 2020 was $1.5 million, or $0.27 per share, as compared to $23.3 million net income.income in the second quarter of 2019. Other comprehensive lossgain of $0.2 million that we reported in the thirdsecond quarter of 20192020 was primarily attributable to the reclassification of fair value gains out of accumulated other comprehensive income (“AOCI”) and into our Consolidated Statements of Operations due to the redemption of certain bond investments during such reporting period. The impact of this reclassification was partially offset by net fair value gains that we recognized in AOCI during the third quarter of 2019 in connection with our bond investments. 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 Consolidated Balance Sheets for the periods presented. Table 3:4: Consolidated Balance Sheets | | | | | | | | | | | | At | | At | | | | | | June 30, | | December 31, | | | (in thousands, except per share data) | | 2020 | | 2019 | | Change | Assets | | | | | | | | | | Cash and cash equivalents | | $ | 24,554 | | $ | 8,555 | | $ | 15,999 | Restricted cash | | | 17,300 | | | 4,250 | | | 13,050 | Investments in debt securities | | | 29,988 | | | 31,365 | | | (1,377) | Investments in partnerships | | | 375,200 | | | 316,677 | | | 58,523 | Deferred tax assets, net | | | 57,336 | | | 57,711 | | | (375) | Loans held for investment | | | 1,291 | | | 54,100 | | | (52,809) | Other assets | | | 21,267 | | | 12,984 | | | 8,283 | Total assets | | $ | 526,936 | | $ | 485,642 | | $ | 41,294 | | | | | | | | | | | Liabilities | | | | | | | | | | Debt | | $ | 245,532 | | $ | 201,816 | | $ | 43,716 | Accounts payable and accrued expenses | | | 4,168 | | | 2,527 | | | 1,641 | Other liabilities | | | 2,749 | | | 174 | | | 2,575 | Total liabilities | | $ | 252,449 | | $ | 204,517 | | $ | 47,932 | | | | | | | | | | | Book Value: Basic and Diluted | | $ | 274,487 | | $ | 281,125 | | $ | (6,638) | | | | | | | | | | | Less: Deferred tax assets, net | | | 57,336 | | | 57,711 | | | (375) | Adjusted Book Value: Basic and Diluted (1) | | $ | 217,151 | | $ | 223,414 | | $ | (6,263) | | | | | | | | | | | Common shares outstanding: Basic and Diluted | | | 5,811 | | | 5,805 | | | 6 | | | | | | | | | | | Book Value per common share: Basic and Diluted | | $ | 47.24 | | $ | 48.43 | | $ | (1.19) | | | | | | | | | | | Adjusted Book Value per common share (1): Basic and Diluted | | $ | 37.37 | | $ | 38.49 | | $ | (1.12) |
| | | | | | | | | | | | At | | At | | | | | | September 30, | | December 31, | | | (in thousands, except per share data) | | 2019 | | 2018 | | Change | Assets | | | | | | | | | | Cash and cash equivalents | | $ | 10,837 | | $ | 28,243 | | $ | (17,406) | Restricted cash | | | 6,115 | | | 5,635 | | | 480 | Investments in debt securities | | | 34,121 | | | 97,190 | | | (63,069) | Investments in partnerships | | | 222,567 | | | 155,079 | | | 67,488 | Loans held for investment | | | 87,267 | | | 67,299 | | | 19,968 | Other assets | | | 13,050 | | | 10,940 | | | 2,110 | Total assets | | $ | 373,957 | | $ | 364,386 | | $ | 9,571 | | | | | | | | | | | Liabilities | | | | | | | | | | Debt | | $ | 151,340 | | $ | 149,187 | | $ | 2,153 | Accounts payable and accrued expenses | | | 2,689 | | | 2,289 | | | 400 | Other liabilities | | | 333 | | | — | | | 333 | Total liabilities | | $ | 154,362 | | $ | 151,476 | | $ | 2,886 | | | | | | | | | | | Basic and Diluted Common Shareholders' Equity | | $ | 219,595 | | $ | 212,910 | | $ | 6,685 | | | | | | | | | | | Basic and diluted common shares outstanding | | | 5,889 | | | 5,882 | | | 7 | Basic and diluted common shareholders' equity per common share | | $ | 37.29 | | $ | 36.20 | | $ | 1.09 | | | | | | | | | | |
| (1) | Adjusted Book Value and Adjusted Book Value per share are financial measures that are determined other than in accordance with GAAP. These non-GAAP financial measures are used to show the amount of our net worth in the aggregate and on a per-share basis, without giving effect to changes in Book Value due to the partial release of our deferred tax asset valuation allowance as of June 30, 2020, March 31, 2020 and December 31, 2019. Refer to “Use of Non-GAAP Measures” for more information, including a reconciliation of these non-GAAP financial measures to the most directly comparable historical measures determined under GAAP. |
Cash and cash equivalents decreased increased primarily due to net cash usedproceeds received in connection with investments madefinancing transactions that closed in the Solar Ventures.second quarter of 2020 involving the Company’s Infrastructure Bond investment and our direct investment in real estate. Investments in debt securities decreasedRestricted cash increased primarily as a result of cash collateral to our counterparty in connection with the sale and redemptionaforementioned financing transaction involving the Company’s Infrastructure Bond investment.
Investments in debt securities decreased primarily due to the recognition of certain bond investments andnet fair value losses in the terminationfirst six months of all outstanding total return swap (“TRS”) agreements.2020 that were attributable to increases in the market yields of such investments. Investments in partnerships increased primarily as a result of net capital contributions of $54.0$55.6 million from the Companythat we made to the Solar Ventures and the recognition of $14.3$18.3 million of equity in income of our investees. The impact of these items was partially offset by the effects of both a $9.0 million impairment charge recognized in such investees.the second quarter of 2020 related to our equity investment in the SF Venture and a $2.9 million distribution from SAWHF of 7.2 million common shares of a listed residential REIT. Deferred tax assets, net decreased $0.4 million primarily due to deferred income tax expense that was recognized in the first six months of 2020 to establish a valuation allowance against deferred tax benefits stemming from the $9.0 million impairment charge associated with the Company’s equity investment in the SF Venture. Loans held for investment decreased primarily as a result of the repayment of the Company’s $53.6 million loan receivable from Hunt (the “Hunt Note”) on January 3, 2020. Other Assets increased primarily as a result of $6.1 million of land improvement costs that were capitalized in connection with a real estate investment that is in process of development and the Company’s $11.3 million acquisitionaforementioned distribution from SAWHF of Hunt’s ownership interest in SDL in the second quarter of 2019 that was accounted for as a secured lending arrangement. Since acquisition, the carrying value of this loan receivable increased by $8.7 million as a result of the accrual of interest income and net incremental funding associated with the loan to which the acquired interest in SDL relates.REIT common shares. Debt increased primarily as a result of an advance fromproceeds received in the revolving credit facility. This increase was largely offset by the effectsecond quarter of 2020 related to the aforementioned terminationfinancing transactions involving the Company’s Infrastructure Bond investment and direct investment in real estate that is in process of TRS agreements, which prompted the redemption of all asset related debt that financed certain bond investments of the Company. development. CONSOLIDATED RESULTS OF OPERATIONS This section provides a comparative discussion of our Consolidated Results of Operations and should be read in conjunction with our consolidated financial statements, including the accompanying notes. See “Critical Accounting Policies and Estimates,” for more information concerning the most significant accounting policies and estimates applied in determining our results of operations. Income (loss) that was attributable to certain businesses and assets that were conveyed by the Company on January 8, 2018 (the “Disposition”) were reclassified for all reporting periods and reported separately as “Net income (loss) from discontinued operations, net of tax.”
Net Income Table 45 summarizes net income for the periods presented. Table 4:5: Net (Loss) Income | | | | | | | | | | | | | | | | For the three months ended | | | | For the nine months ended | | | | | | September 30, | | | | September 30, | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | For the six months ended | | | | | | June 30, | | | | June 30, | | | (in thousands) | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | Net interest income | | $ | 2,131 | | $ | 2,350 | | $ | (219) | | $ | 6,440 | | $ | 7,975 | | $ | (1,535) | | $ | 554 | | $ | 2,630 | | $ | (2,076) | | $ | 1,113 | | $ | 4,309 | | $ | (3,196) | Non-interest income | | | | | | | | | | | | | | | | | | | | | | | | | Equity in income from unconsolidated funds and ventures | | 6,024 | | 3,273 | | 2,751 | | 15,643 | | 5,655 | | 9,988 | | 13,351 | | 5,643 | | 7,708 | | 17,499 | | 9,619 | | 7,880 | Net gains on bonds, derivatives and extinguishment of liabilities | | 1,477 | | 7,260 | | (5,783) | | 22,397 | | 11,622 | | 10,775 | | Net (losses) gains | | | (765) | | 18,802 | | (19,567) | | (2,485) | | 20,920 | | (23,405) | Other income | | 80 | | 28 | | 52 | | 112 | | 189 | | (77) | | 1 | | 15 | | (14) | | 2 | | 32 | | (30) | Other expenses | | | | | | | | | | | | | | | | | | | | | | | | | Other interest expense | | (1,207) | | (1,166) | | (41) | | (3,613) | | (3,353) | | (260) | | (2,418) | | (1,197) | | (1,221) | | (4,687) | | (2,406) | | (2,281) | Other expenses | | | (2,903) | | | (3,275) | | | 372 | | | (9,205) | | | (14,248) | | | 5,043 | | Net income from continuing operations before income taxes | | | 5,602 | | | 8,470 | | | (2,868) | | | 31,774 | | | 7,840 | | | 23,934 | | Impairment losses | | | (8,972) | | — | | (8,972) | | (8,972) | | — | | (8,972) | Operating expenses | | | | (3,299) | | | (2,623) | | | (676) | | | (8,267) | | | (6,302) | | | (1,965) | Net (loss) income from continuing operations before income taxes | | | | (1,548) | | | 23,270 | | | (24,818) | | | (5,797) | | | 26,172 | | | (31,969) | Income tax expense | | (26) | | (122) | | 96 | | (89) | | (86) | | (3) | | (1,960) | | (50) | | (1,910) | | (769) | | (63) | | (706) | Net income (loss) from discontinued operations, net of tax | | — | | | 276 | | | (276) | | | (8) | | | 21,972 | | | (21,980) | | Net income | | $ | 5,576 | | $ | 8,624 | | $ | (3,048) | | $ | 31,677 | | $ | 29,726 | | $ | 1,951 | | Net loss from discontinued operations, net of tax | | | | — | | | (1) | | | 1 | | | — | | | (8) | | | 8 | Net (loss) income | | | $ | (3,508) | | $ | 23,219 | | $ | (26,727) | | $ | (6,566) | | $ | 26,101 | | $ | (32,667) |
Net Interest Income Net interest income represents interest income earned on our loans, investments in bonds, loans and other interest-earning assets less our cost of funding associated with short-term borrowings and long-termthe debt that we use to finance suchthese assets. Net interest income decreased during the three months and nine months ended September 30, 2019, as compared to the three months and nine months ended September 30, 2018, primarily due to a decrease in the carrying value of bond investments that was driven by the disposition or redemption of various bond investments and the termination of all outstanding TRS agreements. The impact of these transactions was partially offset by: (i) the recognition of $0.8 million and $1.3 million of interest income for the three months and ninesix months ended SeptemberJune 30, 2020, declined compared to that reported for the three months and six months ended June 30, 2019, respectively, associated with a loan receivable that was recognized in connection withprimarily due to the Company’s acquisitionfull repayment of Hunt’s ownership interest in SDL and (ii) the recognition of additional interest income associated with the Hunt Note and the UPBdisposition and redemption of which increased $10.0 million during the fourth quarter of 2018.various bond-related investments throughout 2019. Equity in Income from Unconsolidated Funds and Ventures Equity in income from unconsolidated funds and ventures includes our portionallocable share of the income associated with certainearnings or losses from the funds and ventures in which we have an equity interest. Table 56 summarizes equity in income from unconsolidated funds and ventures for the periods presented. Table 6: Equity in Income from Unconsolidated Funds and Ventures | | | | | | | | | | | | | | | | For the three months ended | | | | For the nine months ended | | | | | | September 30, | | | | September 30, | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | For the six months ended | | | | | | June 30, | | | | June 30, | | | (in thousands) | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | Solar Ventures | | $ | 6,022 | | $ | 2,032 | | $ | 3,990 | | $ | 14,271 | | $ | 4,004 | | $ | 10,267 | | $ | 13,728 | | $ | 4,529 | | $ | 9,199 | | $ | 18,270 | | $ | 8,249 | | $ | 10,021 | U.S. real estate partnerships | | 124 | | 1,770 | | (1,646) | | 1,141 | | 1,996 | | (855) | | (516) | | 1,005 | | (1,521) | | (1,102) | | 1,017 | | (2,119) | SAWHF | | | (122) | | | (529) | | | 407 | | | 231 | | | (345) | | | 576 | | | 139 | | | 109 | | | 30 | | | 331 | | | 353 | | | (22) | Equity in income from unconsolidated funds and ventures | | $ | 6,024 | | $ | 3,273 | | $ | 2,751 | | $ | 15,643 | | $ | 5,655 | | $ | 9,988 | | $ | 13,351 | | $ | 5,643 | | $ | 7,708 | | $ | 17,499 | | $ | 9,619 | | $ | 7,880 |
Equity in income from the Solar Ventures increased duringfor the three months and ninesix months ended SeptemberJune 30, 2019, as2020, increased compared to that reported for the three months and ninesix months ended SeptemberJune 30, 2018,2019, primarily as a result of ana significant period-over-period increase in loan origination activity at SDLthe amount of capital invested and SCL,the volume of loans originated by the Solar Ventures, which resulted in a year-over-year increase indrove net income of the Solar Ventures and the Company’s share thereof higher. Such returns included the Company’s allocable share of net income in such ventures. The impact of this increase was partially offsetfair value gains (losses) recognized by amortization expense recognizedthe Solar Ventures in connection with the purchase premium paid by the Company to buy out its former investment partner. Additionally, equity in income increasedfunded portion of loan commitments. The Company’s allocable share of such net fair value gains (losses) was $3.9 million and $(0.1) million for the ninethree and six months ended SeptemberJune 30, 2019, due tothe elimination of the preferred return previously earned by the former investment partner prior to the Company’s buyout of such partner’s interest on June 1, 2018.2020, respectively. Equity in income from U.S. real estate partnerships decreased duringfor the three months and ninesix months ended SeptemberJune 30, 2019, as2020, decreased compared to that reported for the three months and ninesix months ended SeptemberJune 30, 2018,2019, primarily as a result of (i) a reduction in 20192020 of nonrecurring gains associated with the sale of investment properties by real estate partnerships in which wethe Company maintained an ownership interest and (ii) land license fees incurred by the Infrastructure Venture in connection with its holdings of undeveloped land parcels. Equity in income from the Company’s equity investment in SAWHF increased during the three and nine months ended September 30, 2019, as compared to that reported for the three and nine months ended September 30, 2018, primarily as a result of an increase in net losses attributable to the fair valueCompany from the SF Venture largely driven by a decline in rental income associated with the effects of real estate-related investments held by SAWHF.COVID-19 and an increase in undeveloped land license fee expense. We anticipate that we will continue to recognize equity in losses from the SF Venture for the foreseeable future.
Net (Losses) Gains Net Gains Relating to Bonds, Derivatives and Extinguishment of Liabilities Net(losses) gains may include net realized and unrealized gains or losses relating to bonds, loans, derivatives, other assets, real estate and other investments and loans as well as gains or losses realized by the Company in connection with the extinguishment of itsdebt obligations.
The Company recognized debt obligations (collectively referred to as “Net Gains”). Net Gainsnet losses for the three months and six months ended SeptemberJune 30, 2019, decreased2020, compared to thosenet gains reported for the three months and six months ended SeptemberJune 30, 2018,2019, primarily due to: (i) a reductionto nonrecurring gains of $20.7 million and $24.3 million that were recognized in net gains recognizedthe second quarter of 2019 and the first six months of 2019, respectively, in connection with the sale or redemption of bond investments; (ii)investments. The impact of these items was partially offset by decreases in net fair value losses recognized in 2019of $1.3 million and $1.0 million for the three and six months ended June 30, 2020, respectively, related to derivative instruments that stemmed from changes in reference interest rate derivative instruments; and (iii) a nonrecurring gain of $1.1 million that was recognized in 2018 in connection with the sale of the Company’s limited partnerforeign exchange rates.
Other Interest Expense Other interest in a partnership that owned an affordable housing property. Net Gainsexpense for the ninethree months and six months ended SeptemberJune 30, 2019,2020, increased compared to thosethat reported for the ninethree months and six months ended SeptemberJune 30, 2018,2019, primarily due to a $21.3 million increase in holding gains thatadvances on the Company’s revolving credit facility.
Impairment Losses Impairment losses for the three and six months ended June 30, 2020, were realized in connection with sale or redemption of bond investments during the first nine months of 2019 as comparedattributable to the same periodCompany’s equity investment in 2018. The impact of these transactionsthe SF Venture, which was partially offset by (i) a $9.5 million decrease in net fair value gains recognized indetermined to be other-than-temporarily impaired at June 30, 2020. connection with interest rate derivative instruments and (ii) a nonrecurring gain of $1.1 million that was recognized in 2018 in connection with the sale of the Company’s limited partner interest in a partnership that owned affordable housing property.
OtherOperating Expenses
OtherOperating expenses include management fees and reimbursable expenses payable to our External Manager, general and administrative expense, professional fees salaries and benefits and other miscellaneous expenses.
Table 67 summarizes otheroperating expenses for the periods presented. Table 6: Other7: Operating Expenses | | | | | | | | | | | | | | | | For the three months ended | | | | For the nine months ended | | | | | | September 30, | | | | September 30, | | | | | | | | | | | | | | | | | | | | | For the three months ended | | | | For the six months ended | | | | | | June 30, | | | | June 30, | | | (in thousands) | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | External management fees and reimbursable expenses | | $ | (1,646) | | $ | (1,059) | | $ | (587) | | $ | (6,042) | | $ | (5,762) | | $ | (280) | | $ | (2,449) | | $ | (2,128) | | $ | (321) | | $ | (5,209) | | $ | (4,396) | | $ | (813) | General and administrative | | (237) | | (328) | | 91 | | (855) | | (1,032) | | 177 | | (372) | | (304) | | | (68) | | (731) | | (618) | | | (113) | Professional fees | | (608) | | (1,230) | | 622 | | (1,826) | | (5,031) | | 3,205 | | (624) | | (251) | | (373) | | (1,333) | | (1,218) | | (115) | Other expenses | | (412) | | (625) | | 213 | | (482) | | (1,295) | | 813 | | | 146 | | | 60 | | | 86 | | | (994) | | | (70) | | | (924) | Salaries and benefits | | | ─ | | | (33) | | | 33 | | | — | | | (1,128) | | | 1,128 | | Total other expenses | | $ | (2,903) | | $ | (3,275) | | $ | 372 | | $ | (9,205) | | $ | (14,248) | | $ | 5,043 | | Total operating expenses | | | $ | (3,299) | | $ | (2,623) | | $ | (676) | | $ | (8,267) | | $ | (6,302) | | $ | (1,965) |
OtherOperating expenses for the three months and six months ended SeptemberJune 30, 2019, declined2020, increased compared to that reported for the three months and six months ended SeptemberJune 30, 2018,2019, primarily due to a decrease(i) an increase in (i) nonrecurring professional feesthe amount of compensation-related expense reimbursements that were incurredpayable to the External Manager and (ii) $1.0 million of losses recognized in the third quarterfirst six months of 2018 in connection with the disposition of the Company’s interest in MGM and (ii) losses recognized2020 in connection with the remeasurement of foreign currency-denominated assets and liabilities into U.S. dollars for reporting purposes. purposes as the rand weakened against the U.S. dollar during such reporting period.
Income Tax Expense The impact of these items was partially offset by an increase in compensation-related expense reimbursements payable to the External Manager that was attributable to the fact that, in 2019, the annual cap was not reached until the third quarter while, in 2018, the annual cap on such expenses was met in the second quarter. Other expenses for the nine months ended September 30, 2019, declined compared to that reported for the nine months ended September 30, 2018, primarily due to a decrease in: (i) nonrecurring professional fees that were incurred in 2018 in connection with the Disposition and the sale of our interests in MGM; (ii) salaries and benefitsnet income tax expense recognized in 2018 associated with stock options that were fully exercised as of December 31, 2018; (iii) nonrecurring impairment losses recognized in connection with certain equity investments in the first quarter of 2018; and (iv) losses recognized in connection with the remeasurement of foreign currency-denominated assets and liabilities into U.S. dollars for reporting purposes.
Net Income (Loss) from Discontinued Operations
Net income (loss) from discontinued operations primarily includes income and expenses associated with businesses and assets that were sold by the Company in connection with the Disposition.
Net income from discontinued operations decreased forduring the three months and six months ended SeptemberJune 30, 2019,2020, increased compared to that reported for the three months and six months ended SeptemberJune 30, 2018,2019, primarily due to the recognition of deferred income tax expense to establish a decrease in nonrecurring income recognizedvaluation allowance against deferred tax benefits stemming from the $9.0 million impairment loss associated with the Company’s equity investment in the third quarterSF Venture. The corresponding DTA was assessed to not be realizable because the decline in fair value of 2018 in connection with the disposition of the Company’s interests in MGM.
Net income from discontinued operations decreased for the nine months ended September 30, 2019, comparedour equity investment was determined to that reported for the nine months ended September 30, 2018, primarily due to a decrease in nonrecurring net gains recognized in the first quarter of 2018 in connection with the Disposition. See Notes to Consolidated Financial Statements – Note 15, “Discontinued Operations,” for more information.
be other-than-temporary. LIQUIDITY AND CAPITAL RESOURCES This section supplements and updates information regarding liquidity and capital resources in our 2018 Annual Report. See “MD&A—Liquidity
Liquidity and Capital Resources” and “Risk Factors” in our 2018 Annual Report for additional information, including discussionsis a measure of our primaryability to meet potential short-term (within one year) and long-term cash requirements, including ongoing commitments to repay borrowings, fund and maintain our current and future assets and other general business needs. Our sources of liquidity include: (i) cash and uses of fundscash equivalents; (ii) cash flows from operating activities; (iii) cash flows from investing activities; and capital resources. Liquidity(iv) cash flows from financing activities.
Summary of Cash Flows Table 78 provides a consolidated view of the change in cash, cash equivalents and restricted cash of the Company for the periods presented, though 2018 changes in such balances that were attributable to consolidated fundspresented. At June 30, 2020 and ventures (“CFVs”) are separately identified in such tabular disclosure. However, changes in net cash flows that are discussed in the narrative that follows Table 7 are exclusive of changes in cash of the CFVs. The Disposition resulted in the deconsolidation from the Company’s Consolidated Balance Sheets in the first quarter of 2018 of all guaranteed Low-Income Housing Tax Credit (“LIHTC”) funds and derecognition of nearly all other CFVs that were recognized in our Consolidated Balance Sheets at December 31, 2017. At SeptemberJune 30, 2019, and September 30, 2018, $6.1$17.3 million and $10.9$2.5 million, respectively, of amounts presented below in Table 7 represented restricted cash.
Table 7:8: Net DecreaseIncrease in Cash, Cash Equivalents and Restricted Cash | | | | | | For the nine months ended | | | | | | | | | | For the six months ended | (in thousands) | | September 30, 2019 | | June 30, 2020 | Cash, cash equivalents and restricted cash at beginning of period | | $ | 33,878 | | $ | 12,805 | Net cash provided by (used in): | | | | | Operating activities | | 5,243 | | 6,375 | Investing activities | | (60,255) | | (21,944) | Financing activities | | | 38,086 | | | 44,618 | Net decrease in cash, cash equivalents and restricted cash | | | (16,926) | | Net increase in cash, cash equivalents and restricted cash | | | | 29,049 | Cash, cash equivalents and restricted cash at end of period | | $ | 16,952 | | $ | 41,854 |
| | | | | | | | | | For the nine months ended | | | | September 30, 2018 | | | | | | | | | | For the six months ended | (in thousands) | | MMA | | CFVs | | Total | | June 30, 2019 | Cash, cash equivalents and restricted cash at beginning of period | | $ | 75,632 | | $ | 24,554 | | $ | 100,186 | | $ | 33,878 | Net cash used in: | | | | | | | | Net cash provided by (used in): | | | | Operating activities | | (3,994) | | — | | (3,994) | | 4,605 | Investing activities | | (41,814) | | (24,554) | | (66,368) | | (21,666) | Financing activities | | | (3,324) | | | — | | | (3,324) | | | (3,724) | Net decrease in cash, cash equivalents and restricted cash | | | (49,132) | | | (24,554) | | | (73,686) | | | (20,785) | Cash, cash equivalents and restricted cash at end of period | | $ | 26,500 | | $ | — | | $ | 26,500 | | $ | 13,093 |
Operating Activities Cash flows from operating activities include, but are not limited to, interest income on our investments, and income distributions from our investments in unconsolidated funds and ventures and advances on loans held for sale.ventures. Net cash flows associated withprovided by operating activities increased by $9.2 million during the ninesix months ended SeptemberJune 30, 2019, as2020 increased $1.8 million compared to such net cash flows during the ninesix months ended SeptemberJune 30, 2018.2019. This net increase was primarily driven by: (i)by a $3.5$7.4 million increase in distributions received from the Company’s investment in partnerships that primarily related to the Solar Ventures; (ii)this increase was partially offset by (i) a $1.5$3.9 million decreasedecline in bond related interest expense asnet cash flows from bond-related investments given the amount of the Company’s bond related debt outstanding declined upon the settlement of saledisposition and redemption transactionsof various bond investments and termination of TRS agreements during the fourth quarter of 2018in 2019 and first nine months of 2019; (iii) the nonrecurring purchase of(ii) a $9.0$1.3 million senior loan during the first quarter of 2018 from a MGM affiliateincrease in interest expense that we designated as held for sale; and (iv) nonrecurring professional fees incurred in 2018 in connection with the Disposition transaction and the disposition ofwas primarily attributable to the Company’s interests in MGM. The effectsrevolving credit facility.
Investing Activities Net cash flows associated with investing activities include, but are not limited to:to, principal payments,payments; capital contributions and distributions,distributions; advance of loans held for investmentinvestment; and sales proceeds from the sale of bonds, loans and real estate and other investments. Net cash flows used in investing activities during the ninesix months ended SeptemberJune 30, 2019,2020 increased by $18.4$0.3 million as compared to amounts used in investing activitiessuch net cash flows during the ninesix months ended SeptemberJune 30, 2018. This2019. The net increase was primarily driven by a $119.4impacts of an $18.7 million increase in capital contributions to the Company’s investments in partnerships during the first nine months of 2019 that primarily relatedmade to the Solar Ventures and an $11.3a $21.7 million origination of a loan held for investment. The effects of these items were partially offset by: (i) a $70.8 million increasedecrease in capital distributions received from the Company’s investmentinvestments in partnerships that primarily(primarily related to its investments in the Solar Ventures; (ii)Ventures) were largely offset by a $20.1$29.6 million increase in net principal payments and sale and redemptionbond-related sales proceeds received on our bond-related investments;bonds and (iii)loans held for investment, which was primarily due to the derecognition of $21.9 million of cash and restricted cash upon settlementfull repayment of the Disposition$53.6 million Hunt Note during the first quarter of 2018.2020, and a $10.6 million decrease in cash used for advances on and originations of loans held for investment. Financing Activities Net cash flows provided by financing activities during the ninesix months ended SeptemberJune 30, 2019,2020 increased by $41.4$48.3 million as compared to amounts tosuch net cash flows during the ninesix months ended SeptemberJune 30, 2018.2019. This increase was primarily attributable to (i) a $32.8 million increase in proceeds from borrowingsnet advances from the revolving credit facility that was established inand advances during the thirdsecond quarter of 20192020 from financing transactions associated with the Company’s Infrastructure Bond investment and (ii) a $13.0 million and $4.1 million decreasedirect investment in the amountreal estate that is in process of net cash flows used to repay borrowings and repurchase common shares, respectively, during the first nine monthsbeing developed. The impact of 2019. The effects of these items werethis increase was partially offset by $8.4$0.7 million of nonrecurring cash flows provided bydebt issuance costs that were incurred in connection with (i) an increase in the private placementfirst quarter of 250,0002020 in the capacity of the Company’s common shares to Huntrevolving credit facility and (ii) financing transactions that were closed during the first nine monthssecond quarter of 2018. 2020 associated with the aforementioned financing transactions.
Capital Resources Our debt obligations primarily include liabilities that we recognized in connection with our subordinated debt, revolving credit facility debt and other notes payable. At December 31, 2018, our debt obligations also included liabilities in connection with the execution of TRS agreements that were used to finance a portion of our investments in bonds. The major types of debt obligations of the Company are further discussed below. We use the revolving credit facility to finance our investments in the Solar Ventures. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information. Table 89 summarizes the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at SeptemberJune 30, 20192020 and December 31, 2018.2019. Table 9: Debt | | | | | | | | | | | | | | | At | | At | | | June 30, 2020 | | December 31, 2019 | | | | | | Wtd. Avg. | | | | | Wtd. Avg. | | | | | | Effective | | | | | Effective | | | Carrying | | Interest | | Carrying | | Interest | (dollars in thousands) | | Value (1) | | Rate (1) | | Value (1) | | Rate (1) | Subordinated debt | | $ | 94,363 | | 2.2 | % | | $ | 95,488 | | 3.2 | % | Revolving credit facility debt obligations | | | 110,000 | | 5.5 | | | | 94,500 | | 5.6 | | Notes payable and other debt | | | 17,812 | | 7.4 | | | | 8,328 | | 13.0 | | Asset related debt | | | 23,357 | | 2.8 | | | | 3,500 | | 5.0 | | Total debt | | $ | 245,532 | | 4.1 | % | | $ | 201,816 | | 4.8 | % |
Table 8: Debt
| | | | | | | | | | | | | | | At | | At | | | September 30, 2019 | | December 31, 2018 | | | | | | Wtd. Avg. | | | | | Wtd. Avg. | | | | | | Effective | | | | | Effective | | | Carrying | | Interest | | Carrying | | Interest | (dollars in thousands) | | Value (2) | | Rate (2) | | Value (2) | | Rate (2) | Subordinated debt | | $ | 96,045 | | 3.5 | % | | $ | 97,722 | | 3.7 | % | Revolving credit facility obligations | | | 45,000 | | 6.9 | | | | ─ | | ─ | | Notes payable and other debt | | | 6,295 | | 14.7 | | | | 7,210 | | 14.7 | | Asset related debt (1) | | | 4,000 | | 5.0 | | | | 44,255 | | 3.9 | | Total debt | | $ | 151,340 | | 5.0 | % | | $ | 149,187 | | 4.3 | % |
| (1) | (1)
| | At September 30, 2019 and December 31, 2018, the carrying value of bond related debt was zero and $39.3 million, respectively. At September 30, 2019 and December 31, 2018, the carrying value of non-bond related debt was $4.0 million and $5.0 million, respectively.
|
| (2)
| | Carrying value amounts and weighted-average interest rates reported in this table include the effects of any discounts, premiums and other cost basis adjustments. An effective interest rate represents an internal rate of return of a debt instrument that makes the net present value of all cash flows, inclusive of cash flows that give rise to cost basis adjustments, equal zero and in the case of (i) fixed rate instruments, is measured as of an instrument’s issuance date and (ii) variable rate instruments, is measured as of each date that a reference interest rate resets. |
Subordinated Debt At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had subordinated debt obligations that had a total UPB of $88.5$87.2 million and $89.8$88.0 million, respectively. SuchThis debt included four tranches that amortize 2.0% per annum over their contractual lives, are due to mature with balloon payments between March 2035 and July 2035 and require the Company to pay interest based upon 3-monththree-month LIBOR plus a fixed spread of 2.0%. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.At June 30, 2020 the weighted average interest pay rate on the outstanding debt was 2.9%. Revolving Credit Facility Debt Obligations At SeptemberJune 30, 2020 and December 31, 2019, MEH, a wholly owned subsidiary of the Company had borrowed $45.0$110.0 million and $94.5 million, respectively, from the revolving credit facility and had the ability to borrow an additional $25.0 million at such reporting date.facility. This debt obligation, which is guaranteed by the Company and is secured by specified(i) specific assets of the Borrower and (ii) a pledge of all of the Company’s equity interest in the Borrower, which in turn owns our equity investments in the Solar Ventures, matures on September 19, 2022, and is subject to a 12-month extension solely to allow refinancing or orderly repayment of the debt obligation. TheThis debt obligation bears interest equal to one-month LIBOR (subject to a 1.5% floor) plus a fixed spread of 2.75%. At September, which, at June 30, 2019, the LIBOR base rate plus the fixed spread2020 was 4.8%, while the weighted-average effective interest rate of the revolving credit facility was 6.9%4.25%. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information. Notes Payable and Other Debt At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had notes payable and other debt with a UPB of $6.4$18.1 million and $7.4$8.4 million, respectively. At June 30, 2020 and December 31, 2019, $4.3 million and $6.8 million, respectively, of this debt relates to financing that was obtained to complete the purchase of the Company’s 11.85% ownership interest in SAWHF. This debt, which is denominated in South African rand, was used to finance the Company’s 11.85% ownership interest in SAWHF. Such debt amortizes over its contractual life, is due to mature on September 8, 2020, and requires the Company to pay interest based upon the Johannesburg Interbank Agreed Rate (“JIBAR”) plus a fixed spread of 5.15%, which at June 30, 2020 was 9.1%. At June 30, 2020 and December 31, 2019, $4.5 million and $1.5 million, respectively, of the notes payable and other debt relates to debt obligations to the Morrison Grove Management, LLC principals (“MGM Principals”). At September 30, 2019,This debt bears interest at 5.0%. The $3.0 million debt obligation amortizes over its contractual life and is due to mature on January 1, 2026. The $1.5 million debt obligation is interest only until March 31, 2026 and then amortizes in three equal installments until its maturity date of January 1, 2027. On June 1, 2020, the JIBAR base rateCompany entered into a $10.0 million construction loan that is secured by our direct investment in real estate that is in the process of development. The initial advance from this debt was 6.81%, while$9.3 million and $0.5 million of capacity has been reserved for interest payments. The total amount advanced by the weighted-average effectivelender will not exceed 65% of the value of the pledged real estate plus 75% of the total development allowable hard costs incurred by the borrower. The loan is prepayable at any time without penalty, with all net proceeds realized from the sale of any portion of the real property required to be used to repay the outstanding UPB of the loan. Construction draws may not exceed a total principal sum of $11.1 million over the life of the facility, with the maximum outstanding UPB at any point in time not to exceed $10.0 million. The contractual maturity date of this facility is June 1, 2023, although the facility is subject to three extension options (at the discretion of the borrower and lender): (i) the first extension term would expire on November 1, 2023; (ii) the second extension term would expire on May 1, 2024 and (iii) the final amortized term would expire three years after the initial term, first extension term and second extension term, as applicable. Amounts drawn from this debt facility are repayable on an interest only basis at a rate of 4.85% with all outstanding principal due at maturity during the Company’sinitial term, first extension term and second extension term. However, during the final extension term the debt bears interest at a rate of three-month LIBOR plus 3.0% per annum, subject to a 5.0% floor with principal amortization required monthly over the three year extension term. Obligations associated with this debt are guaranteed by the Company. At June 30, 2020, this debt obligation that was used to finance its ownership in SAWHF was 14.71%. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information. had a UPB of $9.3 million. Asset Related Debt Asset related debt is debt that finances interest-bearing assets.assets of the Company. The interest expense associated with this debt is included within “Net interest income” on the Company’s Consolidated Statements of Operations. Bond Related Debt DuringOn June 5, 2020, the second quarterCompany entered into a TRS agreement involving our Infrastructure Bond, which was sold concurrently to our TRS counterparty. Proceeds received in connection with the conveyance of 2019, allsuch bond investment were reported as a secured borrowing. The TRS did not receive financial statement recognition because it caused the transfer of such bond investment not to qualify as a sale for reporting purposes. The TRS agreement has a maturity date of June 6, 2022, and requires the Company to pay interest based upon the Securities Industry and Financial Markets Association index rate, subject to a 0.5% floor, plus a spread of 2.0%, which at June 30, 2020, was 2.5%. These payment terms are used to accrue interest related to the secured borrowing that was recognized upon conveyance of the Company’s bond investment. Additionally, as required under the terms of the TRS agreement, the Company pledged cash collateral of $10.0 million representing 37.5% of the referenced bond’s UPB. At June 30, 2020, this debt obligations were fully redeemed. obligation had a UPB of $23.5 million. Additionally, under the terms of the TRS, the Company’s TRS counterparty is entitled to share in 10% of the increase in fair value, if any, of the Infrastructure Bond between the trade and termination dates of the TRS agreement. For reporting purposes, this provision is treated as a freestanding derivative instrument that is reported on a fair value basis.
Non-bond Related Debt At December 31, 2018, the Company had bond related debt obligations that had a total UPB of $38.8 million and a weighted-average effective interest rate of 3.7%. These debt obligations financed a portion of the Company’s investments in bonds. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information. Non-bond Related Debt
At September 30, 2019, and December 31, 2018, the Company had a debt obligation to MGM principalsPrincipals with a UPB of $4.0 million and $5.0 million, respectively. This debt bears interest at 5.0%, amortizes over its contractual life and is due to mature$3.5 million. Upon the full redemption of the Hunt Note on January 1, 2026. See Notes3, 2020, this asset related debt obligation to Consolidated Financial Statements – Note 6, “Debt,” for more information.the MGM Principals was reclassified to notes payable and other debt.
Covenant Compliance At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company was in compliance with all covenants under its debt arrangements. Off-Balance Sheet Arrangements At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had no off-balance sheet arrangements. Other Contractual Commitments The Company is committed to make additional capital contributions to certain of its investments in partnerships and ventures. Refer to Notes to Consolidated Financial Statements - Note 3, “Investments in Partnerships,” for more information. TheAt June 30, 2020 and December 31, 2019, the Company, through its wholly owned subsidiary REL had no unfunded loan commitments at September 30, 2019of $0.8 million and December 31, 2018.$1.6 million, respectively. Refer to Notes to Consolidated Financial Statements - Note 4, “Loans Held for Investment (“HFI”) and Loans Held for Sale (“HFS”),” for more information.
The Company uses derivative instruments to hedge interest rate and foreign currency risks. Depending upon movements in reference interest and foreign exchange rates, the Company may be required to make payments to the counterparties to these agreements. Refer to Notes to Consolidated Financial Statements – Note 7, “Derivative Instruments,” for more information about these instruments. Other Capital Resources Common Shares On September 12, 2019, the Board authorized a 2019 share repurchase program (“2019 Plan”) for the repurchase of up to 100,000 common shares, at market prices up to the Company’s last reported diluted common shareholders’ equity per share, which was $36.46 as reported within the Company’s Quarterly Report on Form 10-Q for the period endedAt June 30, 2019. The Company then adopted a Rule 10b5-1 plan implementing the Board’s authorization, subject to volume limitations as defined by Rule 10b-18 under the Exchange Act. The 2019 Plan expires upon the earlier of the close of trading on December 31, 2019 or the repurchase of the authorized 100,000 common shares. Between October 1, 2019 and November 1, 2019,2020, the Company repurchased 23,849 common shares atdid not have an average price of $31.06.
active share buyback plan in place. Dividend Policy The Board makes determinationsthe final determination regarding dividends based on our External Manager’s recommendation, which is based on an evaluation of a number of factors, including our common shareholders’ equity,financial condition, business prospects, the predictability of recurring cash flows from operations, available cash and available cash.other factors the Board may deem relevant. The Board does not believe paying a dividend is appropriate at the current time. Tax Benefits Rights Agreement Effective May 5, 2015, the Company adopted a Tax Benefits Rights Agreement (“Rights Plan”) designed to help preserve the Company’s NOLs. In connection with adopting the Rights Plan, the Company declared a distribution of one right per common share to shareholders of record as of May 15, 2015. The rights do not trade apart from the current common shares until the distribution date, as defined in the Rights Plan. Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person. TheOn March 11, 2020, the Board approved an extension of the original five-year term of the Rights Plan will remain in effect for five years, until May 15, 2020,5, 2023, or until the Board determines that the plan is no longer required,needed, whichever comes first. The Board may also chooseSubsequently, shareholders ratified the Board’s decision to adopt a new plan effective on or after the dateextend the Rights Plan expires.at the Company’s 2020 annual meeting of shareholders. On January 3, 2018, the Board approved a waiver of the 4.9% ownership limitation with respect to Hunt, increasing suchthe limitation to 9.9% of the Company’s issued and outstanding shares in any rolling 12-month period without causing a triggering event. At SeptemberJune 30, 2019,2020, the Company had threetwo shareholders, including one of its executive officers, Michael L. Falcone, who held greater than a 4.9% interest in the Company. In order to facilitate satisfaction of share purchase obligations related to his 2017 bonus award and permitting his stock option awards to be exercised,On March 11, 2020, the Board of Directors named Mr. Falcone an exempted person in accordance with the Rights Plan but only to the extent of settling such share purchase obligations and options. Mr. Falcone satisfied his share purchase obligations and exercised all of his share purchase option awards as of December 31, 2018, and, due to the aforementioned action of the Board of Directors, there was no triggering event for purposes of the Rights Plan. On November 6, 2019, the Board further named Mr. Falcone an exempted person in accordance with the Rights Plan to the extent of his proposed open-market share purchases of up to an additional 6,0007,500 common shares, to be completed by December 31, 2020, with the Board reserving all its rights under the Rights Plan for any subsequent purchases.purchase. As a result of the Board’s action, there was nopurchases made by Mr. Falcone up to the authorized 7,500 common shares would not be a triggering event for purposes of the Rights Plan.
Plan if purchased prior to December 31, 2020. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our consolidated financial statements is based on the application of generally accepted accounting principles in the U.S. (“GAAP,”), which requires us to make certain estimates and assumptions that affect the reported amounts and classification of the amounts in our consolidated financial statements. These estimates and assumptions require us to make difficult, complex and subjective judgments involving matters that are inherently uncertain. We base our accounting estimates and assumptions on historical experience and on judgments that we believe to be reasonable under the circumstances known to us at the time. Actual results could differ materially from these estimates. We applied our critical accounting policies and estimation methods consistently in all material respects and for all periods presented and have discussed those policies with our Audit Committee. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. Management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board of Directors.Board. See Part I, Item 1A. “Risk Factors” in our 20182019 Annual Report for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods. We have identified three of our accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition. These policies govern: | ● | fair value measurement of financial instruments; and |
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● | | consolidation; and
consolidation. |
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our 20182019 Annual Report for a discussion of these critical accounting policies and estimates. ACCOUNTING AND REPORTING DEVELOPMENTS We identify and discuss the expected impact on our consolidated financial statements of recently issued accounting guidance in Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies.” USE OF NON-GAAP MEASURES We present certain non-GAAP financial measures that supplement the financial measures we disclose that are calculated under GAAP. Non-GAAP financial measures are those that include or exclude certain items that are otherwise excluded or included, respectively, from the most directly comparable measures calculated in accordance with GAAP. The non-GAAP financial measures that we disclose are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as similar non-GAAP financial measures used by other companies. Adjusted Book Value represents Book Value reduced by the carrying value of the Company’s DTAs. We believe this measure is useful to investors in assessing the Company’s underlying fundamental performance and trends in our business because it eliminates potential volatility in results brought on by tax considerations in a given year. As a result, reporting upon, and measuring changes in, Adjusted Book Value enables for a better comparison of period-to-period operating performance. Adjusted Book Value per common share represents Adjusted Book Value at the period end divided by the common shares outstanding at the period end. Management intends to continually evaluate the usefulness, relevance, limitations and calculations of our reported non-GAAP performance measures to determine how best to provide relevant information to the public. Table 10 provides reconciliations of the non-GAAP financial measures that are included in this Report to the most directly comparable GAAP financial measures. Table 10: Non-GAAP Reconciliations | | | | | | | | | At | | At | | | June 30, | | December 31, | (in thousands, except per share data) | | 2020 | | 2019 | Reconciliation of Book Value to Adjusted Book Value | | | | | | | Book Value (total shareholders' equity), as reported | | $ | 274,487 | | $ | 281,125 | Less: DTAs, net | | | 57,336 | | | 57,711 | Adjusted Book Value | | $ | 217,151 | | $ | 223,414 | | | | | | | | Common shares outstanding | | | 5,811 | | | 5,805 | | | | | | | | Reconciliation of Book Value per share to Adjusted Book Value per common share | | | | | | | Book Value (total shareholders' equity) per common share, as reported | | $ | 47.24 | | $ | 48.43 | Less: DTAs, net per common share | | | 9.87 | | | 9.94 | Adjusted Book Value per common share | | $ | 37.37 | | $ | 38.49 |
Item 1. Financial Statements MMA Capital Holdings, Inc. CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data) | | | | | | | | | At | | At | | | September 30, | | December 31, | | | 2019 | | 2018 | ASSETS | | | | | | | Cash and cash equivalents | | $ | 10,837 | | $ | 28,243 | Restricted cash | | | 6,115 | | | 5,635 | Investments in debt securities (includes $85,347 pledged as collateral at December 31, 2018) | | | 34,121 | | | 97,190 | Investments in partnerships (includes $202,146 and $8,779 pledged as collateral at September 30, 2019 and December 31, 2018, respectively) | | | 222,567 | | | 155,079 | Loans held for investment (includes $86,968 and $67,000 of related party loans at September 30, 2019 and December 31, 2018, respectively) | | | 87,267 | | | 67,299 | Other assets | | | 13,050 | | | 10,940 | Total assets | | $ | 373,957 | | $ | 364,386 | | | | | | | | LIABILITIES AND EQUITY | | | | | | | Debt | | $ | 151,340 | | $ | 149,187 | Accounts payable and accrued expenses | | | 2,689 | | | 2,289 | Other liabilities | | | 333 | | | ─ | Total liabilities | | | 154,362 | | | 151,476 | | | | | | | | Commitments and contingencies (see Note 10) | | | | | | | | | | | | | | Shareholders' equity | | | | | | | Preferred shares, no par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2019 | | | ─ | | | ─ | Common shares, no par value, 50,000,000 shares are authorized (5,778,883 and 5,777,216 shares issued and outstanding and 110,092 and 104,464 non-employee directors' deferred shares issued at September 30, 2019 and December 31, 2018) | | | 206,854 | | | 175,213 | Accumulated other comprehensive income ("AOCI") | | | 12,741 | | | 37,697 | Total shareholders’ equity | | | 219,595 | | | 212,910 | Total liabilities and equity | | $ | 373,957 | | $ | 364,386 |
| | | | | | | | | At | | At | | | June 30, | | December 31, | | | 2020 | | 2019 | ASSETS | | | | | | | Cash and cash equivalents | | $ | 24,554 | | $ | 8,555 | Restricted cash | | | 17,300 | | | 4,250 | Investments in debt securities (includes $23,874 and $0 pledged as collateral at June 30, 2020 and December 31, 2019, respectively) | | | 29,988 | | | 31,365 | Investments in partnerships (includes $365,064 and $296,855 pledged as collateral at June 30, 2020 and December 31, 2019, respectively) | | | 375,200 | | | 316,677 | Deferred tax assets, net | | | 57,336 | | | 57,711 | Loans held for investment (includes $0 and $53,600 of related party loans at June 30, 2020 and December 31, 2019) | | | 1,291 | | | 54,100 | Other assets (includes $17,235 and $0 pledged as collateral at June 30, 2020 and December 31, 2019, respectively) | | | 21,267 | | | 12,984 | Total assets | | $ | 526,936 | | $ | 485,642 | | | | | | | | LIABILITIES AND EQUITY | | | | | | | Debt | | $ | 245,532 | | $ | 201,816 | Accounts payable and accrued expenses | | | 4,168 | | | 2,527 | Other liabilities | | | 2,749 | | | 174 | Total liabilities | | | 252,449 | | | 204,517 | | | | | | | | Commitments and contingencies (see Note 10) | | | — | | | — | | | | | | | | Shareholders' equity | | | | | | | Preferred shares, no par value, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2020 and December 31, 2019 | | | — | | | — | Common shares, no par value, 50,000,000 shares are authorized (5,704,314 and 5,701,946 shares issued and outstanding and 106,882 and 103,069 non-employee directors' deferred shares issued at June 30, 2020 and December 31, 2019, respectively) | | | 267,078 | | | 273,492 | Accumulated other comprehensive income ("AOCI") | | | 7,409 | | | 7,633 | Total shareholders’ equity | | | 274,487 | | | 281,125 | Total liabilities and equity | | $ | 526,936 | | $ | 485,642 |
The accompanying notes are an integral part of these consolidated financial statements. 2227
MMA Capital Holdings, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands) | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | | 2019 | | | 2018 | | 2019 | | 2018 | Interest income | | | | | | | | | | | | | Interest on bonds | | $ | 481 | | $ | 2,178 | | $ | 3,106 | | $ | 7,425 | Interest on loans and short-term investments | | | 1,701 | | | 802 | | | 3,931 | | | 2,464 | Total interest income | | | 2,182 | | | 2,980 | | | 7,037 | | | 9,889 | Asset related interest expense | | | | | | | | | | | | | Bond related debt | | | ─ | | | 630 | | | 428 | | | 1,914 | Non-bond related debt | | | 51 | | | ─ | | | 169 | | | ─ | Total interest expense | | | 51 | | | 630 | | | 597 | | | 1,914 | Net interest income | | | 2,131 | | | 2,350 | | | 6,440 | | | 7,975 | | | | | | | | | | | | | | Non-interest income | | | | | | | | | | | | | Equity in income from unconsolidated funds and ventures | | | 6,024 | | | 3,273 | | | 15,643 | | | 5,655 | Net gains on bonds | | | 2,156 | | | 5,080 | | | 26,420 | | | 5,080 | Net gains on real estate and other investments | | | ─ | | | 1,092 | | | ─ | | | 1,092 | Net (losses) gains on derivatives | | | (679) | | | 1,102 | | | (3,993) | | | 5,464 | Net losses on extinguishment of liabilities | | | ─ | | | (14) | | | (30) | | | (14) | Other income | | | 80 | | | 28 | | | 112 | | | 189 | Non-interest income | | | 7,581 | | | 10,561 | | | 38,152 | | | 17,466 | | | | | | | | | | | | | | Other expenses | | | | | | | | | | | | | Interest expense | | | 1,207 | | | 1,166 | | | 3,613 | | | 3,353 | Salaries and benefits | | | ─ | | | 33 | | | ─ | | | 1,128 | External management fees and reimbursable expenses | | | 1,646 | | | 1,059 | | | 6,042 | | | 5,762 | General and administrative | | | 237 | | | 328 | | | 855 | | | 1,032 | Professional fees | | | 608 | | | 1,230 | | | 1,826 | | | 5,031 | Impairments | | | ─ | | | ─ | | | ─ | | | 388 | Other expenses | | | 412 | | | 625 | | | 482 | | | 907 | Total other expenses | | | 4,110 | | | 4,441 | | | 12,818 | | | 17,601 | | | | | | | | | | | | | | Net income before income taxes | | | 5,602 | | | 8,470 | | | 31,774 | | | 7,840 | Income tax expense | | | (26) | | | (122) | | | (89) | | | (86) | Net income from continuing operations | | | 5,576 | | | 8,348 | | | 31,685 | | | 7,754 | Net income (loss) from discontinued operations, net of tax | | | ─ | | | 276 | | | (8) | | | 21,972 | Net income | | $ | 5,576 | | $ | 8,624 | | $ | 31,677 | | $ | 29,726 |
| | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | June 30, | | June 30, | | | 2020 | | | 2019 | | 2020 | | 2019 | Interest income | | | | | | | | | | | | | Interest on bonds | | $ | 556 | | $ | 1,582 | | $ | 1,024 | | $ | 2,625 | Interest on loans and short-term investments | | | 45 | | | 1,295 | | | 136 | | | 2,230 | Total interest income | | | 601 | | | 2,877 | | | 1,160 | | | 4,855 | Asset related interest expense | | | | | | | | | | | | | Bond related debt | | | 47 | | | 191 | | | 47 | | | 428 | Non-bond related debt | | | — | | | 56 | | | — | | | 118 | Total interest expense | | | 47 | | | 247 | | | 47 | | | 546 | Net interest income | | | 554 | | | 2,630 | | | 1,113 | | | 4,309 | | | | | | | | | | | | | | Non-interest income | | | | | | | | | | | | | Equity in income from unconsolidated funds and ventures | | | 13,351 | | | 5,643 | | | 17,499 | | | 9,619 | Net gains on bonds | | | — | | | 20,693 | | | — | | | 24,264 | Net losses on derivatives | | | (584) | | | (1,872) | | | (2,295) | | | (3,314) | Net loss on other assets | | | (201) | | | — | | | (201) | | | — | Net gains (losses) on loans and extinguishment of liabilities | | | 20 | | | (19) | | | 11 | | | (30) | Other income | | | 1 | | | 15 | | | 2 | | | 32 | Non-interest income | | | 12,587 | | | 24,460 | | | 15,016 | | | 30,571 | | | | | | | | | | | | | | Other expenses | | | | | | | | | | | | | Interest expense | | | 2,418 | | | 1,197 | | | 4,687 | | | 2,406 | External management fees and reimbursable expenses | | | 2,449 | | | 2,128 | | | 5,209 | | | 4,396 | General and administrative | | | 372 | | | 304 | | | 731 | | | 618 | Professional fees | | | 624 | | | 251 | | | 1,333 | | | 1,218 | Impairment losses | | | 8,972 | | | — | | | 8,972 | | | — | Other expenses | | | (146) | | | (60) | | | 994 | | | 70 | Total other expenses | | | 14,689 | | | 3,820 | | | 21,926 | | | 8,708 | | | | | | | | | | | | | | Net (loss) income from continuing operations before income taxes | | | (1,548) | | | 23,270 | | | (5,797) | | | 26,172 | Income tax expense | | | (1,960) | | | (50) | | | (769) | | | (63) | Net (loss) income from continuing operations | | | (3,508) | | | 23,220 | | | (6,566) | | | 26,109 | Net loss from discontinued operations, net of tax | | | — | | | (1) | | | — | | | (8) | Net (loss) income | | $ | (3,508) | | $ | 23,219 | | $ | (6,566) | | $ | 26,101 |
The accompanying notes are an integral part of these consolidated financial statements. 2328
MMA Capital Holdings, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS – (continued) (Unaudited) (in thousands, except per share data) | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | | 2019 | | 2018 | | 2019 | | 2018 | Basic income per common share: | | | | | | | | | | | | | Income from continuing operations | | $ | 0.95 | | $ | 1.44 | | $ | 5.38 | | $ | 1.36 | Income from discontinued operations | | | ─ | | | 0.05 | | | ─ | | | 3.84 | Income per common share | | $ | 0.95 | | $ | 1.49 | | $ | 5.38 | | $ | 5.20 | | | | | | | | | | | | | | Diluted income per common share: | | | | | | | | | | | | | Income from continuing operations | | $ | 0.95 | | $ | 1.37 | | $ | 5.38 | | $ | 1.36 | Income from discontinued operations | | | ─ | | | 0.04 | | | ─ | | | 3.84 | Income per common share | | $ | 0.95 | | $ | 1.41 | | $ | 5.38 | | $ | 5.20 | | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | | | | | Basic | | | 5,887 | | | 5,804 | | | 5,884 | | | 5,717 | Diluted | | | 5,887 | | | 6,087 | | | 5,884 | | | 5,717 |
| | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | June 30, | | June 30, | | | 2020 | | 2019 | | 2020 | | 2019 | Basic and diluted income per common share: | | | | | | | | | | | | | (Loss) income from continuing operations | | $ | (0.60) | | $ | 3.95 | | $ | (1.13) | | $ | 4.44 | Loss from discontinued operations | | | — | | | — | | | — | | | — | (Loss) income per common share | | $ | (0.60) | | $ | 3.95 | | $ | (1.13) | | $ | 4.44 | | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | | | | | Basic and diluted | | | 5,807 | | | 5,884 | | | 5,806 | | | 5,883 |
The accompanying notes are an integral part of these consolidated financial statements. 2429
MMA Capital Holdings, Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) (in thousands) | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | | | 2019 | | 2018 | | 2019 | | 2018 | Net income | | $ | 5,576 | | $ | 8,624 | | $ | 31,677 | | $ | 29,726 | | | | | | | | | | | | | | Other comprehensive (loss) income | | | | | | | | | | | | | Bond related changes: | | | | | | | | | | | | | Net unrealized gains | | $ | 961 | | $ | 1,025 | | | 997 | | | 2,143 | Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations | | | (1,851) | | | (5,080) | | | (26,115) | | | (5,080) | Reclassification of credit-related gains to the Consolidated Statements of Operations related to bond investments assessed as other-than-temporary-impairment ("OTTI") | | | ─ | | | 141 | | | ─ | | | 6 | Reinstatement of fair value gains related to bond investments due to deconsolidation of consolidated property partnerships | | | ─ | | | ─ | | | ─ | | | 9,415 | Net change in other comprehensive (loss) income due to bonds | | | (890) | | | (3,914) | | | (25,118) | | | 6,484 | Income tax benefit | | | ─ | | | 14 | | | ─ | | | ─ | Foreign currency translation adjustment | | | 217 | | | 525 | | | 162 | | | 3,348 | Other comprehensive (loss) income | | $ | (673) | | $ | (3,375) | | | (24,956) | | | 9,832 | | | | | | | | | | | | | | Comprehensive income | | $ | 4,903 | | $ | 5,249 | | $ | 6,721 | | $ | 39,558 |
| | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | June 30, | | June 30, | | | 2020 | | 2019 | | 2020 | | 2019 | Net (loss) income | | $ | (3,508) | | $ | 23,219 | | $ | (6,566) | | $ | 26,101 | | | | | | | | | | | | | | Other comprehensive income (loss) | | | | | | | | | | | | | Bond related changes: | | | | | | | | | | | | | Net unrealized gains (losses) | | $ | 467 | | $ | (370) | | | (1,296) | | | 36 | Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations | | | — | | | (20,693) | | | — | | | (24,264) | Income tax (losses) gains | | | (128) | | | — | | | 356 | | | — | Net change in other comprehensive loss due to bonds, net of taxes | | | 339 | | | (21,063) | | | (940) | | | (24,228) | Foreign currency translation adjustment | | | (110) | | | (80) | | | 716 | | | (55) | Other comprehensive income (loss) | | $ | 229 | | $ | (21,143) | | | (224) | | | (24,283) | | | | | | | | | | | | | | Comprehensive (loss) income | | $ | (3,279) | | $ | 2,076 | | $ | (6,790) | | $ | 1,818 |
The accompanying notes are an integral part of these consolidated financial statements. 2530
MMA Capital Holdings, Inc. CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | For the nine months ended September 30, 2019 | | | | | | | Total Common | | | Common Equity Before | | | | | Shareholders’ | | | AOCI | | AOCI | | Equity | | | Shares | | Amount | | | | | | | Balance, January 1, 2019 | | 5,882 | | $ | 175,213 | | $ | 37,697 | | $ | 212,910 | Net income | | ─ | | | 2,882 | | | ─ | | | 2,882 | Other comprehensive loss | | ─ | | | ─ | | | (3,140) | | | (3,140) | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 2 | | | 82 | | | ─ | | | 82 | Cumulative change due to change in accounting principle | | ─ | | | (267) | | | ─ | | | (267) | Balance, March 31, 2019 | | 5,884 | | | 177,910 | | | 34,557 | | | 212,467 | Net income | | ─ | | | 23,219 | | | ─ | | | 23,219 | Other comprehensive loss | | ─ | | | ─ | | | (21,143) | | | (21,143) | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 3 | | | 83 | | | ─ | | | 83 | Balance, June 30, 2019 | | 5,887 | | $ | 201,212 | | $ | 13,414 | | $ | 214,626 | Net income | | ─ | | | 5,576 | | | ─ | | | 5,576 | Other comprehensive loss | | ─ | | | ─ | | | (673) | | | (673) | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 2 | | | 66 | | | ─ | | | 66 | Balance, September 30, 2019 | | 5,889 | | $ | 206,854 | | $ | 12,741 | | $ | 219,595 | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
26
MMA Capital Holdings, Inc.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (in thousands) | | | | | | | | | | | | | | | | | | | | For the nine months ended September 30, 2018 | | | | | | | | | Noncontrolling | | | | | | | | | | | | | | | | Interest in | | | | | | | | | | | | | | | | | Consolidated | | | | | | | | | | | | | | Total Common | | Funds and | | | | | | Common Equity Before | | | | | Shareholders’ | | Ventures | | | | | | AOCI | | AOCI | | Equity | | ("CFVs") | | Total Equity | | | Shares | | Amount | | | | | | | | | | | | | Balance, January 1, 2018 | | 5,617 | | $ | 96,420 | | $ | 41,153 | | $ | 137,573 | | $ | 89,529 | | $ | 227,102 | Net income | | ─ | | | 18,340 | | | ─ | | | 18,340 | | | ─ | | | 18,340 | Other comprehensive income | | ─ | | | ─ | | | 9,160 | | | 9,160 | | | ─ | | | 9,160 | Purchase of shares in a subsidiary (including price adjustments on prior purchases) | | ─ | | | (73) | | | ─ | | | (73) | | | ─ | | | (73) | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 3 | | | 82 | | | ─ | | | 82 | | | ─ | | | 82 | Net change due to deconsolidation | | ─ | | | ─ | | | ─ | | | ─ | | | (89,529) | | | (89,529) | Cumulative change due to change in accounting principle | | ─ | | | 9,206 | | | ─ | | | 9,206 | | | ─ | | | 9,206 | Common shares issued | | 125 | | | 4,125 | | | ─ | | | 4,125 | | | ─ | | | 4,125 | Balance, March 31, 2018 | | 5,745 | | | 128,100 | | | 50,313 | | | 178,413 | | | ─ | | | 178,413 | Net income | | ─ | | | 2,762 | | | ─ | | | 2,762 | | | ─ | | | 2,762 | Other comprehensive income | | ─ | | | ─ | | | 4,047 | | | 4,047 | | | ─ | | | 4,047 | Options exercised | | 30 | | | 784 | | | ─ | | | 784 | | | ─ | | | 784 | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 3 | | | 82 | | | ─ | | | 82 | | | ─ | | | 82 | Common shares issued | | 125 | | | 4,250 | | | ─ | | | 4,250 | | | ─ | | | 4,250 | Options tendered for payment of withholding taxes | | (13) | | | (315) | | | ─ | | | (315) | | | ─ | | | (315) | Common share repurchases | | (121) | | | (3,341) | | | ─ | | | (3,341) | | | ─ | | | (3,341) | Balance, June 30, 2018 | | 5,769 | | $ | 132,322 | | $ | 54,360 | | $ | 186,682 | | $ | ─ | | $ | 186,682 | Net income | | ─ | | | 8,624 | | | ─ | | | 8,624 | | | ─ | | | 8,624 | Other comprehensive loss | | ─ | | | ─ | | | (3,375) | | | (3,375) | | | ─ | | | (3,375) | Options exercised | | 158 | | | 4,057 | | | ─ | | | 4,057 | | | ─ | | | 4,057 | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 3 | | | 82 | | | ─ | | | 82 | | | ─ | | | 82 | Options tendered for payment of withholding taxes | | (72) | | | (1,751) | | | ─ | | | (1,751) | | | ─ | | | (1,751) | Common share repurchases | | (28) | | | (772) | | | ─ | | | (772) | | | ─ | | | (772) | Balance, September 30, 2018 | | 5,830 | | $ | 142,562 | | $ | 50,985 | | $ | 193,547 | | $ | ─ | | $ | 193,547 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | For the six months ended June 30, 2020 | | | | | | | Total Common | | | Common Equity Before | | | | | Shareholders’ | | | AOCI | | AOCI | | Equity | | | Shares | | Amount | | | | | | | Balance, January 1, 2020 | | 5,805 | | $ | 273,492 | | $ | 7,633 | | $ | 281,125 | Net loss | | — | | | (3,058) | | | — | | | (3,058) | Other comprehensive loss | | — | | | — | | | (453) | | | (453) | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 3 | | | 96 | | | — | | | 96 | Common share repurchases | | (1) | | | (41) | | | — | | | (41) | Balance, March 31, 2020 | | 5,807 | | | 270,489 | | | 7,180 | | | 277,669 | Net loss | | — | | | (3,508) | | | — | | | (3,508) | Other comprehensive income | | — | | | — | | | 229 | | | 229 | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 4 | | | 97 | | | — | | | 97 | Balance, June 30, 2020 | | 5,811 | | $ | 267,078 | | $ | 7,409 | | $ | 274,487 |
| | | | | | | | | | | | | | For the six months ended June 30, 2019 | | | | | | | | | | | Total Common | | | Common Equity Before | | | | | Shareholders’ | | | AOCI | | AOCI | | Equity | | | Shares | | Amount | | | | | | | Balance, January 1, 2019 | | 5,882 | | $ | 175,213 | | $ | 37,697 | | $ | 212,910 | Net income | | — | | | 2,882 | | | — | | | 2,882 | Other comprehensive loss | | — | | | — | | | (3,140) | | | (3,140) | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 2 | | | 82 | | | — | | | 82 | Cumulative change due to change in accounting principle | | — | | | (267) | | | — | | | (267) | Balance, March 31, 2019 | | 5,884 | | | 177,910 | | | 34,557 | | | 212,467 | Net income | | — | | | 23,219 | | | — | | | 23,219 | Other comprehensive loss | | — | | | — | | | (21,143) | | | (21,143) | Common shares (restricted and deferred) issued under employee and non-employee director share plans | | 3 | | | 83 | | | — | | | 83 | Balance, June 30, 2019 | | 5,887 | | $ | 201,212 | | $ | 13,414 | | $ | 214,626 |
The accompanying notes are an integral part of these consolidated financial statements. 2731
MMA Capital Holdings, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) | | | | | | | | | For the six months ended | | | June 30, | | | 2020 | | 2019 | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | Net (loss) income | | $ | (6,566) | | $ | 26,101 | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | Provisions for credit losses and impairment | | | 8,972 | | | — | Net equity in income from investments in partnerships | | | (17,499) | | | (9,619) | Net gains on bonds | | | — | | | (24,264) | Net losses on derivatives | | | 2,291 | | | 4,791 | Net losses on loans, other assets and extinguishment of liabilities | | | 190 | | | 30 | Current and deferred federal income tax (benefit) expense | | | 777 | | | 83 | Distributions received from investments in partnerships | | | 14,823 | | | 7,417 | Depreciation and amortization | | | 277 | | | (627) | Foreign currency losses (gains) | | | 994 | | | (84) | Stock-based compensation expense | | | 193 | | | 165 | Other, net | | | 1,923 | | | 612 | Net cash provided by operating activities | | | 6,375 | | | 4,605 | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | Principal payments and sales proceeds received on bonds and loans held for investment (includes $53,600 and 0 from a related party) | | | 53,770 | | | 24,197 | Advances on and originations of loans held for investment | | | (702) | | | (11,279) | Investments in partnerships and real estate | | | (114,651) | | | (95,941) | Capital distributions received from investments in partnerships | | | 39,639 | | | 61,357 | Net cash used in investing activities | | | (21,944) | | | (21,666) | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | Proceeds from borrowing activity | | | 112,272 | | | — | Repayment of borrowings | | | (66,890) | | | (3,724) | Debt issuance costs | | | (723) | | | — | Repurchase of common shares | | | (41) | | | — | Net cash provided by (used in) financing activities | | | 44,618 | | | (3,724) | Net increase (decrease) in cash, cash equivalents and restricted cash | | | 29,049 | | | (20,785) | Cash, cash equivalents and restricted cash at beginning of period | | | 12,805 | | | 33,878 | Cash, cash equivalents and restricted cash at end of period | | $ | 41,854 | | $ | 13,093 |
| | | | | | | | | For the nine months ended | | | September 30, | | | 2019 | | 2018 | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | Net income | | $ | 31,677 | | $ | 29,726 | Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | Provisions for credit losses and impairment | | | ─ | | | 388 | Net equity in income from investments in partnerships | | | (15,643) | | | (5,655) | Net gains on bonds | | | (26,420) | | | (5,080) | Net gains on real estate and other investments | | | ─ | | | (1,157) | Gain on disposal of discontinued operations | | | ─ | | | (20,420) | Net losses (gains) on derivatives | | | 5,539 | | | (3,208) | Net losses on extinguishment of liabilities | | | 30 | | | 14 | Advances on, originations and purchases of loans held for sale | | | ─ | | | (9,000) | Distributions received from investments in partnerships | | | 11,317 | | | 7,810 | Depreciation and amortization | | | (1,560) | | | (860) | Foreign currency losses | | | 242 | | | 531 | Stock-based compensation expense | | | 230 | | | 1,176 | Other, net | | | (169) | | | 1,741 | Net cash provided by (used in) operating activities | | | 5,243 | | | (3,994) | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | Principal payments and sales proceeds received on bonds and loans held for investment (includes $969 and $0 from a related party) | | | 27,591 | | | 7,466 | Advances on and originations of loans held for investment (includes $11,279 and $0 from a related party) | | | (11,279) | | | (1,000) | Investments in partnerships and real estate | | | (168,971) | | | (49,611) | Proceeds from the sale of real estate and other investments | | | ─ | | | 1,678 | Cash and restricted cash derecognized in the Disposition | | | ─ | | | (23,009) | Restricted cash related to deconsolidated guaranteed Low-Income Housing Tax Credit ("LIHTC") funds | | | ─ | | | (23,487) | Capital distributions received from investments in partnerships | | | 92,404 | | | 21,595 | Net cash used in investing activities | | | (60,255) | | | (66,368) | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | Proceeds from borrowing activity | | | 45,000 | | | 12,189 | Repayment of borrowings | | | (4,709) | | | (17,709) | Debt issuance costs | | | (2,205) | | | ─ | Repurchase of common shares | | | ─ | | | (4,113) | Options tendered for payment of withholding taxes | | | ─ | | | (2,066) | Issuance of common shares | | | ─ | | | 8,375 | Net cash provided by (used in) financing activities | | | 38,086 | | | (3,324) | Net decrease in cash, cash equivalents and restricted cash | | | (16,926) | | | (73,686) | Cash, cash equivalents and restricted cash at beginning of period | | | 33,878 | | | 100,186 | Cash, cash equivalents and restricted cash at end of period | | $ | 16,952 | | $ | 26,500 |
The accompanying notes are an integral part of these consolidated financial statements. 2832
MMA Capital Holdings, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued) (Unaudited) (in thousands) | | | | | | | | | For the nine months ended | | | September 30, | | | 2019 | | 2018 | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | | | Interest paid | | $ | 4,426 | | $ | 5,547 | Income taxes paid | | | 16 | | | 281 | | | | | | | | Non-cash investing and financing activities: | | | | | | | Unrealized (losses) gains included in other comprehensive income | | | (24,956) | | | 9,832 | Debt and liabilities extinguished through sales and collections on bonds | | | 37,606 | | | 15,578 | Decrease in bonds and common shareholders' equity due to change in accounting principle | | | 267 | | | ─ | Increase in loans held for investment and decrease in investment in partnerships due to secured lending | | | 8,392 | | | ─ | Increase in common shareholders' equity and decrease in other liabilities due to change in accounting principle | | | ─ | | | 9,206 | Increase in loans from the Disposition | | | ─ | | | 57,000 | Increase in investments in debt securities from the Disposition | | | ─ | | | 17,986 | Increase in other assets from the Disposition | | | ─ | | | 2,142 | Increase in deferred revenue from the Disposition | | | ─ | | | (13,000) | Increase in accumulated other comprehensive income from the Disposition | | | ─ | | | (9,415) | Increase in loans held for investment, interest receivable and other liabilities and decrease in investment in partnerships | | | ─ | | | 6,138 | Increase in common shareholders' equity and decrease in other liabilities due to stock options exercised | | | ─ | | | 4,841 | | | | | | | | Net change in assets, liabilities and equity due to deconsolidation of guaranteed LIHTC funds: | | | | | | | Net decrease in investment in partnerships | | | ─ | | | (98,760) | Decrease in other assets | | | ─ | | | (5,174) | Decrease in debt | | | ─ | | | 6,712 | Decrease in unfunded equity commitments to lower tier property partnerships | | | ─ | | | 8,003 | Decrease in other liabilities | | | ─ | | | 35,850 | Decrease in noncontrolling interests | | | ─ | | | 83,909 | | | | | | | | | | At | | At | | | September 30, | | September 30, | | | 2019 | | 2018 | RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | | | | | Cash and cash equivalents | | $ | 10,837 | | $ | 15,556 | Restricted cash | | | 6,115 | | | 10,944 | Total cash, cash equivalents and restricted cash shown in statement of cash flows | | $ | 16,952 | | $ | 26,500 |
| | | | | | | | | For the six months ended | | | June 30, | | | 2020 | | 2019 | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | | | Interest paid | | $ | 4,313 | | $ | 3,147 | Income taxes paid | | | — | | | 16 | | | | | | | | Non-cash investing and financing activities: | | | | | | | Unrealized losses included in other comprehensive income | | | (224) | | | (24,283) | Debt and liabilities extinguished through sales and collections on bonds | | | — | | | 37,606 | Decrease in investments in debt securities and common shareholders' equity due to change in accounting principle | | | — | | | 267 | Increase in loans held for investment and decrease in investment in partnerships due to secured lending | | | — | | | 1,873 | | | | | | | | | | At | | At | | | June 30, | | June 30, | | | 2020 | | 2019 | RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | | | | | Cash and cash equivalents | | $ | 24,554 | | $ | 10,590 | Restricted cash | | | 17,300 | | | 2,503 | Total cash, cash equivalents and restricted cash shown in statement of cash flows | | $ | 41,854 | | $ | 13,093 |
�� The accompanying notes are an integral part of these consolidated financial statements. 2933
MMA Capital Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1— Summary of Significant Accounting Policies Organization MMA Capital Holdings, Inc. invests infocuses 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 infrastructure including renewable energy infrastructure and real estate.projects. Unless the context otherwise requires, and when used in these Notes, 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, and converted to a Delaware corporation on January 1, 2019. We focus on investments with attractive risk-adjusted returns that generate positive environmental or social impacts, with an emphasis on renewable energy debt investments. Our assets2019, and liabilities are organized into two portfolios:
| ·
| | Energy Capital – This portfolio includes indirect investments in loans that finance renewable energy projects and revolving debt that we utilize to leverage such investments; and
|
| ·
| | Other Assets and Liabilities (“OA&L”) – This portfolio includes our investments in bonds, certain loan receivables, cash, real estate-related investments, subordinated debt and the balance of the Company’s assets and liabilities (investments in bonds and related financings, which were previously identified as their own portfolio in each Quarterly Report on Form 10-Q that was filed in 2018, were reallocated to the OA&L portfolio as of December 31, 2018).
|
We 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 and other 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 and other infrastructure projects. 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 June 30, 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. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company evaluates subsequent events through the date of filing with the United States (“U.S.”) Securities and Exchange Commission (“SEC”). Changes in Presentation We have revised the presentation of our Consolidated Statements of Operations for all reporting periods presented by reclassifying “Equity in income from unconsolidated funds and ventures” and all net gains (losses) associated with the Company’s bonds, loans, derivatives, real estate, other investments and the extinguishment of debt obligations as a component of “Non-interest income.” Additionally, the Company reclassified for all reporting periods certain discontinued operations that occurred during the fourth quarter of 2018 as a result of the assignment and settlement of certain agreements completing the Company’s disposition of its LIHTC related assets. Furthermore, we made certain reclassifications to prior year financial statements in order to enhance their comparability with current year financial statements.
Use of Estimates The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, commitments and contingencies, and revenues and expenses. Management made estimates in certain areas, including the determination of the Company’s valuation allowance established against its DTAs as well as in the fair values forvalue measurement of bonds and derivative instruments. Management also made estimates in the determination and measurement of impairment of investments in bonds and real estate. Actual results could differ materially from these estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company as well as those entities in which the Company has a controlling financial interest, including wholly owned subsidiaries of the Company. All intercompany transactions and balances have been eliminated in consolidation. Equity investments in unconsolidated entities where the Company has the ability to exercise significant influence over the operations of the entity, but is not considered the primary beneficiary, are accounted for using the equity method of accounting. New Accounting Guidance
Adoption of New Accounting Standards Accounting for Derecognition of Nonfinancial Assets
In February 2017, ASU No. 2017‑05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610‑20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” was issued. This guidance clarifies that the derecognition of all businesses should be accounted for in accordance with the derecognition and deconsolidation guidance of Topic 810‑10 – Consolidations. In addition, this guidance eliminates the scope exception in authoritative literature that governs transfers of financial assets related to transfers of investments (including equity method investments) in real estate entities and supersedes guidance related to the exchange of a nonfinancial asset for a noncontrolling ownership interest as set forth in Topic 845 – Nonmonetary Transactions. The effective date of ASU 2017‑05 is aligned with Topic 606. We adopted ASU No. 2017‑05 in conjunction with our adoption of Topic 606 as of January 1, 2018 and we recognized a cumulative effect adjustment of $9.2 million to retained earnings on January 1, 2018.
Accounting for Financial Instruments In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This guidance amends the classification and measurement of financial instruments, including equity investments not accounted for under the equity method of accounting. Although this ASU retains many current requirements, it significantly revised an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. Additionally, certain disclosure requirements associated with the fair value of financial instruments were amended. We adopted this new guidance on its effective date of January 1, 2018. Upon adoption of this guidance, the Company assessed that certain of our equity investments did not have a readily determinable fair value, resulting in the Company electing the measurement alternative. As such, during the first quarter of 2018, the Company recognized a $0.4 million impairment within our Consolidated Statements of Operations.
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This guidance amends the amortization period for certain callable debt securities held at a premium, shortening suchthe period to the earliest call date. We adopted this new guidance on its effective date of January 1, 2019. Upon adoption of this guidance, the Company assessed that certain of our bond investments were being held at a premium resulting in a change to thereduction in amortization period. As such,periods used for interest income recognition. Accordingly, during the first quarter of 2019, the Company recognized a cumulative effect adjustment of $0.3 million charge to retained earnings. Accounting for Income Taxes In February 2018, the FASB issued ASU No. 2018‑02, 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This new guidance permits companies to reclassify stranded tax effects caused by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) from AOCI to retained earnings and also requires new disclosures. We adopted this new guidance on its effective date of January 1, 2019. The adoption of this guidance did not impact the Company’s Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows as of the adoption date. Accounting for Stock Compensation In June 2018, the FASB issued ASU 2018‑072018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”This guidance expands the scope of ASC Topic 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. We adopted this new guidance on its effective date of January 1, 2019. The adoption of this guidance did not impact the Company’s Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows as of the adoption date. Accounting for Financial Instruments – Fair Value Measurement In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance eliminates certain disclosure requirements for fair value measurements, requires public entities to disclose certain new information and modifies some disclosure requirements. We adopted this guidance on its effective date of January 1, 2020. The adoption of this guidance did not impact the Company’s Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows as of the adoption date. Accounting for Financial Instruments – Rate Reform In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance is elective and is provided for contract modifications that meet certain Codification topics and subtopics. The optional amendment of this new guidance is effective March 12, 2020 through December 31, 2022. We did not make any elections provided by this new guidance and, therefore, the adoption of these accounting principles did not impact the Company’s Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows as of the adoption date. Issued Accounting Standards Not Yet Adopted Accounting for Financial Instruments – Credit Losses In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates.” This guidance gives private companies, not-for-profit organizations, and certain smaller reporting companies additional time to implement FASB standards on credit losses, leases, derivatives and hedging and intangible-goodwill and other (ASC 350). Because the Company is a smaller reporting company the following “credit loss” ASUs will become effective for the Company on January 1, 2023. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements. In June 2016, the FASB issued ASU No. 2016‑13, 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Improvements.” This guidance is intended to reduce the complexity of United States (“U.S.”) GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. This guidance establishes an impairment methodology that reflects lifetime expected credit losses rather than incurred losses. This guidance requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This new guidance is effective for us on January 1, 2020,2023, with early adoption permitted. However, on October 16, 2019, the FASB voted to approve its proposal to delay the effective dates of this ASU to be effective on January 1, 2023 for smaller reporting companies. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments– Credit Losses Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This guidance is intended to clarify aspects of accounting for credit losses, hedging activities, and financial instruments. This new guidance is effective for us on January 1, 2020,2023, with early adoption permitted. However, on October 16, 2019, the FASB voted to approve its proposal to delay the effective dates of this ASU to be effective on January 1, 2023 for smaller reporting companies. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements. In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief.” This guidance provides transition relief for entities adopting ASU 2016-13. This guidance allows entities to elect the fair value options on certain financial instruments. This new guidance is effective for us on January 1, 2020, with early adoption permitted. However, on October 16, 2019, the FASB voted to approve its proposal to delay the effective dates of this ASU to be effective on January 1, 2023, for smaller reporting companies. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements. Accounting for Financial Instruments – Fair Value Measurement
In August 2018, the FASB issued ASU No. 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance eliminates certain disclosure requirements for fair value measurements, requires public entities to disclose certain new information and modifies some disclosure requirements. This new guidance is effective for us on January 1, 2020, with early adoption permitted. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements.
In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This guidance amends certain aspects of the FASB’s new credit losses standard, including an amendment requiring entities to include certain expected recoveries in the amortized cost basis in the allowance for credit losses for purchased credit deteriorated assets. This new guidance is effective on January 1, 2023, with early adoption permitted. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements. In February 2020, the FASB issued ASU No. 2020-02, “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) (SEC Update).” This guidance updates certain SEC guidance in the Codification for the issuance of SEC Staff Accounting Bulletin 119 and effective date related to the leases standard. This new guidance is effective upon issuance on February 6, 2020. However, because the Company is a smaller reporting company the ASU will become effective for the Company on January 1, 2023. We are currently evaluating the potential impact of this new guidance on our consolidated financial statements. Accounting for Financial Instruments – General In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments.” This guidance amends certain topics including fair value option disclosures and credit losses. This guidance is effective upon issuance on March 9, 2020 for some topics and on January 1, 2023 for topics relating to credit loss. The adoption of this guidance that is effective upon issuance did not impact the Company’s Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows. For those aspects of the new guidance that are not effective until January 1, 2023, we are evaluating the potential impact of the new guidance on our consolidated financial statements. Accounting for Income Taxes In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This guidance eliminates certain exceptions to the general principles in Topic 740. This new guidance is effective for us on January 1, 2021, with early adoption permitted. We are evaluating the potential impact of the new guidance on our consolidated financial statements. Note 2—Investments in Debt Securities TheAt June 30, 2020 and December 31, 2019, the Company’s investments in debt securities consist of two subordinate1 subordinated multifamily tax-exempt bondsmortgage revenue bond and one other real estate-related bond investment.1 tax-exempt infrastructure bond. These investments are classified as available-for-sale for reporting purposes and are measured on a fair value basis in our Consolidated Balance Sheets.
Multifamily tax-exempt bonds are issued by state and local governments or their agencies or authorities to finance affordable multifamily rental housing. Generally, the only source of security on these bonds is either a first mortgage or a subordinate mortgage on the underlying properties. property. The Company’s investmentnon-amortizing subordinated cash flow bond principal is due in other real estate-related bonds consists of a single tax-exemptfull in November 2044. The Company’s infrastructure bond at September 30, 2019 and December 31, 2018, 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 and its landowners (this investment is hereinafter referred to as our “Infrastructure Bond”). The weighted-average pay rate on At June 30, 2020, the Company’s bond investments was 6.3%Infrastructure Bond amortizes on a scheduled basis and 6.2% at September 30, 2019 andhas a stated maturity date of December 31, 2018, respectively. Weighted-average pay rate represents the cash interest payments collected on the bonds (excluding subordinated cash flow bonds) as a percentage of the bonds’ average unpaid principal balance (“UPB”) for the preceding 12 months for the population of bonds at September 30, 2019 and December 31, 2018.2048.
The following tables provide information about the unpaid principal balance (“UPB”), amortized cost, gross unrealized gains and fair value (“FV”) associated with the Company’s investments in bonds that are classified as available-for-sale: | | | | | | | | | | | | | | | | | | At | | | June 30, 2020 | | | | | | | Gross | | | | | | | | | | Amortized | | Unrealized | | | | FV as a % | (in thousands) | | UPB | | Cost (1) | | Gains | | FV | | of UPB | Infrastructure Bond | | $ | 26,715 | | $ | 20,716 | | $ | 3,158 | | $ | 23,874 | | | 89% | Multifamily tax-exempt bond | | | 4,000 | | | — | | | 6,114 | | | 6,114 | | | 153% | Total | | $ | 30,715 | | $ | 20,716 | | $ | 9,272 | | $ | 29,988 | | | 98% |
| | | | | | | | | | | | | | | | | | At | | | December 31, 2019 | | | | | | | Gross | | | | | | | | | | Amortized | | Unrealized | | | | | FV as a % | (in thousands) | | UPB | | Cost (1) | | Gains | | FV | | | of UPB | Infrastructure Bond | | $ | 26,885 | | $ | 20,797 | | $ | 4,542 | | $ | 25,339 | | | 94% | Multifamily tax-exempt bond | | | 4,000 | | | — | | | 6,026 | | | 6,026 | | | 151% | Total | | $ | 30,885 | | $ | 20,797 | | $ | 10,568 | | $ | 31,365 | | | 102% |
| | | | | | | | | | | | | | | | | | At | | | September 30, 2019 | | | | | | | Gross | | | | | | | | | | Amortized | | Unrealized | | | | FV as a % | (in thousands) | | UPB | | Cost (1) | | Gains | | FV | | of UPB | Multifamily tax-exempt bonds | | $ | 6,160 | | $ | 576 | | $ | 8,145 | | $ | 8,721 | | | 142% | Infrastructure Bond | | | 27,170 | | | 21,038 | | | 4,362 | | | 25,400 | | | 93% | Total | | $ | 33,330 | | $ | 21,614 | | $ | 12,507 | | $ | 34,121 | | | 102% |
| | | | | | | | | | | | | | | | | | At | | | December 31, 2018 | | | | | | | Gross | | | | | | | | | | Amortized | | Unrealized | | | | | FV as a % | (in thousands) | | UPB | | Cost (1) | | Gains | | FV | | | of UPB | Multifamily tax-exempt bonds | | $ | 65,162 | | $ | 38,653 | | $ | 33,564 | | $ | 72,217 | | | 111% | Infrastructure Bond | | | 27,170 | | | 20,912 | | | 4,061 | | | 24,973 | | | 92% | Total | | $ | 92,332 | | $ | 59,565 | | $ | 37,625 | | $ | 97,190 | | | 105% |
| (1) | (1)
| | Amortized cost consists of the UPB, unamortized premiums, discounts and other cost basis adjustments, as well as net other-than-temporary-impairment (“OTTI”) recognized in “Impairments” in our Consolidated Statements of Operations. |
See Note 8, “Fair Value,” which describes factors that contributed to the $63.1$1.4 million decrease in the reported fair value of the Company’s investments in debt securities for the ninesix months ended SeptemberJune 30, 2019.2020. MaturityNonaccrual Bonds
Principal payments on the Company’s investments in bonds are based on contractual terms that are set forth in the contractual documents governing such investments. If principal payments are not required to be made prior to the contractual maturity of a bond, its UPB is required to be paid in a lump sum payment at contractual maturity or at such
earlier time as may be provided under the governing documents. At SeptemberJune 30, 2019, one of the Company’s remaining three bond investments amortizes on a scheduled basis2020 and has a stated maturity date of December 2048. The Company’s remaining two bond investments are non-amortizing subordinated cash flow bonds with principal due in full on November 2044 and August 2048 (the total cost basis and fair value of these bonds were $0.6 million and $8.7 million, respectively, at September 30, 2019).
Troubled Debt Restructurings
The Company may periodically agree to modify the contractual terms of its investments in debt securities in the interest of attempting to obtain more cash or other value from a debtor than it otherwise would, or to increase the probability of receipt, by granting a concession to a borrower. If31, 2019, the Company makes an economic concession to a borrower that is experiencing financial difficulty, the Company will typically assess a modification or other form of concession to represent a troubled debt restructuring (“TDR”) for reporting purposes.
On August 27, 2018, the Company agreed to extend the scheduled payment date associated with one of its infrastructure bonds from September 1, 2018 to November 1, 2018. This extension provided the debtor and the Company more time to negotiate a comprehensive restructuring of both of the Company’s infrastructure bond investments.
There were no TDRs for the three and nine months ended September 30, 2019.
Nonaccrual Bonds
On July 23, 2019, the Company’s two remaining non-performing multifamily bond investments were fully redeemed. Upon redemption, the Company reclassified gains of $1.9 million from AOCI into the Company’s Consolidated Statements of Operations.
The fair value of the Company’s investments inhad 0 bonds that were on nonaccrual status was $12.9 million at December 31, 2018.status.
Interest income on bonds that was recognized on a cash basis was de minimis for the three months ended June 30, 2019 and nine$0.1 million for the six months ended SeptemberJune 30, 2018 was $0.1 million and $0.3 million, respectively.2019. Interest income not recognized on bondsbond investments that were on nonaccrual status for the three months and ninesix months ended SeptemberJune 30, 20182019 was $0.3 million and $0.8 million, respectively.de minimis. Bond Sales and Redemptions There were no sales or redemption in full of investments in bonds during the three months and six months ended June 30, 2020. The Company received cash proceeds in connection with the sale or redemption in full of investments in bonds of $2.4$15.5 million and $26.6$24.1 million for the three months and ninesix months ended SeptemberJune 30, 2019, respectively, and received cash proceeds of $0.5 million for the three and nine months ended September 30, 2018. On November 6, 2019, one of the Company’s unencumbered tax-exempt multifamily bond investments, that had a UPB and fair value of $2.2 million and $2.8 million at September 30, 2019, respectively, was fully redeemed at its reported fair value.
2019. The following table provides information about gains or losses that were recognized in the Company’s Consolidated Statements of Operations in connection with the Company’s investments in bonds: | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Gains recognized at time of sale or redemption | | $ | 2,156 | | $ | 5,080 | | $ | 26,420 | | $ | 5,080 | OTTI losses recognized on bonds held at each period-end | | | ─ | | | ─ | | | ─ | | | (6) | Total net gains on bonds | | $ | 2,156 | | $ | 5,080 | | $ | 26,420 | | $ | 5,074 |
| | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | June 30, | | June 30, | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | Gains recognized at time of sale or redemption | | $ | — | | $ | 20,693 | | $ | — | | $ | 24,264 |
Note 3—Investments in Partnerships The following table provides information about the carrying value of the Company’s investments in partnerships and ventures: | | | | | | | | | At | | At | | | September 30, | | December 31, | (in thousands) | | 2019 | | 2018 | Investment in Solar Ventures | | $ | 194,647 | | $ | 126,339 | Investments in U.S. real estate partnerships (includes $932 and $898 related
to variable interest entities ("VIEs")) (1) | | | 20,421 | | | 19,961 | Investment in South Africa Workforce Housing Fund ("SAWHF") | | | 7,499 | | | 8,779 | Total investments in partnerships | | $ | 222,567 | | $ | 155,079 |
| | | | | | | | | At | | At | | | June 30, | | December 31, | (in thousands) | | 2020 | | 2019 | Investment in Solar Ventures | | $ | 363,070 | | $ | 289,123 | Investments in U.S. real estate partnerships | | | 10,136 | | | 19,822 | Investment in South Africa Workforce Housing Fund ("SAWHF") | | | 1,994 | | | 7,732 | Total investments in partnerships | | $ | 375,200 | | $ | 316,677 |
| (1)
| | We do not consolidate any of the investees that were assessed to meet the definition of a VIE because the Company was deemed not to be the primary beneficiary.
|
Investments Related to the Solar Ventures At SeptemberJune 30, 2019,2020, we were a 50% investor member in the renewable joint ventures in which we invest though we may periodically have a minority economic interest as a result of non-pro rata capital contributions made by our capital partner pursuant to a non-pro-rata funding agreement between the Company and our capital partner. Distributions from such ventures are generally made in proportion to the members’ respective economic interests but may be made disproportionately to our capital partner, when our capital partner has made non-pro rata capital contributions, until such time that the amount of equity invested by the Company and its capital partner have come back into equal balance. At June 30, 2020, the Company held 50%44.2%, 50%, 44.7%50.0% and 100% equity interests43.6% in Solar Construction Lending, LLC (“SCL”), Solar Permanent Lending, LLC (“SPL”), Solar Development Lending, LLC (“SDL”), respectively, and was the sole member in Renewable Energy Lending, LLC (“REL”), respectively (collectively referred to as the “Solar Ventures”). Additionally, the Company held a 5.1% equity interest in SDL at September 30, 2019, that was acquired in the second quarter of 2019 from Hunt through a transaction that was reported as a secured lending transaction. While cash paid to settle this purchase was recognized as a loan receivable and the acquired equity interest in SDL was deemed to be collateral that did not get financial statement recognition, the Company acquired all legal rights and obligations related to such 5.1% ownership interest. See Note 13, “Related Party Transactions and Transactions with Affiliates,” for more information about the Company’s acquisition of Hunt’s interest in SDL. At SeptemberJune 30, 2019,2020, the carrying value of the Company’s equity investments in SCL, SPL and SDL was $101.5$255.2 million, $0.1 million$0 and $93.0$107.8 million, respectively. None of these investees were assessed to constitute VIEsa Variable Interest Entity (“VIE”) and the Company accounts for all of these investments using the equity method of accounting. At SeptemberJune 30, 2019, the Solar Ventures, of which the Company is a 50% member,2020, these joint ventures had $446.8$426.7 million of unfunded loan commitments that required borrowers to borrowers, whichmeet various conditions set forth in governing loan agreements in order for funding to occur. The unfunded loan commitments that qualified for funding, were anticipated to be funded primarily by capital within the Solar Venturesjoint ventures through a combination of idle capital and existing loan redemptions.redemptions and idle capital. To the extent capital within the Solar Venturesjoint ventures is not sufficient to meet their funding obligations additional capital contributions by the members of the Solar Ventures in proportion to their interests would be required. During July 2019,the second quarter of 2020, the Company and its capital partner in SCL and SDL executed afunded various non-pro rata funding agreementcapital calls pursuant to which our capital partner contributed 98%$63.5 million of a $30.0$72.9 million in SCL capital callcalls and $4.5 million of $4.5 million in SDL capital calls, while the Company contributed the balance. However, on September 20, 2019, the Company contributed 100% ofIn addition, in accordance with a $28.8 million capital call, which caused the non-pro rata funding agreement withbetween the Company and our capital partner, our capital partner in SCL and SDL to terminate.received distributions of $45.0 million and $10.6 million, respectively, while the Company received $9.4 million of distributions from SDL. As a consequence of these non-pro rata capital contributions and distributions during the second quarter of 2020, our economic interest in SCL and SDL decreased in percentage terms from 44.5% and 44.5% in SCL and SDL, respectively, at March 31, 2020. Prior toThe Company paid $5.1 million for the Company’s buyout of aour prior investment partner’s ownership interest in REL, which was effectiveon June 1, 2018, the Company had accounted for its equity investment in Renewable Energy Lending, LLC (“REL”) pursuant to the equity method of accounting. However, subsequent to the buyout, the Company became the sole owner of REL and consolidated this entity for reporting purposes in all subsequent reporting periods. As a result, the Company’s equity investment in REL was eliminated for reporting purposes at each subsequent reporting period and REL’s equity investments in SCL and SPL are reported as direct investments of the Company at each reporting date. The $5.1 million purchase price paid by the Company to our prior investment partner on June 1, 2018,which was allocated to the net assets acquired based upon their relative fair values. SuchThis allocation resulted in a cumulative basis adjustment of $4.5 million being allocated to the Company’s investments in SCL and SPL, an adjustment which represented the difference between the Company’s acquisition cost basis of its investments and the historical cost basis of the investments at the partnership level. This basis differencethat is amortized over the remaining investment period of each respective partnership.SCL. For the three and nine months ended SeptemberJune 30, 2020 and June 30, 2019, the amortization expense related to suchthe Company’s basis difference was $0.2 million and $0.7$0.4 million for the six months ended June 30, 2020 and June 30, 2019, respectively. As of SeptemberAt June 30, 2020 and December 31, 2019, the unamortized balance of the Company’s basis difference was $3.3 million.$2.7 million and $3.1 million, respectively.
The following table provides information about the carrying amount of total assets and liabilities of all renewable energy related investees in which the Company had an equity method investment: | | | | | | | | | At | | At | | | June 30, | | December 31, | | | 2020 | | 2019 | (in thousands) | | | | | | | Total assets (1) | | $ | 827,816 | | $ | 706,792 | Other liabilities (2) | | | 8,912 | | | 22,135 |
(1)Assets of these ventures are primarily comprised of loans that arecarried at fair value. | | | | | | | | | At | | At | | | September 30, | | December 31, | | | 2019 | | 2018 | (in thousands) | | | | | | | Total assets | | $ | 449,917 | | $ | 279,960 | Other liabilities | | | 26,421 | | | 12,833 |
The following table provides information about the gross revenue, operating expenses and net income of all renewable energy related investees in which the Company had an equity method investment: | | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | June 30, | | June 30, | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | Gross revenue | | $ | 24,596 | | $ | 11,952 | | $ | 46,417 | | $ | 22,286 | Operating expenses | | | 1,521 | | | 1,648 | | | 3,542 | | | 3,543 | Net income and net income attributable to the entities (1) | | | 32,005 | | | 10,318 | | | 42,831 | | | 18,809 |
| | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Gross revenue | | $ | 16,081 | | $ | 6,118 | | $ | 38,367 | | $ | 18,639 | Operating expenses | | | 1,144 | | | 1,290 | | | 4,687 | | | 4,107 | Net income and net income attributable to the entity | | | 14,940 | | | 4,755 | | | 33,749 | | | 14,974 |
| (1) | Net income for the three months ended June 30, 2020, includes $8.9 million of net fair value gains related to loans funded by the Solar Ventures. Net fair value gains (losses) related to funded loans that were recognized during the three months ended June 30, 2019, were immaterial. Net fair value gains and net fair value losses related to funded loans that were recognized during the six months ended June 30, 2020 and June 30, 2019, respectively, were immaterial. |
Investments in U.S. Real Estate Partnerships At SeptemberJune 30, 2019, $19.52020, the $10.1 million of the reported carrying value of investments in U.S. real estate partnerships represented the Company’s 80% ownership interest in a joint venture that owns and operates a mixed-use town center and undeveloped land parcels. Theparcels in Spanish Fort, Alabama (“SF Venture”). Based upon the venture’s operating agreement, the Company has the right to a preferred return on its unreturned capital contributions with the exception of such contributions that have been contributed for the payment of undeveloped land license fees, which have a lower priority of repayment; as well as the right to share in excess cash flows of the real estate venture. As of SeptemberJune 30, 2019,2020, the Company held a 78.5%an 80% economic interest based upon the partnership’s distribution waterfall. This entity was determined not to be a VIE because decision-makingdecision- making rights are shared equally among its members. As such,Accordingly, the Company accounts for this investment using the equity method of accounting. At SeptemberJune 30, 2019, $0.9 million of2020, our equity investment in the reported carrying value of investments in U.S. real estate partnerships related to three limited partner interests in three affordable housing partnerships in which our ownership interest ranged from 74.25% to 74.92%. While these entities were deemed to be VIEs, the CompanySF Venture was not deemed to be their primary beneficiary. Therefore, the Company did not consolidate these entities and accounts for these investments using the equity method of accounting. At September 30, 2019 and December 31, 2018, four of the U.S. real estate partnerships in which we have investments were determined to be VIEs. The carrying value ofother-than-temporarily impaired due to the equity investmentsdownturn in these partnerships was $0.9 million at September 30, 2019 and December 31, 2018. For one of the Company’s VIEs, becauseeconomy that stemmed from the underlying real estate was sold
during the fourth quarter of 2017,novel coronavirus (“COVID-19”) pandemic. In this regard, the Company does not expect to make additional contributions to that investment. Because we are unable to quantify the maximum amount of additional capital contributions that we may be required to fund in the future associated with our proportionate share of these investments, we measure our maximum exposure to loss based uponadjusted the carrying value of these investments. At September 30, 2019such investment to its fair value as of such reporting date and December 31, 2018,recognized a $9.0 million impairment loss in our maximum exposure to loss due to our involvement with these VIEs was $0.9 million.Consolidated Statements of Operations during the second quarter of 2020.
The following table provides information about the total assets, debt and other liabilities of the U.S. real estate partnerships in which the Company held an equity investment: | | | | | | | | At | | At | | | | September 30, | | December 31, | | | | 2019 | | 2018 | | | | | | | | | | | At | | At | | | | June 30, | | December 31, | | | | 2020 | | 2019 | (in thousands) | | | | | | | | | | | | | Total assets | | $ | 53,251 | | $ | 56,238 | | $ | 50,665 | | $ | 51,718 | Debt | | 6,287 | | 6,530 | | 6,691 | | 6,426 | Other liabilities | | 32,271 | | 32,165 | | 20,090 | | 20,493 |
The following table provides information about the gross revenue, operating expenses and net loss(loss) income of U.S. real estate partnerships in which the Company had an equity investment: | | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | | September 30, | | September 30, | | | | | | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | | June 30, | | June 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 | Gross revenue | | $ | 624 | | $ | 543 | | $ | 1,920 | | $ | 1,722 | | $ | 549 | | $ | 632 | | $ | 1,191 | | $ | 1,296 | Operating expenses | | | 437 | | | 487 | | | 1,380 | | | 1,377 | | | 392 | | | 473 | | | 1,107 | | | 942 | Net loss and net loss attributable to the entity | | | (727) | | | (582) | | | (1,288) | | | (1,300) | | Net (loss) income and net (loss) income attributable to the entities | | | | (645) | | | 318 | | | (1,400) | | | (561) |
Investment in SAWHF SAWHF was determined not to be a VIE, and therefore, the Company accounts for this investment using the equity method of accounting. At SeptemberJune 30, 2019,2020, the carrying value of the Company’s 11.85% equity investment in SAWHF was $7.5 million. As$2.0 million, which reflects a $5.7 million decline from December 31, 2019, due to: (i) a distribution from SAWHF was determined notof 7.2 million shares of a residential real estate investment trust (“REIT”) listed on the Johannesburg Stock Exchange (“JSE”) and whose carrying value is classified within “Other Assets” in the Company’s Consolidated Balance Sheets; (ii) investment dispositions; and (iii) foreign currency translation losses that were attributable to be a VIE, the Company accountsweakening of the rand against the U.S. dollar during the first six months of 2020. See Note 5, “Other Assets,” for this investment usingmore information regarding the equity method of accounting.distributed REIT shares held by the Company. The following table provides information about the carrying value of total assets and other liabilities of SAWHF: | | | | | | | | | At | | At | | | June 30, | | December 31, | | | 2020 | | 2019 | (in thousands) | | | | | | | Total assets | | $ | 17,104 | | $ | 56,356 | Other liabilities | | | 72 | | | 130 |
| | | | | | | | | At | | At | | | September 30, | | December 31, | | | 2019 | | 2018 | (in thousands) | | | | | | | Total assets | | $ | 63,592 | | $ | 74,803 | Other liabilities | | | 93 | | | 496 |
The following table provides information about the gross revenue, operating expenses and net (loss) income of SAWHF: | | | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | | September 30, | | September 30, | | | | | | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | | June 30, | | June 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 | Gross revenue | | $ | 1,321 | | $ | 1,693 | | $ | 4,090 | | $ | 3,998 | | $ | 405 | | $ | 2,569 | | $ | 1,517 | | $ | 2,769 | Operating expenses | | | 236 | | | 376 | | | 722 | | | 1,927 | | | 145 | | | 156 | | | 636 | | | 487 | Net (loss) income and net (loss) income attributable to the entity | | | (1,092) | | | (4,463) | | | 1,690 | | | (2,896) | | Net income and net income attributable to the entity | | | | 1,045 | | | 749 | | | 1,121 | | | 2,783 |
Note 4—Loans Held for Investment (“HFI”) and Loans Held for Sale (“HFS”) The following table provides information about the carrying value of the Company’s loans:
| | | | | | | | | At | | At | | | September 30, | | December 31, | (in thousands) | | 2019 | | 2018 | Loans HFI | | $ | 87,267 | | $ | 67,299 | Loans HFS | | | ─ | | | ─ | Total loans | | $ | 87,267 | | $ | 67,299 |
Loans HFI
We report the carrying value of HFI loans at their UPB, net of unamortized premiums, discounts and other cost basis adjustments and related allowances for loan losses.losses, except in instances where we have elected the fair value option as further discussed below. The following table provides information about the UPB and cost basisfair value adjustments that were recognized in the Company’s Consolidated Balance Sheets related to loans that it classified as HFI: | | | | | | | | | At | | At | | | September 30, | | December 31, | (in thousands) | | 2019 | | 2018 | UPB | | $ | 88,018 | | $ | 68,050 | Cost basis adjustments, net | | | (751) | | | (751) | Loans HFI, net | | $ | 87,267 | | $ | 67,299 |
The following table provides information about
| | | | | | | | | At | | At | | | June 30, | | December 31, | (in thousands) | | 2020 | | 2019 | UPB | | $ | 1,280 | | $ | 54,100 | Fair value adjustments | | | 11 | | | — | Loans HFI, net | | $ | 1,291 | | $ | 54,100 |
On January 3, 2020, the UPB and amortized cost of loans that are current with respect to principal and interest payments, as well as information about theentire $53.6 million UPB of loans that are past due with respect to principal or interest payments: | | | | | | | | | | | | | | | At | | At | | | September 30, | | December 31, | (in thousands) | | 2019 | | 2018 | | | UPB | | Carrying value | | UPB | | Carrying value | Total current | | $ | 86,968 | | $ | 86,968 | | $ | 67,000 | | $ | 67,000 | 30-59 days past due | | | ─ | | | ─ | | | ─ | | | ─ | 60-89 days past due | | | ─ | | | ─ | | | ─ | | | ─ | 90 days or greater | | | 1,050 | | | 299 | | | 1,050 | | | 299 | Total | | $ | 88,018 | | $ | 87,267 | | $ | 68,050 | | $ | 67,299 |
the Hunt Note was fully repaid. At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company did not have anyhad 1 and 2 HFI loans, for which itrespectively, that had a combined UPB and fair value of $1.3 million and $54.1 million, respectively. The Company elected the fair value option (“FVO”). At Septemberfor one of its HFI loans that had a UPB and fair value of $1.3 million and $0.5 million at June 30, 20192020 and December 31, 2018,2019, respectively. The fair value option was elected upon its recognition so as to minimize certain operational challenges associated with accounting for this loan.
At June 30, 2020 and December 31, 2019, the UPB of HFI loans that were placed on nonaccrual status was $1.1 million, while the carrying value of these loans was $0.3 million as of such reporting dates. At September 30, 2019 and December 31, 2018,Company had no HFI loans that were 90 dayson nonaccrual status or morethat were past due in scheduled principal or interest payments wereand still accruing interest.
On April 1, 2019, the Company acquired Hunt’s 5.4% ownership interest in SDL for $11.3 million. Such transaction did not qualify as a purchase for reporting purposes and, as a result, the Company recognized $11.3 million as a loan receivable that is secured by Hunt’s interest in SDL. At September 30, 2019, the UPB and carrying value for this loan receivable was
$20.0 million and had an effective interest rate of 17.3%. Refer to Note 13, “Related Party Transactions and Transactions with Affiliates,” for additional information.
Loans HFS
We report the carrying value of HFS loans at the lower of cost or fair value. In this regard, if a loan’s amortized cost exceeds its fair value at a reporting date, the Company will establish a valuation allowance and recognize a related provision for loan loss in our Consolidated Statements of Operations as a component of “Net gains (losses) on loans.” Subsequent increases in the fair value of an HFS loan for which a valuation allowance was established will be recognized in the Consolidated Statements of Operations as an increase (reduction) of “Net gains (losses) on loans” up to the amount of previously recognized losses.
At September 30, 2019 and December 31, 2018, the cost basis and carrying value of the Company’s HFS loans were $6.0 million and zero, respectively, as of such reporting dates.
During the three and nine months ended September 30, 2019 and September 30, 2018, the Company did not recognize any lower of cost or market adjustments associated with any HFS loans that were recognized in the Consolidated Balance Sheets.
Unfunded Loan Commitments The Company had no unfunded loan commitments at SeptemberAt June 30, 20192020 and December 31, 2018.2019, the Company, through its wholly owned subsidiary of REL, had $0.8 million and $1.6 million, respectively, of unfunded loan commitments.
Note 5—Other Assets The following table provides information related to the carrying value of the Company’s other assets: | | | | | | | | | At | | At | | | September 30, | | December 31, | (in thousands) | | 2019 | | 2018 | Other assets: | | | | | | | Real estate owned | | $ | 8,376 | | $ | 3,769 | Debt issue costs | | | 2,190 | | | ─ | Derivative assets | | | 574 | | | 5,797 | Accrued interest receivable | | | 1,468 | | | 854 | Other assets | | | 442 | | | 520 | Total other assets | | $ | 13,050 | | $ | 10,940 |
| | | | | | | | | At | | At | | | June 30, | | December 31, | (in thousands) | | 2020 | | 2019 | Other assets: | | | | | | | Real estate owned | | $ | 14,526 | | $ | 8,397 | Debt issue costs | | | 2,590 | | | 2,675 | Equity investments | | | 2,709 | | | — | Derivative assets | | | 720 | | | 597 | Accrued interest receivable | | | 172 | | | 853 | Other assets | | | 550 | | | 462 | Total other assets | | $ | 21,267 | | $ | 12,984 |
Real Estate Owned (“REO”) The following table provides information about the carrying value of the Company’s REO held for use, net: | | | | | | | | | At | | At | | | September 30, | | December 31, | (in thousands) | | 2019 | | 2018 | Building, furniture, fixtures and land improvement | | $ | 5,757 | | $ | 1,150 | Land | | | 2,619 | | | 2,619 | Total | | $ | 8,376 | | $ | 3,769 |
| | | | | | | | | At | | At | | | June 30, | | December 31, | (in thousands) | | 2020 | | 2019 | Land improvements | | $ | 11,907 | | $ | 5,778 | Land | | | 2,619 | | | 2,619 | Total | | $ | 14,526 | | $ | 8,397 |
Buildings are depreciated over a period of 40 years. Furniture and fixtures are depreciated over a period of six to seven years and landLand improvements are depreciated over a period of 15 years.
The Company’s OA&L portfolio includesinvestments include the Company’s REO, which consists of a parcel of land that is currently in the process of being developed.During the first quartersix months of 2019,2020, the Company invested $4.4$6.1 million forin additional land improvement. As a resultimprovements that were capitalized as part of the development activity,carrying value of such investment. Since REO has not been placed in service, no depreciation expense was recognized in connection with this land investment for the three months and ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, nor were any impairment losses recognized by the Company during such reportingthese periods in connection with REO. Debt Issuance Costs On September 19, 2019,During the first quarter of 2020, the Company incurred, but deferred in the Consolidated Balance Sheets, $2.2$0.5 million of additional debt issuance costs in connection with the execution by MMA Energy Holdings, LLC (“MEH” or “Borrower”), a wholly owned subsidiary of the Company, of a credit agreement with various lenders that initially provided for a $70.0 million revolving credit facility. On October 11, 2019, the committed amount of the revolving credit facility increasedwith various lenders. These additional costs were due to $100.0 million upon the joinder of twoan additional lender and an increase in commitment by one of the existing lenders. See Note 6, “Debt,” for more information.
Such debt issuanceThese costs are being amortized ratably over the three-year term of the revolving credit facility. During the three months and ninesix months ended SeptemberJune 30, 2019,2020, the Company recognized a de minimis amount$0.3 million and $0.5 million of interest expense in the Company’s Consolidated Statements of Operations related to the amortization of debt issuance costs.costs for the revolving credit facility. At SeptemberJune 30, 2020 and December 31, 2019, the unamortized balance of debt issuance costs was $2.2$2.6 million and $2.7 million, respectively. See Note 6, “Debt,” for more information.
Equity Investments On May 22, 2020, the Company received a $2.9 million pro-rata distribution from SAWHF of 7.2 million shares of a residential REIT that are listed on the JSE. These shares are reported at their fair value and are denominated in South African rand. During the three months ended June 30, 2020, the Company recognized $0.2 million in “Net loss on other assets” within the Company’s Consolidated Statements of Operations. At June 30, 2020, the carrying value of these shares was $2.7 million. See Note 8, “Fair Value,” for more information. Derivative Assets At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company recognized $0.6$0.7 million and $5.8$0.6 million, respectively, of derivative assets. See Note 7, “Derivative Instruments,” for more information. Note 6—Debt The table below provides information about the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at SeptemberJune 30, 20192020 and December 31, 2018:2019: | | | | | | | | | | | | | | | At | | | At | | | | June 30, 2020 | | | December 31, 2019 | | | | | | Wtd. Avg. | | | | | Wtd. Avg. | | | | | | | Effective | | | | | | Effective | | | | Carrying | | Interest | | | Carrying | | Interest | | (dollars in thousands) | | Value (4) | | Rate (4) | | | Value (4) | | Rate (4) | | Other Debt | | | | | | | | | | | | | Subordinated debt (1) | | | | | | | | | | | | | Due within one year | | $ | 2,219 | | 2.2 | % | | $ | 2,212 | | 3.2 | % | Due after one year | | | 92,144 | | 2.2 | | | | 93,276 | | 3.2 | | Revolving credit facility debt obligations | | | | | | | | | | | | | Due within one year | | | — | | — | | | | — | | — | | Due after one year | | | 110,000 | | 5.5 | | | | 94,500 | | 5.6 | | Notes payable and other debt (2) | | | | | | | | | | | | | Due within one year | | | 4,429 | | 14.2 | | | | 6,828 | | 14.7 | | Due after one year | | | 13,383 | | 5.2 | | | | 1,500 | | 5.0 | | | | | | | | | | | | | | | Total other debt | | | 222,175 | | 4.2 | | | | 198,316 | | 4.8 | | | | | | | | | | | | | | | Asset Related Debt | | | | | | | | | | | | | Notes Payable and Other Debt | | | | | | | | | | | | | Bond related debt (3) | | | | | | | | | | | | | Due within one year | | | 275 | | 2.8 | | | | — | | — | | Due after one year | | | 23,082 | | 2.8 | | | | — | | — | | Non-bond related debt | | | | | | | | | | | | | Due within one year | | | — | | — | | | | 650 | | 5.0 | | Due after one year | | | — | | — | | | | 2,850 | | 5.0 | | | | | | | | | | | | | | | Total asset related debt | | | 23,357 | | 2.8 | | | | 3,500 | | 5.0 | | | | | | | | | | | | | | | Total debt | | $ | 245,532 | | 4.1 | % | | $ | 201,816 | | 4.8 | % |
| | | | | | | | | | | | | | | At | | | At | | | | September 30, 2019 | | | December 31, 2018 | | | | | | Wtd. Avg. | | | | | Wtd. Avg. | | | | | | | Effective | | | | | | Effective | | | | Carrying | | Interest | | | Carrying | | Interest | | (dollars in thousands) | | Value (4) | | Rate (4) | | | Value (4) | | Rate (4) | | Other Debt | | | | | | | | | | | | | Subordinated debt (1) | | | | | | | | | | | | | Due within one year | | | 2,213 | | 3.5 | | | | 2,232 | | 3.7 | | Due after one year | | | 93,832 | | 3.5 | | | | 95,490 | | 3.7 | | Revolving credit facility obligations | | | | | | | | | | | | | Due within one year | | | ─ | | ─ | | | | ─ | | ─ | | Due after one year | | | 45,000 | | 6.9 | | | | ─ | | ─ | | Notes payable and other debt (2) | | | | | | | | | | | | | Due within one year | | | 6,295 | | 14.7 | | | | ─ | | ─ | | Due after one year | | | ─ | | ─ | | | | 7,210 | | 14.7 | | | | | | | | | | | | | | | Total other debt | | | 147,340 | | 5.0 | | | | 104,932 | | 4.5 | | | | | | | | | | | | | | | Asset Related Debt | | | | | | | | | | | | | Notes Payable and Other Debt | | | | | | | | | | | | | Bond related debt (3) | | | | | | | | | | | | | Due within one year | | $ | ─ | | ─ | % | | $ | 317 | | 4.0 | % | Due after one year | | | ─ | | ─ | | | | 38,938 | | 3.7 | | Non-bond related debt | | | | | | | | | | | | | Due within one year | | | 1,100 | | 5.0 | | | | 1,500 | | 5.0 | | Due after one year | | | 2,900 | | 5.0 | | | | 3,500 | | 5.0 | | | | | | | | | | | | | | | Total asset related debt | | | 4,000 | | 5.0 | | | | 44,255 | | 3.9 | | | | | | | | | | | | | | | Total debt | | $ | 151,340 | | 5.0 | | | $ | 149,187 | | 4.3 | |
| (1) | (1)
| | The subordinated debt balances include net cost basis adjustments of $7.6$7.2 million and $7.9$7.4 million at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, that pertain to premiums and debt issuance costs. |
| (2) | (2)
| | Included in Other Debt – notes payable and other debt – other debt were unamortized debt issueissuance costs of $0.1 million and $0.2$0.1 million at SeptemberJune 30, 20192020 and December 31, 2018, respectively. 2019. |
| (3) | (3)
| | Included in Asset Related Debt – notes payable and other debt – bond related debt were unamortized debt issuance costs. The balancecosts of $0.2 million at December 31, 2018 was de minimis. June 30, 2020. |
| (4) | (4)
| | Carrying value amounts and weighted-average interest rates reported in this table include the effects of any discounts, premiums and other cost basis adjustments. An effective interest rate represents an internal rate of return of a debt instrument that makes the net present value of all cash flows, inclusive of cash flows that give rise to cost basis adjustments, equal zero and in the case of (i) fixed rate instruments, is measured as of an instrument’s issuance date and (ii) variable rate instruments, is measured as of each date that a reference interest rate resets. |
Covenant Compliance and Debt Maturities The following table provides information about scheduled principal payments associated with the Company’s debt agreements that were outstanding at SeptemberJune 30, 2019:2020: | | | | | | Asset Related Debt | (in thousands) | | and Other Debt | 2019 | | $ | 942 | 2020 | | | 8,824 | 2021 | | | 1,913 | 2022 | | | 46,879 | 2023 | | | 1,846 | Thereafter | | | 83,510 | Net premium and debt issue costs | | | 7,426 | Total debt | | $ | 151,340 |
| | | | | | Asset Related Debt | (in thousands) | | and Other Debt | 2020 | | $ | 5,398 | 2021 | | | 2,278 | 2022 | | | 134,850 | 2023 | | | 11,108 | 2024 | | | 1,813 | Thereafter | | | 83,197 | Net premium and debt issue costs | | | 6,888 | Total debt | | $ | 245,532 |
At SeptemberJune 30, 2019,2020, the Company was in compliance with all covenants under its debt obligations. Other Debt Other debt of the Company finances non-interest-bearing assets and other business activities of the Company. The interest expense associated with this debt is classified as “Interest expense” under “Other expenses” on the Consolidated Statements of Operations. Subordinated Debt The table below provides information about the key terms of the subordinated debt that was issued by MMA Financial Holdings, Inc. (“MFH”), the Company’s wholly owned subsidiary, and that was outstanding at SeptemberJune 30, 2019:2020: | | | | | | | | | | | | | | | | (dollars in thousands) | | Net Premium | | | | | Interim | | | | | | | | | | and Debt | | Carrying | | Principal | | | | | Issuer | | UPB | | Issuance Costs | | Value | | Payments (1) | | Maturity Date | | Coupon | MFH | | $ | 25,740 | | $ | 2,192 | | $ | 27,932 | | Amortizing | | March 30, 2035 | | three-month LIBOR plus 2.0% | MFH | | | 23,405 | | | 1,999 | | | 25,404 | | Amortizing | | April 30, 2035 | | three-month LIBOR plus 2.0% | MFH | | | 13,492 | | | 1,066 | | | 14,558 | | Amortizing | | July 30, 2035 | | three-month LIBOR plus 2.0% | MFH | | | 24,530 | | | 1,939 | | | 26,469 | | Amortizing | | July 30, 2035 | | three-month LIBOR plus 2.0% | Total | | $ | 87,167 | | $ | 7,196 | | $ | 94,363 | | | | | | |
| | | | | | | | | | | | | | | | (dollars in thousands) | | Net Premium | | | | | Interim | | | | | | | | | | and Debt | | | | Principal | | | | | Issuer | | Principal | | Issuance Costs | | Carrying Value | | Payments | | Maturity Date | | Coupon | MFH | | $ | 26,130 | | $ | 2,299 | | $ | 28,429 | | Amortizing | | March 30, 2035 | | 3-month LIBOR plus 2.0% | MFH | | | 23,760 | | | 2,102 | | | 25,862 | | Amortizing | | April 30, 2035 | | 3-month LIBOR plus 2.0% | MFH | | | 13,696 | | | 1,120 | | | 14,816 | | Amortizing | | July 30, 2035 | | 3-month LIBOR plus 2.0% | MFH | | | 24,902 | | | 2,036 | | | 26,938 | | Amortizing | | July 30, 2035 | | 3-month LIBOR plus 2.0% | Total | | $ | 88,488 | | $ | 7,557 | | $ | 96,045 | | | | | | |
| (1) | The subordinated principal amortizes 2.0% per annum. |
Revolving Credit Facility Debt Obligations On September 19, 2019, MEH entered into a $125.0 million (the “Facility Amount”) revolving credit agreement with various lenders that initially provided for a $70.0 million revolving credit facility, which may be increased up to $125.0 million (the “Facility Amount”) afterlenders. During the initial closing date uponfirst quarter of 2020, the joinder of additional lenders. Themaximum Facility Amount may be expanded by upincreased to an additional $50.0$175.0 million subject to the agreement of the participating lenders and satisfaction of certain other customary conditions. On October 11, 2019, the committed amount of the revolving credit facility increased from $100.0 million to $100.0$120.0 million upon the joinder of twoan 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, which holds the equity interests in the Solar Ventures, through pledge and security documentation. Availability and amounts advanced under the revolving credit facility 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. The revolving credit facility contains affirmative and negative covenants binding on the Borrower that are customary for credit facilities of this type. Additionally, the credit agreement includes collateral performance tests and the following financial covenants of the Company and its consolidated subsidiaries: minimum debt service coverage ratio, maximum debt to net worth, minimum consolidated net worth and minimum consolidated net income. Borrowing under 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. At SeptemberJune 30, 2019,2020, the LIBOR base rate plus the fixed spread was 4.8%, while4.25%. At June 30, 2020, the weighted-average effective interest rate of the Company’s obligation was 6.9%5.5%. The Borrower has also agreed to pay certain customary fees and expenses and to provide certain indemnities, all of which are customary for such financings.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.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 SeptemberJune 30, 2019,2020, the UPB and carrying value of amounts borrowed from the revolving credit facility was $45.0 million while the$110.0 million. The Company recognized $0.1$1.6 million and $2.9 million of related interest expense in the Consolidated Statements of Operations duringfor the three months and six months ended SeptemberJune 30, 2019. As of November 1, 2019, the UPB and carrying value of the revolving credit facility was $53.5 million.2020, respectively. Notes Payable and Other Debt At SeptemberJune 30, 2019,2020, the UPB and carrying value of notes payable and other debt that was used to finance the Company’s 11.85% ownership interest in SAWHF was $6.4$4.3 million and $6.3$4.2 million, respectively. SuchThis debt, which is denominated in South African rand, has a contractual maturity date of September 8, 2020, and requires the Company to pay its counterparty a rate equal to the Johannesburg Interbank Agreed Rate (“JIBAR”) plus a fixed spread of 5.15%. At SeptemberJune 30, 2019,2020, the JIBAR base rate was 6.81%, while the3.9% and this debt obligation’s weighted-average effective interest rate, which is recalculated over the life of the Company’sdebt instrument when JIBAR resets and incorporates the impact of the unamortized balance of debt issuance costs into its derivation, was 14.6%. At June 30, 2020, the UPB and carrying value of notes payable and other debt obligations to the Morrison Grove Management, LLC principals (“MGM Principals”) was $4.5 million. This debt bears interest at 5.0%. The $3.0 million debt obligation amortizes over its contractual life and is due to mature on January 1, 2026. The $1.5 million debt obligation pays interest only until March 31, 2026 and then amortizes in 3 equal installments until its maturity date of January 1, 2027. On June 1, 2020, the Company entered into a $10.0 million construction loan that is secured by our direct investment in real estate that is in the process of development. The initial advance from this debt was $9.3 million and $0.5 million of capacity that has been reserved for interest payments. The total amount advanced by the lender shall not exceed 65% of the value of pledged real estate and 75% of the development allowable hard costs incurred by borrower. The loan is prepayable at any time without penalty, with all net proceeds realized from the sale of any portion of the real property required to be used to finance its ownershiprepay the outstanding UPB of the loan. Construction draws may not exceed a total principal sum of $11.1 million over the life of the facility, with the maximum outstanding UPB at any point in SAWHFtime not to exceed $10.0 million. The contractual maturity date of this facility is June 1, 2023, although the facility is subject to 3 extension options (at the discretion of the borrower and lender): (i) the first extension term would expire on November 1, 2023; (ii) the second extension term would expire on May 1, 2024 and (iii) the final amortized term would expire three years after the initial term, first extension term and second extension term, as applicable. Amounts drawn from this debt facility are repayable on an interest only basis at a rate of 4.85% with all outstanding principal due at maturity during the initial term, first extension term and second extension term. However, during the final extension term the debt bears interest at a rate of three-month LIBOR plus 3.0% per annum, subject to a 5.0% floor with principal amortization required monthly over the three year extension term. Obligations associated with this debt are guaranteed by the Company. At June 30, 2020, the UPB and carrying value of this debt obligation was 14.71%.$9.3 million and $9.1 million, respectively. Asset Related Debt Asset related debt is debt that finances interest-bearing assets.assets of the Company. The interest expense associated with this debt is included within “Net interest income” on the Consolidated Statements of Operations. Bond Related Debt These debt obligations pertained to investments in bonds that were classified as available-for-sale and were recognized byOn June 5, 2020, the Company entered into a total return swap (“TRS”) agreement related to our Infrastructure Bond. The Company conveyed its interest in connection with transfers ofsuch bond investments that did not qualify as sales for reporting purposes. In most of these cases, debt obligations were recognized when the Company sold bond investmentsinvestment to a counterparty in exchange for cash consideration and concurrently executed total return swap (“while simultaneously executing a TRS”) agreements agreement with the buyer, which enabled the Company to retainsame counterparty for purposes of retaining the economic risks and returns of such investments.
In cases where The conveyance of the Company’s interest in such bond was treated for reporting purposes as a secured borrowing while the TRS agreement was involved in a conveyance that was executed simultaneously with such conveyance did not accounted forreceive financial statement recognition since such derivative instrument caused the conveyance of the Company’s interest in this bond not to qualify as a sale for reporting purposes.
At June 30, 2020, under the Company’sterms of this TRS agreement, which has a maturity date of June 6, 2022, the counterparty wasis required to pay the Company an amount equal to the interest payments received on the underlying bonds and thebond (UPB of $26.7 million with a pay rate of 6.3% at June 30, 2020). The Company wasis required to pay the counterparty a rate that wasis based upon the Securities Industry and Financial Markets Association seven-day municipal swap(“SIFMA”) index rate, (“SIFMA”)subject to a 0.5% floor, plus a spread. The Company used thespread of 2.0% (notional amount of $23.5 million with an average pay rate on executedof 2.5% at June 30, 2020). Additionally, as required by the TRS agreements to accrue interest on its secured borrowing obligations to its counterparty. During the second quarter of 2019,agreement, the Company terminatedpledged cash collateral of $10.0 million representing 37.5% of the three remainingreferenced bond’s UPB. Furthermore, under the terms of the TRS, agreements that financed the Company’s bond investmentsTRS counterparty is entitled to share in 10% of the increase in fair value, if any, of the conveyed Infrastructure Bond between the trade and derecognized $31.6 milliontermination dates of asset-related debt. Consequently,the TRS agreement. For reporting purposes, this provision is treated as of September 30, 2019, the Company had no asset-related debt outstandinga freestanding derivative instrument that financed bond investments.
is reported on a fair value basis. Non-bond Related Debt ThisDuring the first quarter of 2020, the $3.5 million debt obligation bears interest at 5.0%, is payable quarterly in arrears and has a varying amortization schedule that fully amortizesto MGM Principals was reclassified to Other Debt upon the note by its maturity datefull repayment of January 1, 2026. The UPB and carrying value of this debt obligation was $4.0 million at September 30, 2019. the Hunt Note.
Letters of Credit The Company had no letters of credit outstanding at SeptemberJune 30, 20192020 and December 31, 2018.2019. Note 7—Derivative Instruments The Company uses derivative instruments for various purposes. Pay-fixed interest rate swaps, interest rate basis swaps and interest rate caps are used to manage interest rate risk. Foreign currency forward exchange agreements are used to manage currency risk associated with the financing of our SAWHF equity investment. TRS agreements were used by the Company to obtain, or retain, the economic risks and rewards associated with tax exempt municipal bonds. During the second quarter of 2019, the Company terminated all remaining TRS agreements. Derivative instruments that are recognized in the Consolidated Balance Sheets are measured on a fair value basis. Because the Company does not designate any of its derivative instruments as fair value or cash flow hedges, changes in fair value of suchthese instruments are recognized in the Consolidated Statements of Operations as a component of “Net (losses) gainslosses on derivatives.” Derivative assets are presented in the Consolidated Balance Sheets as a component of “Other assets” and derivative liabilities are presented in the Consolidated Balance Sheets as a component of “Other liabilities.” The following table provides information about the carrying value of the Company’s derivative instruments: | | | | | | | | | | | | | | | Fair Value | | | At | | At | | | June 30, 2020 | | December 31, 2019 | (in thousands) | | Assets | | Liabilities | | Assets | | Liabilities | Basis swaps | | $ | — | | $ | 651 | | $ | 318 | | $ | — | Interest rate caps | | | 73 | | | — | | | 227 | | | — | Interest rate swaps | | | — | | | 1,955 | | | 52 | | | — | Foreign currency forward exchange | | | 647 | | | — | | | — | | | 117 | Gain share arrangement (1) | | | — | | | 36 | | | — | | | — | Total carrying value of derivative instruments | | $ | 720 | | $ | 2,642 | | $ | 597 | | $ | 117 |
| | | | | | | | | | | | | | | Fair Value | | | At | | At | | | September 30, 2019 | | December 31, 2018 | (in thousands) | | Assets | | Liabilities | | Assets | | Liabilities | Total return swaps | | $ | ─ | | $ | ─ | | $ | 1,130 | | $ | ─ | Basis swaps | | | 104 | | | ─ | | | 808 | | | ─ | Interest rate caps | | | 201 | | | ─ | | | 998 | | | ─ | Interest rate swaps | | | ─ | | | 324 | | | 2,674 | | | ─ | Foreign currency forward exchange | | | 269 | | | ─ | | | 187 | | | ─ | Total carrying value of derivative instruments | | $ | 574 | | $ | 324 | | $ | 5,797 | | $ | ─ |
| (1) | Refer to Note 6, “Debt” for more information. |
The following table provides information about the notional amounts of the Company’s derivative instruments: | | | | | | | | | Notional Amounts | | | At | | At | | | September 30, | | December 31, | (in thousands) | | 2019 | | 2018 | Total return swaps | | $ | ─ | | $ | 18,278 | Basis swaps | | | 35,000 | | | 35,000 | Interest rate caps | | | 35,000 | | | 80,000 | Interest rate swaps | | | 35,000 | | | 65,000 | Foreign currency forward exchange | | | 4,343 | | | 4,331 | Total notional amount of derivative instruments | | $ | 109,343 | | $ | 202,609 |
| | | | | | | | | Notional Amounts | | | At | | At | | | June 30, | | December 31, | (in thousands) | | 2020 | | 2019 | Basis swaps | | $ | 35,000 | | $ | 35,000 | Interest rate caps | | | 35,000 | | | 35,000 | Interest rate swaps | | | 35,000 | | | 35,000 | Foreign currency forward exchange | | | 3,802 | | | 4,685 | Total notional amount of derivative instruments | | $ | 108,802 | | $ | 109,685 |
During the nine months ended September 30, 2019, the notional amount of interest rate derivative instruments and total return swaps significantly decreased. The following table attributes the decrease in the total notional amount of such
instruments to contract expirations, contract terminations and net cash settlements that occurred during the nine months ended September 30, 2019:
| | | | | | Notional | | | Amounts | Balance, January 1, 2019 | | $ | 198,278 | Impact from expirations | | | (46,714) | Impact from terminations | | | (46,528) | Impact from settlements | | | (36) | Balance, September 30, 2019 | | $ | 105,000 |
The following table provides information about the net (losses) gainslosses that were recognized by the Company in connection with its derivative instruments: | | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | June 30, | | June 30, | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | Total return swaps (1) | | $ | — | | $ | (38) | | $ | — | | $ | (42) | Basis swaps (2) | | | 143 | | | (180) | | | (936) | | | (253) | Interest rate caps | | | (18) | | | (86) | | | (154) | | | (563) | Interest rate swaps (3) | | | (466) | | | (1,395) | | | (2,044) | | | (2,276) | Foreign currency forward exchange | | | (207) | | | (173) | | | 875 | | | (180) | Gain share arrangement | | | (36) | | | — | | | (36) | | | — | Total net losses of derivative instruments | | $ | (584) | | $ | (1,872) | | $ | (2,295) | | $ | (3,314) |
| | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Total return swaps (1) | | $ | ─ | | $ | 422 | | $ | (42) | | $ | 2,060 | Basis swaps (2) | | | (273) | | | 208 | | | (526) | | | 715 | Interest rate caps | | | (234) | | | 137 | | | (797) | | | 612 | Interest rate swaps (3) | | | (441) | | | 327 | | | (2,717) | | | 1,722 | Foreign currency forward exchange | | | 269 | | | 8 | | | 89 | | | 355 | Total net (losses) gains of derivative instruments | | $ | (679) | | $ | 1,102 | | $ | (3,993) | | $ | 5,464 |
| (1) | (1)
| | The accrual of net interest payments that are made in connection with TRS agreements that are reported as derivative instruments are classified as a component of “Net (losses) gainslosses on derivatives” on the Consolidated Statements of Operations. Net cash received was $0.7 millionde minimis for the three months ended SeptemberJune 30, 2018. Net cash received was $0.2 million2019, and $1.9$0.2 million for the ninesix months ended SeptemberJune 30, 2019, and September 30, 2018, respectively. 2019. |
| (2) | (2)
| | The accrual of net interest payments that are made in connection with basis swaps is classified as a component of “Net (losses) gainslosses on derivatives” on the Consolidated Statements of Operations. The net cash received was $0.1 million and $0.2 million for the three and nine months ended September 30, 2019, respectively, while the netNet cash paid was de minimis for the three and nine months ended SeptemberJune 30, 2018. 2020, while net cash received was de minimis for the six months ended June 30, 2020. Net cash received was $0.1 million for the three months and six months ended June 30, 2019. |
| (3) | (3)
| | The accrual of net interest payments that are made in connection with interest rate swaps is classified as a component of “Net (losses) gainslosses on derivatives” on the Consolidated Statements of Operations. Net cash received was de minimis for the three months ended September 30, 2019 and $0.2 million for the ninesix months ended SeptemberJune 30, 2019. Net2020, while the net cash received was $0.1$0.1 million and $0.3$0.2 million for the three months and ninesix months ended SeptemberJune 30, 2018,2019, respectively. During the three and nine months ended September 30, 2018, the Company also received $0.3 million to amend two interest rate swaps and recorded $0.3 million through “Other assets” on the Consolidated Balance Sheets. The amount recorded to “Net (losses) gains on derivatives” on the Consolidated Statements of Operations was de minimis. |
Note 8—Fair Value We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis are presented in the first table below in this Note. From time to time, we may be required to measure at fair value other assets on a nonrecurring basis such as certain loans held for investment or investments in partnerships. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets. Fair Value Hierarchy The Company measures the fair value of its assets and liabilities based upon their contractual terms and using relevant market information. A description of the methods used by the Company to measure fair value is provided below. Fair value measurements are subjective in nature, involve uncertainties and often require the Company to make significant judgments. Changes in assumptions could significantly affect the Company’s measurement of fair value. GAAP establishes a three-level hierarchy that prioritizes inputs into the valuation techniques used to measure fair value. Fair value measurements associated with assets and liabilities are categorized into one of the following levels of the hierarchy based upon how observable the valuation inputs are that are used in suchthe fair value measurements. | ·
● | | Level 1: Valuation is based upon quoted prices in active markets for identical instruments. |
| ·
● | | Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs or significant value drivers are observable in active markets. |
| ·
● | | Level 3: Valuation is generated from techniques that use significant assumptions that are not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. |
Recurring Changes in Fair Value The following tables present the carrying amounts of assets and liabilities that are measured at fair value on a recurring basis by instrument type and based upon the level of the fair value hierarchy within which fair value measurements of suchour assets and liabilities are categorized: | | | | | | | | | | | | | | | At | | | | | | | | | | | | June 30, | | Fair Value Measurements | (in thousands) | | 2020 | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | Investments in debt securities | | $ | 29,988 | | $ | — | | $ | — | | $ | 29,988 | Loans held for investment | | | 1,291 | | | — | | | — | | | 1,291 | Equity investments | | | 2,709 | | | 2,709 | | | — | | | — | Derivative instruments | | | 720 | | | — | | | 720 | | | — | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Derivative instruments | | $ | 2,642 | | $ | — | | $ | 2,606 | | $ | 36 |
| | | | | | | | | | | | | | | At | | | | | | | | | | | | September 30, | | Fair Value Measurements | (in thousands) | | 2019 | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | Investments in debt securities | | $ | 34,121 | | $ | ─ | | $ | ─ | | $ | 34,121 | Derivative instruments | | | 574 | | | ─ | | | 574 | | | ─ | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Derivative instruments | | $ | 324 | | $ | ─ | | $ | 324 | | $ | ─ |
| | | | | | | | | | | | | | | At | | | | | | | | | | | | December 31, | | Fair Value Measurements | (in thousands) | | 2018 | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | Investments in debt securities | | $ | 97,190 | | $ | ─ | | $ | ─ | | $ | 97,190 | Derivative instruments | | | 5,797 | | | ─ | | | 4,667 | | | 1,130 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | At | | | | | | | | | | | | December 31, | | Fair Value Measurements | (in thousands) | | 2019 | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | Investments in debt securities | | $ | 31,365 | | $ | — | | $ | — | | $ | 31,365 | Loans held for investment | | | 500 | | | — | | | — | | | 500 | Derivative instruments | | | 597 | | | — | | | 597 | | | — | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Derivative instruments | | $ | 117 | | $ | — | | $ | 117 | | $ | — |
Changes in Fair Value Levels We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2, and Level 3 accordingly. Observable market data includes, but is not limited to, quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data. Changes in availability of observable market data, which also may result in changing the valuation technique used, are generally the cause of transfers between Level 1, Level 2 and Level 3.
For the three months ended September 30, 2019, and September 30, 2018, there were no individually significant transfers between Levels 1 and 2, or between Levels 2 and 3.
Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the three months ended SeptemberJune 30, 2019:2020: | | | | | | | | | | | | Investments in | | Loans Held for | | Derivative | (in thousands) | | Debt Securities | | Investment | | Liabilities | Balance, April 1, 2020 | | $ | 29,645 | | $ | 1,271 | | $ | — | Net gains (losses) included in earnings (1) | | | — | | | 20 | | | (36) | Net change in AOCI (2) | | | 467 | | | — | | | — | Impact from sales or redemptions | | | — | | | — | | | — | Impact from settlements (3) | | | (124) | | | — | | | — | Balance, June 30, 2020 | | $ | 29,988 | | $ | 1,291 | | $ | (36) |
| | | | | | Investments in | (in thousands) | | Debt Securities | Balance, July 1, 2019 | | $ | 35,236 | Net change in AOCI (1) | | | (890) | Impact from sales or redemptions | | | (264) | Impact from settlements (2) | | | 39 | Balance, September 30, 2019 | | $ | 34,121 |
| (1) | (1)
| | This amount includes the reclassification into the Consolidated Statementsrepresents $20 thousand of Operations of $1.9 million of net fair valueunrealized gains related to bonds that were sold or redeemedrecognized during this reporting period.period in connection with the Company’s loan investment held at June 30, 2020. This decline was partially offset by $1.0amount is classified as “Net gains (losses) on loans and extinguishment of liabilities” in the Company’s Consolidated Statement of Operations. In addition, the Company recognized $36 thousand of unrealized losses during this reporting period related to the gain share arrangement that is classified as “Net losses on derivatives” in the Company’s Consolidated Statement of Operations. |
| (2) | This amount represents $0.5 million of net unrealized gains recognized during this reporting period in connection with the Company’s bond investments. |
| (3) | (2)
| | This impact considers the effect of principal payments received and amortization of cost basis adjustments. |
The following table provides information about the amount of realized and unrealized gains that were reported in the Company’s Consolidated Statements of Operations for the three months ended September 30, 2019 related to activity presented in the preceding table:
| | | | | | Net gains on | (in thousands) | | bonds (1) | Additional realized gains recognized | | $ | 2,156 | Total net gains reported in earnings | | $ | 2,156 |
| (1)
| | Amounts are classified as “Net gains on bonds” in the Company’s Consolidated Statements of Operations.
|
Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the three months ended SeptemberJune 30, 2018:2019: | | | | | | | | | Investments | | | | | in Debt | | Derivative | (in thousands) | | Securities | | Assets | Balance, April 1, 2019 | | $ | 81,102 | | $ | 776 | Net losses included in earnings | | | — | | | (42) | Net change in AOCI (1) | | | (21,063) | | | — | Impact from sales or redemptions | | | (24,779) | | | — | Impact from settlements (2) | | | (24) | | | (734) | Balance, June 30, 2019 | | $ | 35,236 | | $ | — |
| | | | | | | | | | | | Investments | | | | | | | in Debt | | Derivative | | Derivative | (in thousands) | | Securities | | Assets | | Liabilities | Balance, July 1, 2018 | | $ | 162,261 | | $ | 2,747 | | $ | (44) | Net losses included in earnings | | | ─ | | | (158) | | | (26) | Net change in AOCI (1) | | | (3,914) | | | ─ | | | ─ | Impact from sales or redemptions | | | (10,364) | | | ─ | | | ─ | Impact from settlements (2) | | | (175) | | | ─ | | | ─ | Balance, September 30, 2018 | | $ | 147,808 | | $ | 2,589 | | $ | (70) |
| (1) | (1)
| | This amount includesrepresents the reclassification into the Consolidated StatementStatements of Operations of $5.1$20.7 million of net fair value gains related to bonds that were sold or redeemed. This decline was partially offset by (i) $1.0redeemed during this reporting period and $0.4 million of net unrealized holding gainslosses recognized during the period in connection with the Company’s bond investments and (ii) $0.1 million of realized losses that were reclassified out of AOCI and into the Consolidated Statements of Operations in connection with one of the Company’s bond investments that was assessed as OTTI. this reporting period. |
| (2) | (2)
| | This impact considers the effect of principal payments received and amortization of cost basis adjustments. |
The following table provides information about the amount of realized and unrealized (losses) gains that were reported in the Company’s Consolidated Statements of Operations for the three months ended SeptemberJune 30, 2018,2019, related to activity presented in the preceding table: | | | | | | | | | | | | | | | Net losses on | | Net gains on | (in thousands) | | bonds (1) | | derivatives (2) | Change in unrealized losses related to assets and liabilities held at April 1, 2019 but settled during the second quarter of 2019 | | $ | — | | $ | (42) | Additional realized gains recognized | | | 20,693 | | | 4 | Total net gains (losses) reported in earnings | | $ | 20,693 | | $ | (38) |
| | | | | | | | | | | | | | | Net losses on | | Net gains on | (in thousands) | | bonds (1) | | derivatives (2) | Change in unrealized losses related to assets and liabilities held at September 30, 2018 | | $ | ─ | | $ | (184) | Additional realized gains recognized | | | 5,080 | | | 605 | Total net gains reported in earnings | | $ | 5,080 | | $ | 421 |
| (1) | (1)
| | Amounts are classified as “Impairments” and “Net gains on bonds” in the Company’s Consolidated Statements of Operations. |
| (2) | (2)
| | Amounts are classified as “Net (losses) gainslosses on derivatives” in the Company’s Consolidated Statements of Operations. |
Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the ninesix months ended SeptemberJune 30, 2019:2020: | | | | | | | | | | | | Investments | | | | | | | | in Debt | | Loans Held for | | Derivative | (in thousands) | | Securities | | Investment | | Liabilities | Balance, January 1, 2020 | | $ | 31,365 | | $ | 500 | | $ | — | Net gains (losses) included in earnings (1) | | | — | | | 11 | | | (36) | Net change in AOCI (2) | | | (1,296) | | | — | | | — | Impact from loan originations / advances | | | — | | | 780 | | | — | Impact from settlements (3) | | | (81) | | | — | | | | Balance, June 30, 2020 | | $ | 29,988 | | $ | 1,291 | | $ | (36) |
| | | | | | | | | Investments | | | | | | in Debt | | Derivative | (in thousands) | | Securities | | Assets | Balance, January 1, 2019 | | $ | 97,190 | | $ | 1,130 | Net losses included in earnings | | | ─ | | | (195) | Net change in AOCI (1) | | | (25,118) | | | ─ | Impact from sales or redemptions | | | (37,633) | | | ─ | Impact from settlements (2) | | | (318) | | | (935) | Balance, September 30, 2019 | | $ | 34,121 | | $ | ─ |
| (1) | (1)
| | This amount represents the reclassification into the Consolidated Statements$11 thousand of Operations of $26.1 million of net fair value gains related to bonds that were sold or redeemed during this reporting period. This decline was partially offset by $1.0 million of net unrealized gains recognized during this reporting period in connection with the Company’s loan investment held at June 30, 2020. This amount is classified as “Net gains (losses) on loans and extinguishment of liabilities” in the Company’s Consolidated Statement of Operations. In addition, the Company recognized $36 thousand of unrealized losses during this reporting period related to the gain share arrangement that is classified as “Net losses on derivatives” in the Company’s Statement of Operations. |
| (2) | This amount represents $1.3 million of net unrealized losses recognized during this reporting period in connection with the Company’s bond investments. |
| (3) | (2)
| | This impact considers the effect of principal payments received and amortization of cost basis adjustments. Included in this amount is $0.3 million of cumulative transition adjustment to retained earnings that was recognized in connection with the Company’s adoption of ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-10): Premium Amortization on Purchased Callable Debt Securities” on January 1, 2019. |
The following table provides information about the amount of realized and unrealized gains (losses) that were reported in the Company’s Consolidated Statements of Operations for the nine months ended September 30, 2019, related to activity presented in the preceding table:
| | | | | | | | | Net gains on | | Net losses on | (in thousands) | | bonds (1) | | derivatives (2) | Change in unrealized losses related to assets and liabilities held at January 1, 2019, but settled during 2019 | | $ | ─ | | $ | (195) | Additional realized gains recognized | | | 26,420 | | | 152 | Total net gains (losses) reported in earnings | | $ | 26,420 | | $ | (43) |
| (1)
| | Amounts are classified as “Net gains on bonds” in the Company’s Consolidated Statements of Operations.
|
| (2)
| | Amounts are classified as “Net (losses) gains on derivatives” in the Company’s Consolidated Statements of Operations.
|
Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the ninesix months ended SeptemberJune 30, 2018:2019: | | | | | | | | | Investments | | | | | | in Debt | | Derivative | (in thousands) | | Securities | | Assets | Balance, January 1, 2019 | | $ | 97,190 | | $ | 1,130 | Net losses included in earnings | | | — | | | (195) | Net change in AOCI (1) | | | (24,228) | | | — | Impact from sales or redemptions | | | (37,369) | | | — | Impact from settlements (2) | | | (357) | | | (935) | Balance, June 30, 2019 | | $ | 35,236 | | $ | — |
| | | | | | | | | | | | Investments | | | | | | | | | in Debt | | Derivative | | Derivative | (in thousands) | | Securities | | Assets | | Liabilities | Balance, January 1, 2018 | | $ | 143,604 | | $ | 2,347 | | $ | (46) | Net (losses) gains included in earnings | | | (6) | | | 242 | | | (24) | Net change in AOCI (1) | | | (2,931) | | | ─ | | | ─ | Impact from deconsolidation | | | 17,997 | | | ─ | | | ─ | Impact from sales or redemptions | | | (10,364) | | | ─ | | | ─ | Impact from settlements (2) | | | (492) | | | ─ | | | ─ | Balance, September 30, 2018 | | $ | 147,808 | | $ | 2,589 | | $ | (70) |
| (1) | (1)
| | This amount represents the reclassification into the Consolidated Statements of Operations of $5.1$24.3 million of net fair value gains related to bonds that were sold or redeemed during this reporting period. This decline was partially offset by $2.1 million of net unrealized holding gains recognized during the period in connection with the Company’s bond investments. |
| (2) | (2)
| | This impact considers the effect of principal payments received and amortization of cost basis adjustments. Included in this amount is $0.3 million of cumulative transition adjustment to retained earnings that was recognized in connection with the Company’s adoption of ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-10): Premium Amortization on Purchased Callable Debt Securities” on January 1, 2019. |
The following table provides information about the amount of realized and unrealized (losses) gains that were reported in the Company’s Consolidated Statements of Operations for the ninesix months ended SeptemberJune 30, 2018,2019, related to activity presented in the preceding table: | | | | | | | | | | | | | | | Net gains on | | Net losses on | (in thousands) | | bonds (1) | | derivatives (2) | Change in unrealized losses related to assets and liabilities held at January 1, 2019, but settled during 2019 | | $ | — | | $ | (195) | Additional realized gains recognized | | | 24,264 | | | 152 | Total net gains (losses) reported in earnings | | $ | 24,264 | | $ | (43) |
| | | | | | | | | | | | | | | Net losses on | | Net gains on | (in thousands) | | bonds (1) | | derivatives (2) | Change in unrealized (losses) gains related to assets and liabilities held at September 30, 2018 | | $ | (6) | | $ | 218 | Additional realized gains recognized | | | 5,080 | | | 1,842 | Total net gains reported in earnings | | $ | 5,074 | | $ | 2,060 |
(1)Amounts are classified as “Net gains on bonds” in the Company’s Consolidated Statements of Operations.| (2) | (1)
| | Amounts are classified as “Impairments” and “Net gains on bonds” in the Company’s Consolidated Statements of Operations.
|
| (2)
| | Amounts are classified as “Net (losses) gainslosses on derivatives” in the Company’s Consolidated Statements of Operations. |
Fair Value Measurements of Instruments That Are Classified as Level 3 We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
For our Level 3 assets and liabilities, we generally use a discounted cash flow valuation technique to measure fair value. This type of valuation technique involves developing a projection of expected future cash flows of an instrument and then discounting such cash flows using discount factors that consider the relative risk of the cash flows and the time value of money. In applying this technique, the rate of return, or market yield, that is utilized for such purposes reflects specific characteristics of an instrument including, but not limited to the expected term of the instrument, its debt service coverage ratio or credit quality, geographic location, investment size and other attributes:
| ·
| | For performing multifamily bonds and TRS derivatives, the Company’s projection of expected future cash flows reflects cash flows that are contractually due over the life of an instrument. Such projected cash flows are discounted based upon the market yield of such instruments. For such instruments, the Company determines market yield by generally utilizing the AAA Municipal Market Data tax-exempt rate (“MMD”) for each instrument’s specific term and applies a market rate risk premium spread that reflects that instrument’s specific credit characteristics, such as size, debt service coverage, state or bond type.
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| ·
| | For non-performing bonds and subordinate cash flow bonds, the Company’s projection of expected future cash flows reflects internally-generated projections over a 10‑year investment period of future net operating income (“NOI”) from the underlying properties that serve as collateral for our instruments. A terminal value, less estimated costs of sale, is then added to the projected discounted projection to reflect the remaining value that is expected to be generated at the end of the projection period. The Company utilizes geographic and sector specific discount rates that are published by an independent real estate research organization. For purposes of projecting expected future cash flows associated with non-performing bonds, the Company may also consider either quotes received from third parties or contract prices associated with a purchase and sale agreement related to underlying properties that serve as collateral for our instruments. In instances where the Company uses more than one valuation technique to measure the fair value of underlying properties, the results (respective indications of fair value) are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results.
|
| ·
| | For our infrastructure bond investment, the Company determines market yield by generally utilizing the AAA MMD tax-exempt rate for each infrastructure bond’s specific term and applies a market rate risk premium spread that reflects the instrument’s specific credit characteristics. Contractually due cash flows are discounted based upon the market yield of such instruments as of such reporting date.
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Significant unobservable inputs presented in the tables that follow are those we consider significant to the fair value of the Level 3 asset or liability. We consider unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 asset or liability would be impacted by a predetermined percentage change, or based on qualitative factors, such as nature of the instrument, type of valuation technique used and the significance of the unobservable inputs relative to other inputs used within the valuation. Following is a description of the significant unobservable inputs that are referenced in the tables below: | ·
● | | Market yield – is a market rate of return used to calculate the present value of future expected cash flows to arrive at the fair value of an instrument. The market yield typically consists of a benchmark rate component and a risk premium component. The benchmark rate component, for example, MMDMunicipal Market Data or SIFMA index rates, is generally observable within the market and is necessary to appropriately reflect the time value of money. The risk premium component reflects the amount of compensation market participants require due to the uncertainty inherent in the instrument’s cash flows resulting from risks such as credit and liquidity. A significant decrease in this input in isolation would result in a significantly higher fair value measurement. |
| ·
● | | Capitalization rate – is calculated as the ratio between the NOI produced by a commercial real estate property and the price for suchthe asset. A significant decrease in this input in isolation would result in a significantly higher fair value measurement. |
| ·
● | | NOI annual growth rate – is the amount of future growth in NOI that the Company projects each property to generate on an annual basis over the 10‑year10-year projection period. These annual growth estimates take into account the Company’s expectation about the future increases, or decreases, in rental rates, vacancy rates, bad debt expense, concessions and operating expenses for each property. Generally, an increase in NOI will result in an increase to the fair value of the property. |
| ·
● | | Valuation technique weighting factors – represent factors that, in the aggregate, sum to 100% and that are individually applied to two or more indications of fair value considering the reasonableness of the range indicated by those results. |
| ·
● | | Contract priceor bid prices – represents a third-party sale agreement or purchase offer executed in connection with the pending sale of an affordable housing property that secures one of the Company’s bond investments. In instances where multiple purchase offers have been received an average of the offers received is utilized. Estimated |
| | proceeds from the sale, or average offers, of such property that are determined to be allocable to a bond investment are used to measure suchthe investment’s fair value at a given reporting date. |
The tables that follow provide quantitative information about the valuation techniques and the range and weighted-average of significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a recurring basis for which we use an internal model to measure fair value. The significant unobservable inputs for Level 3 assets and liabilities that are valued using dealer pricing are not included in the tables, as the specific inputs applied are not provided by the dealer. | | | | | | | | | | | | | | | Fair Value Measurement at June 30, 2020 | | | | | | Significant | | Significant | | | | | | | | | | | | Valuation | | Unobservable | | | | | Weighted | | (dollars in thousands) | Fair Value | | Techniques | | Inputs (1) | | Range (1) | | Average | | Recurring Fair Value Measurements: | | | | | | | | | | | | Investments in debt securities: | | | | | | | | | | | | Infrastructure Bond | $ | 23,874 | | Discounted cash flow | | Market yield | | | 7.6 | % | | N/A | | Multifamily tax-exempt bond | | | | | | | | | | | | Subordinated cash flow | | 6,114 | | Discounted cash flow | | Market yield | | | 7.2 | | | N/A | | | | | | | | Capitalization rate | | | 6.3 | | | N/A | | Loans held for investment | | 1,291 | | Discounted cash flow | | Market yield | | | 7.6 | | | N/A | | Derivative instruments: | | | | | | | | | | | | | | Gain share arrangement | | (36) | | Discounted cash flow | | Market yield | | | 7.6 | | | N/A | |
| | | | | | | | | | | | | | | Fair Value Measurement at September 30, 2019 | | | | | | Significant | | Significant | | | | | | | | | | | | Valuation | | Unobservable | | | | | Weighted | | (dollars in thousands) | Fair Value | | Techniques | | Inputs (1) | | Range (1) | | Average | | Recurring Fair Value Measurements: | | | | | | | | | | | | Investments in debt securities: | | | | | | | | | | | | | | Multifamily tax-exempt bonds | | | | | | | | | | | | | Subordinated cash flow | $ | 8,721 | | Discounted cash flow | | Market yield | | | 7.3 | % | | N/A | | | | | | | | Capitalization rate | | | 6.4 | | | N/A | | | | | | | | NOI annual growth rates | | | 0.6 | | | N/A | | | | | | | | Contract price | | $ | 16,100 | | | N/A | | Infrastructure Bond | | 25,400 | | Discounted cash flow | | Market yield | | | 7.1 | % | | N/A | |
| (1) | (1)
| | Unobservable inputs reflect information that is not based upon independent sources that are readily available. These inputs are based upon assumptions and internally generated data made by the Company, which may include significant judgment that has been developed based upon available information from third-party sources or dealers about what a market participant would use in valuing the asset. |
| | | | | | | | | | | | | | | Fair Value Measurement at December 31, 2019 | | | | | | Significant | | Significant | | | | | | | | | | | | Valuation | | Unobservable | | | | | Weighted | | (dollars in thousands) | Fair Value | | Techniques | | Inputs (1) | | Range (1) | | Average (2) | | Recurring Fair Value Measurements: | | | | | | | | | | | | Investments in debt securities: | | | | | | | | | | | | Infrastructure Bond | $ | 25,339 | | Discounted cash flow | | Market yield | | | 7.0 | % | | N/A | | Multifamily tax-exempt bond | | | | | | | | | | | | Subordinated cash flow | | 6,026 | | Discounted cash flow | | Market yield | | | 7.3 | | | N/A | | | | | | | | Capitalization rate | | | 6.2 | | | N/A | | | | | | | | Valuation technique weighting factors: | | | | | | | | | | | | | | • NOI annual growth rate (50% weighting factor) | | | 0.7 | | | N/A | | | | | | | | • Bid price (50% weighting factor) | | $ | 16,611 | | | N/A | | Loans held for investment | | 500 | | Discounted cash flow | | Market yield | | | 8.0 | % | | 8.0 | % |
| | | | | | | | | | | | | | | Fair Value Measurement at December 31, 2018 | | | | | | Significant | | Significant | | | | | | | | | | | | Valuation | | Unobservable | | | | | Weighted | | (dollars in thousands) | Fair Value | | Techniques | | Inputs (1) | | Range (1) | | Average (2) | | Recurring Fair Value Measurements: | | | | | | | | | | | | Investments in debt securities: | | | | | | | | | | | | | | Multifamily tax-exempt bonds | | | | | | | | | | | | | Performing | $ | 48,221 | | Discounted cash flow | | Market yield | | | 4.4 - 6.8 | % | | 4.8 | % | Non-performing | | 12,882 | | Discounted cash flow | | Market yield | | | 8.2 | | | N/A | | | | | | | | Capitalization rate | | | 7.0 | | | N/A | | | | | | | | Valuation technique
weighting factors: | | | | | | | | | | | | | | • NOI annual growth
rate (10% weighting
factor) | | | 0.5 | | | N/A | | | | | | | | • Contract price
(90% weighting
factor) | | $ | 13,500 | | | N/A | | Subordinated cash flow | | 11,114 | | Discounted cash flow | | Market yield | | | 7.4 - 7.6 | % | | 7.5 | | | | | | | | Capitalization rate | | | 6.2 - 6.5 | | | 6.4 | | | | | | | | NOI annual growth rates | | | 0.6 - 0.7 | | | 0.7 | | Infrastructure Bond | | 24,973 | | Discounted cash flow | | Market yield | | | 7.2 | | | N/A | | Derivative instruments: | | | | | | | | | | | | | | Total return swaps | | 1,130 | | Discounted cash flow | | Market yield | | | 4.7 - 4.8 | | | 4.8 | |
| (1) | (1)
| | Unobservable inputs reflect information that is not based upon independent sources that are readily available. These inputs are based upon assumptions and internally generated data made by the Company, which may include significant judgment that has been developed based upon available information from third-party sources or dealers about what a market participant would use in valuing the asset. |
| (2) | (2)
| | Weighted-averages are calculated using outstanding UPB for cash instruments, such as loans and securities, and notional amounts for derivative instruments. |
Nonrecurring Changes in Fair Value DuringAt June 30, 2020, the nine months ended September 30, 2018,Company’s equity investment in the SF Venture was assessed to be other-than-temporarily impaired. Consequently, the Company adjusted the carrying value of such investment to its fair value as of such reporting date, which was estimated by determining the Company’s share of the net asset value (“NAV”) of the SF Venture at June 30, 2020, where the assets and liabilities of the SF Venture were adjusted to their fair values as of such reporting date and a discount for lack of marketability was then applied to the Company’s share of the measured NAV of the SF Venture. The Company recognized $0.4a $9.0 million impairment loss in adjusting this investment’s carrying value to its measured fair value. Because of impairment losses associated withthe limited observability of certain equity investments based uponvaluation inputs that were used to measure the fair value of such instruments. Fair value measurements of these instruments, which were categorizedthis equity investment, it was classified as Levellevel 3 in the fair value hierarchy were completed using a discounted cash flow methodology.at June 30, 2020. There were no nonrecurring fair value adjustments recorded forrecognized by the nineCompany during the three months and six months ended SeptemberJune 30, 2019.
Additional Disclosures Related To The Fair Value of Financial Instruments That Are Not Carried On The Consolidated Balance Sheets at Fair Value The tables that follow provide information about the carrying amounts and fair values of those financial instruments of the Company for which fair value is not measured on a recurring basis and organizes suchthe information based upon the level of the fair value hierarchy within which fair value measurements are categorized. Assets and liabilities that do not represent financial instruments (e.g., premises and equipment) are excluded from these disclosures. | | | | | | | | | | | | | | | At | | | September 30, 2019 | | | Carrying | | Fair Value | (in thousands) | | Amount | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | Cash and cash equivalents | | $ | 10,837 | | $ | 10,837 | | $ | ─ | | $ | ─ | Restricted cash | | | 6,115 | | | 6,115 | | | ─ | | | ─ | Loans held for investment | | | 87,267 | | | ─ | | | ─ | | | 88,279 | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Notes payable and other debt - non-bond related | | | 10,295 | | | ─ | | | ─ | | | 9,738 | Subordinated debt issued by MFH | | | 96,045 | | | ─ | | | ─ | | | 44,238 | Revolving credit facility obligations | | | 45,000 | | | ─ | | | ─ | | | 45,000 |
| | | | | | | | | | | | | | | | At | | | | December 31, 2018 | | | | Carrying | | Fair Value | | | | | | | | | | | | | | | | | | | At | | | | June 30, 2020 | | | | Carrying | | Fair Value | (in thousands) | | Amount | | Level 1 | | Level 2 | | Level 3 | | Amount | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 28,243 | | $ | 28,243 | | $ | ─ | | $ | ─ | | $ | 24,554 | | $ | 24,554 | | $ | — | | $ | — | Restricted cash | | | 5,635 | | | 5,635 | | | ─ | | | ─ | | | 17,300 | | | 17,300 | | | — | | | — | Loans held for investment | | | 67,299 | | | ─ | | | ─ | | | 66,339 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Notes payable and other debt - bond related | | | 39,255 | | | ─ | | | ─ | | | 39,289 | | | 23,357 | | | — | | | — | | | 23,509 | Notes payable and other debt - non-bond related | | | 12,210 | | | ─ | | | ─ | | | 11,479 | | | 17,812 | | | — | | | — | | | 16,898 | Revolving credit facility obligations | | | | 110,000 | | | — | | | — | | | 110,000 | Subordinated debt issued by MFH | | | 97,722 | | | ─ | | | ─ | | | 46,778 | | | 94,363 | | | — | | | — | | | 37,347 |
| | | | | | | | | | | | | | | At | | | December 31, 2019 | | | Carrying | | Fair Value | (in thousands) | | Amount | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | Cash and cash equivalents | | $ | 8,555 | | $ | 8,555 | | $ | — | | $ | — | Restricted cash | | | 4,250 | | | 4,250 | | | — | | | — | Loans held for investment | | | 53,600 | | | — | | | — | | | 54,276 | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Notes payable and other debt - non-bond related | | | 11,828 | | | — | | | — | | | 10,888 | Revolving credit facility obligations | | | 94,500 | | | — | | | — | | | 94,500 | Subordinated debt issued by MFH | | | 95,488 | | | — | | | — | | | 46,934 |
Valuation Techniques Cash and cash equivalents and restricted cash – The carrying value of these assets approximated fair value due to the short-term nature and negligible credit risk inherent in them. Loans held for investment – Fair value is measured using a discounted cash flow methodology pursuant to which contractual payments are discounted based upon market yields for similar credit risks. Notes payable and other debt – Fair value is measured by discounting contractual cash flows using a market rate of interest or by estimating the fair value of the collateral supporting a debt arrangement, taking into account credit risk. Subordinated debt – Fair value is measured by discounting projected contractual payments of principal and interest using suchthe instrument’s estimated market yield, which was 12.0%12.5% and 13.4%11.7% at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. As outlined in the table above, at SeptemberJune 30, 2019,2020, the aggregate fair value was measured at $44.2$37.3 million. At SeptemberJune 30, 2019,2020, the measured fair value of this debt would have been $53.3$49.1 million and $37.5$29.5 million had its market yield been 9.5%9.0% and 14.5%16.0%, respectively, as of such reporting date.respectively. The measured fair value of this debt is inherently judgmental and based on management’s assumption of market yields. There can be no assurance that the Company could repurchase the remaining subordinated debt at the measured fair values reflected in the table above or that the debt would trade at that price. Revolving credit facility debt obligations – Fair value of these debt obligations is measured by discounting projected contractual payments of interest and principal using an estimated market yield. Note 9—Guarantees and Collateral Guarantees ContemporaneouslyThe Company has guaranteed the performance of payment obligations of certain of its subsidiaries under various debt agreements to third parties. The Company has guaranteed all MFH payment obligations and performance under the terms of the Company’s subordinated debt. However, the Company’s guarantee of the subordinated debt is subordinated to repayment of any senior debt of the Company. Additionally, contemporaneously with the execution of the revolving credit agreement,facility, the Company agreed to guarantee all payment and performance obligations of MEH under the credit agreement to the lenders. TheFurthermore, the Company believesagreed to guarantee all payment and performance obligations of the borrower associated with financing obtained in the second quarter of 2020 related to our direct investment in real estate that there are no potential future paymentsis in process of development. Currently, the Company expects that it will not need to make any payments under this guarantee.these guarantees.
Collateral and Restricted Assets The following tables summarize assets that are either pledged or restricted for the Company’s use at SeptemberJune 30, 20192020 and December 31, 2018: | | | | | | | | | | | | | | | At | | | September 30, 2019 | | | | | Investments | | | | Total | | | Restricted | | in Debt | | Investments in | | Assets | (in thousands) | | Cash | | Securities | | Partnerships | | Pledged | Debt related to the revolving credit facility | | $ | 2,592 | | $ | ─ | | $ | 194,647 | | $ | 197,239 | Debt and derivatives related to the Company's 11.85% ownership interest in SAWHF | | | 1,364 | | | ─ | | | 7,499 | | | 8,863 | Interest rate swaps | | | 2,151 | | | ─ | | | ─ | | | 2,151 | Other | | | 8 | | | ─ | | | ─ | | | 8 | Total | | $ | 6,115 | | $ | ─ | | $ | 202,146 | | $ | 208,261 |
| | | | | | | | | | | | | | | At | | | December 31, 2018 | | | | | Investments | | | | Total | | | Restricted | | in Debt | | Investments in | | Assets | (in thousands) | | Cash | | Securities | | Partnerships | | Pledged | Debt and derivatives related to TRS agreements | | $ | 4,287 | | $ | 85,347 | | $ | ─ | | $ | 89,634 | Debt and derivatives related to the Company's 11.85% ownership interest in SAWHF | | | 1,340 | | | ─ | | | 8,779 | | | 10,119 | Other | | | 8 | | | ─ | | | ─ | | | 8 | Total | | $ | 5,635 | | $ | 85,347 | | $ | 8,779 | | $ | 99,761 |
2019: | | | | | | | | | | | | | | | | | | At | | | June 30, 2020 | | | | | Investments | | | | | | | Total | | | Restricted | | in Debt | | Investments in | | | Other | | Assets | (in thousands) | | Cash | | Securities | | Partnerships | | | Assets | | Pledged | Debt related to the revolving credit facility | | $ | 1,329 | | $ | — | | $ | 363,070 | | $ | — | | $ | 364,399 | Debt related to TRS agreement | | | 10,020 | | | 23,874 | | | — | | | — | | | 33,894 | Debt related to the Company's REO | | | 250 | | | — | | | — | | | 14,526 | | | 14,776 | Debt and derivatives related to the Company's 11.85% ownership interest in SAWHF | | | 1,374 | | | — | | | 1,994 | | | 2,709 | | | 6,077 | Interest rate swaps | | | 4,319 | | | — | | | — | | | — | | | 4,319 | Other | | | 8 | | | — | | | — | | | — | | | 8 | Total | | $ | 17,300 | | $ | 23,874 | | $ | 365,064 | | $ | 17,235 | | $ | 423,473 |
| | | | | | | | | | | | At | | | December 31, 2019 | | | | | | | Total | | | Restricted | | Investments in | | Assets | (in thousands) | | Cash | | Partnerships | | Pledged | Debt related to the revolving credit facility | | $ | 1,070 | | $ | 289,123 | | $ | 290,193 | Debt and derivatives related to the Company's 11.85% ownership interest in SAWHF | | | 1,369 | | | 7,732 | | | 9,101 | Interest rate swaps | | | 1,803 | | | — | | | 1,803 | Other | | | 8 | | | — | | | 8 | Total | | $ | 4,250 | | $ | 296,855 | | $ | 301,105 |
Note 10—Commitments and Contingencies Operating Leases During the first quarter of 2018, the Company conveyed all of its operating lease agreements to Hunt. As a result, theThe Company had no future rental commitments at SeptemberJune 30, 2019.2020.
Litigation and Other Legal Matters In the ordinary course of business,, the Company and its subsidiaries are named from time to time as defendants in various litigation matters or may have other claims made against them. SuchThese legal proceedings may include claims for substantial or indeterminate compensatory, consequential or punitive damages, or for injunctive or declaratory relief. The Company establishes reserves for litigation matters or other loss contingencies when a loss is probable and can be reasonably estimated. Once established, reserves may be adjusted when new information is obtained. At SeptemberJune 30, 2019,2020, we had no significant litigation matters and we were not aware of any other claims that we believe would have a material adverse impact on our financial condition or results of operations. Other Risks and Uncertainties We are monitoring the economic impact of the COVID-19 pandemic on the performance of our investments and underlying real estate values. Although we have not recognized impairment charges other than that for the SF Venture discussed above, we believe it is reasonably possible that we may be required to recognize one or more material impairment charges over the next 12 months, particularly if underlying economic conditions continue to deteriorate. Because any such impairment charge will be based on future circumstances, we cannot predict at this time whether we will be required to recognize any further impairment charges and, if required, the timing or amount of any impairment charge. With respect to recognized DTA, 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 second 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 June 30, 2020. Consequently, the Company did not make an adjustment in the second quarter of 2020 to the carrying value of DTAs that were recognized at December 31, 2019. Nonetheless, given such uncertainty and other factors, we believe it is reasonably possible that, within the next 12 months, a change 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. Note 11—Equity Preferred Share Information On January 1, 2019, as part of the Company’s conversion to a corporation, the Company was authorized to issue 5,000,000 of preferred shares, in one or more series, with no par value. TheAs of June 30, 2020, the Board of Directors (“Board”) has not authorized any of these shares to be issued and no rights have been established for any of these shares. Common Share Information As of June 30, 2020, the Company was authorized to issue 50,000,000 common shares. The following table provides information about net (loss) income to common shareholders as well as provides information that pertains to weighted-average share counts that were used in per share calculations as presented on the Consolidated Statements of Operations: | | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | June 30, | | June 30, | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | Net (loss) income from continuing operations | | $ | (3,508) | | $ | 23,220 | | $ | (6,566) | | $ | 26,109 | Net loss from discontinued operations | | | — | | | (1) | | | — | | | (8) | Net (loss) income | | $ | (3,508) | | $ | 23,219 | | $ | (6,566) | | $ | 26,101 | | | | | | | | | | | | | | Basic and diluted weighted-average shares (1) | | | 5,807 | | | 5,884 | | | 5,806 | | | 5,883 |
| | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Net income from continuing operations | | $ | 5,576 | | $ | 8,348 | | $ | 31,685 | | $ | 7,754 | Net income (loss) from discontinued operations | | | ─ | | | 276 | | | (8) | | | 21,972 | Net income | | $ | 5,576 | | $ | 8,624 | | $ | 31,677 | | $ | 29,726 | | | | | | | | | | | | | | Basic weighted-average shares (1) | | | 5,887 | | | 5,804 | | | 5,884 | | | 5,717 | Common stock equivalents (2) | | | ─ | | | 283 | | | ─ | | | ─ | Diluted weighted-average shares | | | 5,887 | | | 6,087 | | | 5,884 | | | 5,717 |
| (1) | (1)
| | Includes common shares issued and outstanding, as well as deferred shares of non-employee directors that have vested but are not issued and outstanding. |
| (2)
| | At September 30, 2018, 222,000 stock options were exercisable and in-the-money. The weighted average potential dilutive shares outstanding, inclusive of the options exercised during the year based on the exercise date, had a potential dilutive share impact of 282,597 and 348,403 for the three and nine months ended September 30, 2018, respectively. For the nine months ended September 30, 2018, the adjustment to net income for the awards classified as liabilities caused the common stock equivalents to be anti-dilutive. All stock options were exercised as of December 31, 2018.
|
Common Shares On September 12, 2019, the Board authorized a 2019 share repurchase program (“2019 Plan”) for the repurchase of up to 100,000 common shares, at market prices up to the Company’s last reported diluted common shareholders’ equity per share, which was $36.46 as reported within the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019. The Company then adopted a Rule 10b5-1 plan implementing the Board’s authorization, subject to volume limitations as defined by Rule 10b-18 under the Exchange Act. The 2019 Plan expires upon the earlier of the close of trading on December 31, 2019 or the repurchase of the authorized 100,000 common shares. Between October 1, 2019 and November 1, 2019, the Company repurchased 23,849 common shares at an average price of $31.06.
On March 9, 2018, the Company issued 125,000 common shares to Hunt for $4.1 million, or $33.00 per share. On June 26, 2018, the Company issued an additional 125,000 shares to Hunt for $4.3 million, or $34.00 per share.
Effective May 5, 2015, the Company adopted a Tax Benefits Rights Agreement (the “Rights Plan”) to help preserve the Company’s net operating losses (“NOLs”). In connection with adopting the Rights Plan, the Company declared a distribution of one1 right per common share to shareholders of record as of May 15, 2015. The rights do not trade apart from the current common shares until the distribution date, as defined in the Rights Plan. Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person. TheOn March 11, 2020, the Board approved an extension of the original five-year term of the Rights Plan will remain in effect for five years, until May 15, 2020,5, 2023, or until the Board determines the plan is no longer required, whichever comes first. The Board may also chooseSubsequently, shareholders ratified the Board’s decision to adopt a new plan effective on or after the dateextend the Rights Plan expires.at the Company’s 2020 annual meeting of shareholders. On January 3, 2018, the Board approved a waiver of the 4.9% ownership limitation for Hunt, increasing suchthis limitation to the acquisition of 9.9% of the Company’s issued and outstanding shares in any rolling 12‑month12-month period without causing a triggering event. At SeptemberJune 30, 2019,2020, the Company had threetwo shareholders, including one of its executive officers, Michael L. Falcone, who held greater than a 4.9% interest in the Company. In order to facilitate satisfaction of share purchase obligations related to his 2017 bonus award and permitting his stock option awards to be exercised,On March 11, 2020, the Board of Directors named Mr. Falcone an exempted person in accordance with the Rights Plan but only to the extent of settling such share purchase obligations and options. Mr. Falcone satisfied his share purchase obligations and exercised all of his share purchase option awards as of December 31, 2018, and, due to the aforementioned action of the Board of Directors, there was no triggering event for purposes of the Rights Plan. On November 6, 2019, the Board further named Mr. Falcone an exempted person in accordance with the Rights Plan to the extent of his proposed open-market share purchases of up to an additional 6,0007,500 common shares, to be completed by December 31, 2020, with the Board reserving all its rights under the Rights Plan for any subsequent purchases. As a result of the Board’s action, there was nopurchases made by Mr. Falcone up to the authorized 7,500 common shares would not be a triggering event for purposes of the Rights Plan.Plan if purchased prior to December 31, 2020.
Accumulated Other Comprehensive Income The following table provides information related to the net change in AOCI for the three months ended SeptemberJune 30, 2019:2020: | | | | | | | | | | | | Investments | | Foreign | | | | | | in Debt | | Currency | | | | (in thousands) | | Securities | | Translation | | AOCI | Balance, April 1, 2020 | | $ | 6,387 | | $ | 793 | | $ | 7,180 | Net unrealized gains (losses) | | | 467 | | | (110) | | | 357 | Income tax losses | | | (128) | | | — | | | (128) | Net change in AOCI | | | 339 | | | (110) | | | 229 | Balance, June 30, 2020 | | $ | 6,726 | | $ | 683 | | $ | 7,409 |
| | | | | | | | | | | | Investments | | Foreign | | | | | | in Debt | | Currency | | | | (in thousands) | | Securities | | Translation | | AOCI | Balance, July 1, 2019 | | $ | 13,397 | | $ | 17 | | $ | 13,414 | Net unrealized gains | | | 961 | | | 217 | | | 1,178 | Reclassification of realized gains on sold or redeemed bonds into the Consolidated Statements of Operations | | | (1,851) | | | ─ | | | (1,851) | Net change in AOCI | | | (890) | | | 217 | | | (673) | Balance, September 30, 2019 | | $ | 12,507 | | $ | 234 | | $ | 12,741 |
The following table provides information related to the net change in AOCI for the three months ended SeptemberJune 30, 2018:2019: | | | | | | | | | | | | | | | | | Income | | | | | | | Investments | | Tax | | Foreign | | | | | | in Debt | | (Expense) | | Currency | | | | (in thousands) | | Securities | | Benefit | | Translation | | AOCI | Balance, July 1, 2018 | | $ | 54,857 | | $ | (14) | | $ | (483) | | $ | 54,360 | Net unrealized gains | | | 1,025 | | | ─ | | | 525 | | | 1,550 | Reclassification of realized gains on sold or redeemed bonds into the Consolidated Statements of Operations | | | (5,080) | | | ─ | | | ─ | | | (5,080) | Reclassification of realized losses to the Consolidated Statements of Operations related to bond investments assessed as OTTI | | | 141 | | | ─ | | | ─ | | | 141 | Income tax benefit | | | ─ | | | 14 | | | ─ | | | 14 | Net change in AOCI | | | (3,914) | | | 14 | | | 525 | | | (3,375) | Balance, September 30, 2018 | | $ | 50,943 | | $ | ─ | | $ | 42 | | $ | 50,985 |
| | | | | | | | | | | | | | | | | | | | Investments | | Foreign | | | | | | in Debt | | Currency | | | | (in thousands) | | Securities | | Translation | | AOCI | Balance, April 1, 2019 | | $ | 34,460 | | $ | 97 | | $ | 34,557 | Net unrealized losses | | | (370) | | | (80) | | | (450) | Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations | | | (20,693) | | | — | | | (20,693) | Net change in AOCI | | | (21,063) | | | (80) | | | (21,143) | Balance, June 30, 2019 | | $ | 13,397 | | $ | 17 | | $ | 13,414 |
The following table provides information related to the net change in AOCI for the six months ended June 30, 2020: | | | | | | | | | | | | Investments | | Foreign | | | | | | in Debt | | Currency | | | | (in thousands) | | Securities | | Translation | | AOCI | Balance, January 1, 2020 | | $ | 7,666 | | $ | (33) | | $ | 7,633 | Net unrealized (losses) gains | | | (1,296) | | | 716 | | | (580) | Income tax gains | | | 356 | | | — | | | 356 | Net change in AOCI | | | (940) | | | 716 | | | (224) | Balance, June 30, 2020 | | $ | 6,726 | | $ | 683 | | $ | 7,409 |
The following table provides information related to the net change in AOCI for the ninesix months ended SeptemberJune 30, 2019: | | | | | | | | | | | | Investments | | Foreign | | | | | in Debt | | Currency | | | (in thousands) | | Securities | | Translation | | AOCI | Balance, January 1, 2019 | | $ | 37,625 | | $ | 72 | | $ | 37,697 | Net unrealized gains (losses) | | | 36 | | | (55) | | | (19) | Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations | | | (24,264) | | | — | | | (24,264) | Net change in AOCI | | | (24,228) | | | (55) | | | (24,283) | Balance, June 30, 2019 | | $ | 13,397 | | $ | 17 | | $ | 13,414 |
| | | | | | | | | | | | Investments | | Foreign | | | | | | in Debt | | Currency | | | | (in thousands) | | Securities | | Translation | | AOCI | Balance, January 1, 2019 | | $ | 37,625 | | $ | 72 | | $ | 37,697 | Net unrealized gains | | | 997 | | | 162 | | | 1,159 | Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations | | | (26,115) | | | ─ | | | (26,115) | Net change in AOCI | | | (25,118) | | | 162 | | | (24,956) | Balance, September 30, 2019 | | $ | 12,507 | | $ | 234 | | $ | 12,741 |
The following table provides information related to the net change in AOCI for the nine months ended September 30, 2018:
| | | | | | | | | | | | Investments | | Foreign | | | | | in Debt | | Currency | | | (in thousands) | | Securities | | Translation | | AOCI | Balance, January 1, 2018 | | $ | 44,459 | | $ | (3,306) | | $ | 41,153 | Net unrealized gains | | | 2,143 | | | 3,348 | | | 5,491 | Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations | | | (5,080) | | | ─ | | | (5,080) | Reclassification of credit-related gains to the Consolidated Statements of Operations related to bond investments assessed as OTTI | | | 6 | | | ─ | | | 6 | Reinstatement of fair value gains related to bond investments due to deconsolidation of consolidated property partnerships | | | 9,415 | | | ─ | | | 9,415 | Income tax expense | | | ─ | | | ─ | | | ─ | Net change in AOCI | | | 6,484 | | | 3,348 | | | 9,832 | Balance, September 30, 2018 | | $ | 50,943 | | $ | 42 | | $ | 50,985 |
Note 12—Stock-Based Compensation On January 8, 2018, the Company engaged Huntthe External Manager through the execution of a management agreement with the External Manager (the “Management Agreement”) to externally manage the Company’s operations. AllIn connection therewith, all employees of the Company were hired by the External Manager. The Company has stock-based compensation plans (“Plans”) for non-employee Directors (“Non-employee Directors’ Stock-Based Compensation Plans”) and stock-based incentive compensation plans for employees (“Employees’ Stock-Based Compensation Plans”). The following table provides information related to total compensation expense that was recorded for these Plans: | | | | | | | | | | | | | | | For the three months ended | | For the six months ended | | | June 30, | | June 30, | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | Non-employee Directors’ Stock-Based Compensation Plans | | $ | 194 | | $ | 164 | | $ | 388 | | $ | 328 |
| | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Employees’ Stock-Based Compensation Plans | | $ | ─ | | $ | (34) | | $ | ─ | | $ | 930 | Non-employee Directors’ Stock-Based Compensation Plans | | | 133 | | | 163 | | | 461 | | | 491 | Total | | $ | 133 | | $ | 129 | | $ | 461 | | $ | 1,421 |
Employees’ Stock-Based Compensation Plans At September June 30, 2019,2020, there were 571,066 share awards available to be issued under Employees’ Stock-Based Compensation Plans. While each existing Employees’ Stock-Based Compensation Plan has been approved by the Company’s Board, of Directors, not all of the Plans have been approved by the Company’s shareholders. The Plans that have not been approved by the Company’s shareholders are currently restricted to the issuance of only stock options. As a result, of the 571,066 shares available under the plans, 73,556 are available to be issued in the form of either stock options or shares, while the remaining 497,510 shares available for issuance must be issued in the form of stock options. Employee Common Stock Options;
The Company measures Since the fair valueCompany has no employees, the Company does not expect to issue any of unvested options with time-based vesting and all vested options (both time-based and performance based) using a lattice model for purposes of recognizing compensation expense. Because options granted with stock price targets contain a “market condition” under FASB’s Accounting Standards Codification Topic 718, a Monte Carlo simulation is used to simulate future stock price movements for the Company.
The following table provides information related to option activity under the Employees’ Stock-Based Compensation Plans:
| | | | | | | | | | | | | | | | | | | | | | Weighted-average | | | | | | | | | | | | Remaining | | | | | | | | | | | Weighted-average | | Contractual | | Aggregate | | | | | | Number of | | Exercise Price | | Life per option | | Intrinsic | | Period End | (in thousands, except per option data) | | Options | | per Option | | (in years) | | Value (2) | | Liability (3) | Outstanding at January 1, 2018 | | | 410 | | $ | 1.56 | | | 3.4 | | $ | 9,322 | | $ | 9,342 | Exercised in 2018 (1) | | | (410) | | | 1.56 | | | | | | | | | | Outstanding at December 31, 2018 and September 30, 2019 | | | ─ | | | ─ | | | ─ | | | ─ | | | ─ |
| (1)
| | When exercised, stock options were net share settled. For the year ended December 31, 2018, 410,000 stock options were exercised, which resulted in a $9.3 million reduction to the Company’s reported “Other liabilities” within its Consolidated Balance Sheets at December 31, 2018. Of the 410,000 stock options that were exercised, the Company issued 220,279 common shares for the year ended December 31, 2018, and 189,721 stock options were tendered to the Company by their holders for the payment of related withholding taxes and exercise price.
|
| (2)
| | Intrinsic value is based on outstandingthese shares or options.
|
| (3)
| | Only options that were amortized based on a vesting schedule have a liability balance. There were 410,000 options at January 1, 2018, that fit this profile.
|
Non-Employee Directors’ Stock-Based Compensation Plans The Non-employeeNon-employee Directors’ Stock-based Compensation Plans authorize a total of 1,130,000 shares for issuance, of which 386,281376,679 were available to be issued at SeptemberJune 30, 2019.2020. The Non-employee Directors’ Stock-based Compensation Plans provide for grants of non-qualified common stock options, common shares, restricted shares and deferred shares. The Non-employee Directors’ Stock-based Compensation Plans provide for directors to be paid $120,000 per year for their services. In addition, the Chairman receives an additional $20,000 per year, the Audit Committee Chair receives an additional $15,000 per year and the other committee chairs receive an additional $10,000 per year. Under this plan, 50% of such compensation is paid in cash and the remaining sum through common share-based grants. The table below summarizes non-employee director compensation, including cash, vested options and common and deferred shares, for services rendered for the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018.2019. The directors are fully vested in the deferred shares at the grant date. | | | | | | | | | | | | | | | | | | | | | | | Common | | Deferred | | Weighted-average | | | | | | | | | Shares | | Shares | | Grant Date | | Options | | Directors' Fees | | | Cash | | Granted | | Granted | | Share Price | | Vested | | Expense | September 30, 2019 | (1) | $ | 230,625 | | | 1,667 | | | 5,628 | | $ | 31.61 | | | ─ | | $ | 461,250 | September 30, 2018 | | | 245,625 | | | ─ | | | 9,038 | | | 27.18 | | | ─ | | | 491,250 |
| | | | | | | | | | | | | | | | | | | | | | | Common | | Deferred | | Weighted-average | | | | | | | | | Shares | | Shares | | Grant Date | | Options | | Directors' Fees | | | Cash | | Granted | | Granted | | Share Price | | Vested | | Expense | June 30, 2020 | (1) | $ | 193,750 | | | 3,668 | | | 3,813 | | $ | 25.90 | | | — | | $ | 387,500 | June 30, 2019 | | | 163,750 | | | 1,078 | | | 3,966 | | | 32.46 | | | — | | | 327,500 |
| (1) | (1)
| | During the thirdfirst quarter of 2019, one2020, the Board approved the addition of the Company’stwo independent directors retired. . |
Note 13—Related Party Transactions and Transactions with Affiliates Transactions with Hunt External Management Fees and Expense Reimbursements On January 8, 2018, the Company sold certain businesses and assets (the “Disposition”) and entered into the Management Agreement. At the time of the Disposition, all employees of the Company were hired by the External Manager. In consideration for the management services being provided by the External Manager, the Company pays the External Manager a base management fee, which is payable quarterly in arrears in an amount equal to (i) 0.50% of the Company’s first $500 million of common shareholders’ equity determined in accordance with GAAP in the U.S. on a fully diluted basis, adjusted to exclude the effect of (a) the carrying value of the Company’s net operating loss carryforwards,DTAs, and (b) any gains or losses attributable to noncontrolling interests (“GAAP Common Shareholders’ Equity”); and (ii) 0.25% of the Company’s GAAP Common Shareholders’ Equity in excess of $500 million. Additionally, the Company agreed to pay the External Manager an incentive fee equal to 20% of the total annual return of diluted common shareholders’ equity per share in excess of 7%., which excludes the effects of the Company’s DTAs. The Company also agreed to reimburse the External Manager for certain allocable overhead costs including an allocable share of the costs of (i) noninvestment personnel of the External Manager and an affiliate thereof who spend all or a portion of their time managing the Company’s operations and reporting as a public company (based on their time spent on suchthese matters) and (ii) the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) based on the percentage of their time spent managing the Company. Reimbursement of compensation-related expenses is, however, subject to an annual cap of $2.5 million through 2019 and $3.5 million thereafter, until the Company’s GAAP common shareholders’ equity exceeds $500 million. The current term of the Management Agreement extends to December 31, 2022 and automatically renews thereafter for additional two-year terms. Either the Company or the External Manager may, upon written notice, decline to renew or terminate the Management Agreement without cause, effective at the end of the initial term or any renewal term. If the Company declines to renew or terminates the Management Agreement without cause or the External Manager terminates for cause, the Company is required to pay a termination fee to the External Manager equal to three3 times the sum of the average annual base and incentive management fees, plus one1 times the sum of the average Energy Capitalrenewable energy business expense reimbursements and the employee cost reimbursement expense, in each case, during the prior two-year period. The Company may also terminate the Management Agreement for cause, including in the event of a payment default under the Hunt note which causes the Hunt note to become immediately due and payable. Nocause. NaN termination fee is payable upon a termination by the Company for cause or upon a termination by the External Manager without cause. For the three months and ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, no incentive fee was earned by our External Manager. During the three months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, the Company recognized $1.6$2.4 million and $1.1$2.1 million, respectively, and $6.0$5.2 million and $5.8$4.4 million for the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, respectively, of management fees and expense reimbursements payable to our External Manager in its Consolidated Statements of Operations. At SeptemberJune 30, 20192020 and December 31, 2018, $1.62019, $2.4 million and $1.1$1.2 million, respectively, of management fees and expense reimbursements was payable to the External Manager. Loans HFI and Investment in Partnerships As consideration for the Disposition, Hunt agreed to pay the Company $57.0 million and to assume certain liabilities of the Company. The Company provided seller financing through a $57.0 million note receivable from Hunt that had an initial term of seven years, is prepayable at any time and bearsbearing interest at the rate of 5% per annum. On October 4, 2018, the Company’s receivable from Hunt increased to $67.0 million as part of Hunt’s election to take assignment of the Company’s agreements to acquire (i) the LIHTC business of Morrison Grove Management (“MGM”) and (ii) certain assets pertaining to a specific LIHTC property from affiliates of MGMMorrison Grove Management, LLC (these agreements are collectively referred hereinafter to as the “MGM Agreements”). The UPB onOn December 20, 2019, Hunt prepaid $13.4 million of the note will amortize in 20 equal quarterly paymentsreceivable and as a result, the UPB of $3.35the note was $53.6 million beginning on Marchat December 31, 2020. 2019. During the three months and six months ended SeptemberJune 30, 2019, and September 30, 2018, the Company recognized $0.8 million and $0.7$1.7 million, respectively, and $2.5 million and $2.1 million for the nine months ended September 30, 2019 and September 30, 2018, respectively, of interest income associated with this note receivable in the Consolidated Statements of Operations. At September 30,December 31, 2019, $0.8$0.7 million of accrued interest remainswas payable by Hunt. ThereOn January 3, 2020, the note receivable was no accrued interest payable by Hunt at December 31, 2018.fully repaid.
On November 28, 2018, the Company, our investment partner and Hunt entered into an agreement whereby Hunt was admitted as a partner of SDL solely for the purpose of a 30% investment in a specific loan. The maximum principal amount of this loan was $58.8 million with Hunt and the Company obligated to contribute 30% and 20%, respectively, and our investment partner was obligated to contribute the remaining 50% of the funding commitment of such loan. On September 30, 2019, the maximum principal amount of this specific loan increased to $104.0 million.
On April 1, 2019, the Company purchased Hunt’s 30% ownership interest in SDL that pertained to an investment in a specific loan for $11.3 million, which represents the price that was projected to cause the Company and Hunt to achieve the same internal rate of return (“IRR”) on the amount of capital each had invested in the loan for the period of time that each party was invested in the loan. In this regard, upon full repayment of the loan, a post-purchase true-up payment may behave been required to be made by one party to the other depending upon the actual IRR achieved by each party on the investment. SuchDue to continuing involvement by Hunt as the transferor, the transfer did not qualify as a purchase for reporting purposes and, as a result, cash consideration paid by the Company was reported as a loan receivable that is secured by the interest in SDL that Hunt conveyed to the Company. At September 30,On December 20, 2019, the Company and Hunt terminated all obligations relating to the post-purchase true-up payment and, as a result, the Company derecognized this loan receivable and increased its investment in partnership in SDL. On December 20, 2019, the Company sold to Hunt a loan and three limited partner interests in partnerships that own affordable housing and in which our ownership interest ranged from 74.25% to 74.92%. This loan had a UPB and carrying value of this loan receivable was $20.0$1.1 million and $0.3 million, respectively, while the three limited partner interests had an effective interest ratea carrying value of 17.3%. $0.9 million at the time of sale. The Company received $3.1 million in sales proceed and recognized $1.9 million of gains in the Consolidated Statements of Operations. Investment in Debt Securities On April 25, 2019, the Company received $13.1 million of net proceeds from the sale of an affordable housing property that secured one of the Company’s non-performing bond investments. Hunt, as bond servicing agent, waived $0.9 million of servicing fees that were otherwise due and payable in priority to the Company’s bond investment. As a result, the Company received $0.9 million of additional bond redemption proceeds that we otherwise would not have received. Common Shares
In conjunction with the Disposition, the Company agreed to issue, and Hunt agreed to acquire, 250,000 of the Company’s common shares in a private placement at an average purchase price of $33.50 per share. On March 9, 2018, the Company issued 125,000 common shares to Hunt for $4.1 million, representing a price per share of $33.00. On June 26, 2018, the Company issued the remaining 125,000 shares to Hunt for $4.3 million, or $34.00 per share.
Note 14—Income Taxes We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss carryforwards and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets (“DTAs”) as of the end of each quarter, weighing all positive and negative evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the DTAs will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not required.
Our framework for assessing the recoverability of DTAs requires us to weigh all available evidence, including:
| ·
| | The sustainability of recent profitability required to realize our deferred tax assets;
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| ·
| | The cumulative net income or losses in our Consolidated Statement of Operations in recent years;
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| ·
| | Forecasts of future book and tax income;
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| ·
| | Our access to capital; and
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| ·
| | The carryforward periods for net operating losses, capital losses and tax credits.
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Our consideration of evidence requires significant judgment regarding estimates and assumptions that are inherently uncertain, particularly about our future business structure and financial results. Risks to our forward-looking estimates include, but are not limited to, changes in market rates of return, additional competitors entering the marketplace (which would reduce nominal rates of return from competition for new borrowers), limits on access to investible capital that would limit new investments that could be made by the Company, changes in the law and the Company’s dependence on a small, specialized team of the External Manager for underwriting activities. Refer to our Annual Report on Form 10-K for the year ended December 31, 2018, for more information about the risks to our business.
At September 30, 2019, the Company maintained a full valuation allowance against all of its DTAs, including federal and state net operating loss carryforwards. This treatment reflects the Company’s assessment that, in considering all available evidence, it was not more likely than not at such reporting date that its DTAs would be realized. However, the Company believes there is more than a remote but less than likely chance that, within the next 12 months,the portion of DTAs for which a valuation allowance is maintained could materially change due to potential changes in the Company’s investment strategy and other factors. Should this occur, the release of a portion or all of the valuation allowance would result in the recognition of certain net DTAs and a decrease to income tax expense during the reporting period in which the release is recorded. However, the exact timing and amount of any potential valuation allowance release is based upon future circumstances, such as the level of profitability that the Company objectively expects to achieve, and therefore cannot be predicted at this time.
Note 15—Discontinued Operations
As part of the Disposition, the Company sold the following to Hunt: (i) its LIHTC business; (ii) its international asset and investment management business (“International Operations”); (iii) the loan origination, servicing and management components of its Energy Capital business; (iv) its bond servicing platform and (v) certain miscellaneous investments. This sale transaction also included certain management, expense reimbursement and other contractual rights held by the Company with respect to its Energy Capital business, LIHTC business and International Operations.
The table below provides information about income and expenses related to the Company’s discontinued operations reported in its Consolidated Statements of Operations:
| | | | | | | | | | | | | | | For the three months ended | | For the nine months ended | | | September 30, | | September 30, | (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Interest on bonds | | $ | ─ | | $ | ─ | | $ | ─ | | $ | 6 | Interest on loans and short-term investments | | | ─ | | | 253 | | | ─ | | | 738 | Asset management fee and reimbursements | | | ─ | | | 176 | | | ─ | | | 1,370 | Equity in income from unconsolidated funds and ventures | | | ─ | | | ─ | | | ─ | | | 1 | Other income | | | ─ | | | ─ | | | ─ | | | 53 | Salaries and benefits | | | ─ | | | ─ | | | ─ | | | (53) | General and administrative | | | ─ | | | ─ | | | ─ | | | (68) | Professional fees | | | ─ | | | (11) | | | (8) | | | (31) | Other expenses | | | ─ | | | (166) | | | ─ | | | (527) | Gains on sales and operations of real estate, net | | | ─ | | | 2 | | | ─ | | | 63 | Income tax benefit | | | ─ | | | 22 | | | ─ | | | ─ | Net income (loss) from discontinued operations, net of tax | | | ─ | | | 276 | | | (8) | | | 1,552 | Disposal: | | | | | | | | | | | | | Net gain on disposal of discontinued operations (1) | | | ─ | | | ─ | | | ─ | | | 20,420 | Net income (loss) from discontinued operations | | $ | ─ | | $ | 276 | | $ | (8) | | $ | 21,972 |
| (1)
| | Includes $3.4 million of cumulative translation adjustments reclassified out of AOCI and into earnings due to the sale of our international asset and investment management business as part of the Disposition for the nine months ended September 30, 2018.
|
The table below provides information about operating and investing cash flows related to the Company’s discontinued operations reported in its Consolidated Statements of Cash Flows:
| | | | | | | | | For the nine months ended | | | September 30, | (in thousands) | | 2019 | | 2018 | Depreciation and amortization | | $ | ─ | | $ | 29 | Capital expenditures | | | ─ | | | ─ | | | | | | | | Net change in assets, liabilities and equity due to sale of business: | | | | | | | Decrease in investments in debt securities related to CFVs | | | ─ | | | (5,450) | Decrease in loans | | | ─ | | | (231) | Decrease in other assets ($24,140 related to CFVs) | | | ─ | | | (35,715) | Decrease in debt ($6,144 related to CFVs) | | | ─ | | | 8,308 | Decrease in accounts payable and accrued expenses | | | ─ | | | 7,201 | Decrease in other liabilities ($480 related to CFVs) | | | ─ | | | 5,333 | Decrease in noncontrolling interests in CFVs | | | ─ | | | 5,620 | Increase in accumulated other comprehensive income | | | ─ | | | (3,404) |
Note 16—Segment Information
At SeptemberJune 30, 2020 and December 31, 2019, the Company invests in debt associated with renewable energy infrastructure and real estate and operates as a single reporting segment. Therefore, all required segment information can be found in our consolidated financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information requiredrequired to be disclosed in our filings and submissions to the SEC underunder the Exchange Act is recorded, processed, and reported within the time periods specified in the SEC’s rules and forms. SuchThese controls and procedures include those designed to ensure that information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. An evaluation was conducted under the supervision and with the participation of management, including the CEO and CFO, on the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a‑15(e)13a-15(e) under the Exchange Act. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective at SeptemberJune 30, 2019.2020. Changes in Internal Control Over Financial Reporting There were no changes in internal control over financial reporting during the three months ended SeptemberJune 30, 2019,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For a discussion of legal proceedings see Notes to Consolidated Financial Statements – Note 10, “Commitments and Contingencies,” which is incorporated herein by reference. ITEM 1A. RISK FACTORS In the first quarter of 2020, we supplemented the risk factors described under Part I, Item 1A, “Risk Factors,” in the 2019 Annual Report with the additional risk factor set forth below. The novel coronavirus (“COVID-19”) and actions taken to mitigate its spread and economic impact, or other outbreak of disease or similar public health threat, could adversely impact or cause disruption of our financial condition and results of operations. The potential impact and duration of the COVID-19 pandemic and actions taken by governmental and public health authorities to mitigate its spread, such as instituting quarantines, travel restrictions and “shelter in place” orders, have led to significant volatility and negative pressure in financial markets, increases in unemployment and reductions in consumer and business spending. We are not, nor are anybelieve that our ability to operate and our level of our subsidiaries, a partybusiness activity has been and is likely to any material pending litigation or other legal proceedings. Furthermore,continue to be impacted by the besteffects of our knowledge, we are not party to any threatened litigation or legal proceedings, which,COVID-19 and could in the opinion of management, individually or in the aggregate, wouldfuture be likely toimpacted by another pandemic, and that such impacts could have a material adverse effect on our business, financial condition and results of operations. Factors that may adversely impact our financial condition and results of operations related to COVID-19, or potentially another pandemic, include the following: | ● | the availability of permanent loans, tax credit equity and other monetization events that are the primary sources of repayment of loans made by the Solar Ventures may be limited, which could lead to impairment of loans made by the Solar Ventures and we may lose some or all of our investment; |
| ● | the value of renewable energy infrastructure projects that secure loans made by the Solar Ventures could decline, which would negatively impact the value of loans made by the Solar Ventures, potentially permanently and materially; |
| ● | the disruption in the credit markets could cause a lack of opportunity for future loans through a reduced pipeline of loans for investment by the Solar Ventures as well as a reduced availability of other infrastructure investments. Additionally, if the Company is unable to fund its share of capital contributions to the Solar Ventures as a result of an inability to access the debt and equity capital markets, or our capital partner becomes unwilling or unable to continue to contribute its share of capital to the Solar Ventures, which could cause the Solar Ventures to default on their lending commitments to their borrowers, which would adversely affect our business, cash flows and financial condition and result in damage to our and our External Manager’s reputation; |
| ● | if we are unable to access the debt or equity capital markets in order to satisfy financial obligations to our capital partner under various non-pro rata funding agreements, our capital partner may have the right to either (i) cause the Solar Ventures to make special distributions disproportionately to it (without distribution to us) of net cash flow from any capital transactions (subject to limitations provided in such non-pro rata funding agreements) or (ii) enter into a mutually agreeable definitive amendment (to be negotiated in good faith) to the relevant operating agreements of the Solar Ventures reflecting the majority funding position of the Company’s capital partner; |
| ● | construction or development of renewable energy or other infrastructure projects that are being or could be financed through loans made by the Company or Solar Ventures may be unable to proceed on a timely basis or at all due to, among other things, government mandated restrictions or moratoriums on construction or the inability to source the necessary construction personnel, equipment or parts; |
| ● | significant uncertainty and volatility with respect to the current and future values of real estate-related assets as COVID-19 is expected to continue to have a significant impact on local, national and global economies and has resulted in a world-wide economic slowdown. The impact of COVID-19 on our investments is uncertain; however, it is expected to have a negative impact on the overall real estate market. In addition, lower transaction volume may result in less data for assessing real estate values. This increases the risk that our asset values may not reflect the actual realizable value of our underlying properties at any given time, as valuations and appraisals of our properties and real estate-related assets are only estimates of market value as of the end of the period and may not reflect the changes in values resulting from COVID-19. In addition, this impact is occurring rapidly and is not immediately quantifiable. To the extent real estate or other asset values decline after the date we disclose our asset values, whether related to COVID-19 or otherwise, new investors may overpay for their investment in our common stock, which would heighten their risk of loss; |
| ● | restrictions on business operations and re-openings or an economic downturn is likely to negatively impact the development activity related to our equity investment in the SF Venture. Moreover, revenues generated by tenants of the SF Venture may be reduced or the SF Venture may have to grant concessions to tenants both of which could cause losses related to our equity investment in the SF Venture. These factors led to the impairment of our investment in the SF Venture at June 30, 2020; |
| ● | should economic conditions further deteriorate and cause declines in the value of our investments that would be assessed to be other-than-temporary in nature, we would recognize additional impairment losses related to such investments; |
| ● | personnel of our External Manager, including our executive officers and other employees of the External Manager that support our operations may become ill and unavailable; and |
| ● | third-party vendors we rely on to conduct our business, including vendors that provide IT services, legal and accounting services, or other operational support services may become unable to deliver services or support to the Company. |
The rapid development and fluidity of the circumstances resulting from COVID-19 preclude any prediction as to the duration and extent of its adverse impact and makes it more difficult to determine the fair value of investments, especially those that rely on estimates and are inherently judgmental. Nevertheless, COVID-19 and the current financial, condition.economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows. ITEM 1A. RISK FACTORS
For a discussionTo the extent COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the risk factors affectingincluded in the Company, see Part I, Item 1A, “Risk Factors,”2019 Annual Report, including, but not limited to, those relating to our revolving credit facility, our exposure to changes in interest rates, our exposure to collateral calls associated with agreements we used to hedge interest rate risk, our investments in bonds and real estate and the lack of the 2018 Annual Report.liquidity related to our non-cash assets.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Recent Sales of Unregistered Securities None for the three months ended SeptemberJune 30, 2019.2020. Use of Proceeds from Registered Securities None for the three months ended SeptemberJune 30, 2019.2020. Issuer Purchases of Equity Securities None for the three months ended SeptemberJune 30, 2019.2020. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS | | | | | |
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Exhibit No. | | | Description | | | | | |
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Exhibit No.
| | Description
| | Incorporation by Reference | | | | | | 3.1 | | Certificate of Incorporation of MMA Capital Holdings, Inc. | | Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 2, 2019 | | | | | | 3.2 | | By-laws of MMA Capital Holdings, Inc. | | Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 2, 2019 | | | | | | 10.1
| | Credit Agreement, dated as of September 19, 2019, among MMA Energy Holdings, LLC, as borrower, East West Bank, as administrative agent and collateral agent and the financial institutions party thereto as lenders
| | Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 19, 2019
| | | | | | 31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | 31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | 32.1 | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | 32.2 | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | 101.INS | | Inline XBRL Instance Document | | | | | | | | 101.SCH | | Inline XBRL Taxonomy Extension Schema | | | | | | | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation | | | | | | | | 101.LAB | | Inline XBRL Taxonomy Extension Labels | | | | | | | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation | | | | | | | | 101.DEF | | Inline XBRL Taxonomy Extension Definition | | | | | | | | 104 | | Cover Page Interactive Data File (formatted as an Inline XBRL document and included in Exhibit 101). | | |
SIGNATURES SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | | MMA CAPITAL HOLDINGS, INC. | | | | | Dated: | November 8, 2019August 10, 2020
| By: | /s/ Michael L. Falcone | | | Name: | Michael L. Falcone | | | Title: | Chief Executive Officer | | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. | | | | | | By: | /s/ Michael L. Falcone | | November 8, 2019August 10, 2020
| | Name: | Michael L. Falcone | | | | Title: | Chief Executive Officer | | | | | | | | | | | | | | | | By: | /s/ David C. Bjarnason | | November 8, 2019August 10, 2020
| | Name: | David C. Bjarnason | | | | Title: | Chief Financial Officer | | | | | (Principal Financial Officer and Principal Accounting Officer) | | | | | | | | | | | | |
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