HA Sustainable Infrastructure Capital, Inc. Debt Disclosure

8. Long-term Debt

Non-recourse debt

We have outstanding the following asset-backed non-recourse debt and bank loans:

 

		Outstanding Balance as of December 31,								Interest Rate				Maturity Date				Anticipated Balance at Maturity				Value of Assets Pledged as of December 31,								Description of Assets Pledged
		2017				2016																2017				2016
		(dollars in millions)
HASI Sustainable Yield Bond 2013-1		$	67			$	75				2.79	%			December 2019			$	57			$	86			$	93			Receivables
ABS Loan Agreement			81				90				5.74	%			September 2021				17				79				97			Equity interest in Strong Upwind Holdings I, LLC
HASI Sustainable Yield Bond 2015-1A			94				97				4.28	%			October 2034				—				137				138			Receivables, real estate and real estate intangibles
HASI Sustainable Yield Bond 2015-1B Note			14				—				5.41	%			October 2034				—				137				—			Class B Bond of HASI Sustainable Yield Bond 2015-1
HASI SYB Loan Agreement 2015-1			—	(1)			74			$	—				—				—				—				96			Equity interest in Strong Upwind Holdings II and III, LLC, related interest rate swap
2017 Credit Agreement			180				—				4.12	%			January 2023				—				226				—			Equity interests in Strong Upwind Holdings I, II, III, and IV LLC, and Northern Frontier, LLC
HASI SYB Loan Agreement 2015-2			36				41				5.78	% (2)			December 2023				—				68				70			Equity interest in Buckeye Wind Energy Class B Holdings LLC, related interest rate swap
HASI SYB Loan Agreement 2015-3			143				150				4.92	%			December 2020				127				171				175			Residential solar receivables, related interest rate swaps
HASI SYB Loan Agreement 2016-1			121				98				4.44	% (2)			November 2021				104				143				114			Residential solar receivables, related interest rate swaps
HASI SYB Trust 2016-2			81				—				4.35	%			April 2037				—				86				—			Receivables
2017 Master Repurchase Agreement			35				—				3.98	% (2)			July 2019				31				38				—			Receivables and investments
HASI ECON 101 Trust			134				—				3.57	%			May 2041				—				140				—			Receivables and investments
HASI SYB Trust 2017-1			162				—				3.86	%			March 2042				—				209				—			Receivables, real estate and real estate intangibles
Other non-recourse debt (3)			90				84				2.26 7.45	% -  %			2018 to 2046				5				162				81			Receivables
Debt issuance costs			(27	)			(17	)
Non-recourse debt (4)		$	1,211			$	692

 

(1)	This non-recourse debt agreement was re-financed in the second quarter of 2017 with the same lender through the 2017 Credit Agreement.

(2)	Interest rate represents the current period’s LIBOR based rate plus the spread. Also see the interest rate swap contracts shown in the table below, the value of which are not included in the book value of assets pledged or the interest rate of the debt instrument.

(3)	Other non-recourse debt consists of various debt agreements used to finance certain of our receivables for their term. Debt service payment requirements, in a majority of cases, are equal to or less than the cash flows received from the underlying receivables.

(4)	The total collateral pledged against our non-recourse debt was $1,545 million and $864 million as of December 31, 2017 and December 31, 2016, respectively.

 

We have pledged the financed assets, and typically our interests in one or more parents or subsidiaries of the borrower that are legally separate bankruptcy remote special purpose entities as security for the non-recourse debt. There is no recourse for repayment of these obligations other than to the applicable borrower and any collateral pledged as security for the obligations. Generally, the assets and credit of these entities are not available to satisfy any of our other debts and obligations. The creditors can only look to the borrower, the cash flows of the pledged assets and any other collateral pledged, to satisfy the debt and we are not otherwise liable for nonpayment of such cash flows. The debt agreements contain terms, conditions, covenants, and representations and warranties that are customary and typical for transactions of this nature, including limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases. The agreements also include customary events of default, the occurrence of which may result in termination of the agreements, acceleration of amounts due, and accrual of default interest. We typically act as servicer for the debt transactions. We are in compliance with all covenants.

We have guaranteed the performance of the representations and warranties and other obligations of certain of our subsidiaries under certain of the debt agreements and provided an indemnity against certain losses from “bad acts” of such subsidiaries including fraud, failure to disclose a material fact, theft, misappropriation, voluntary bankruptcy or unauthorized transfers. In the case of the debt secured by certain of our renewable energy equity interests, we have also guaranteed the compliance of our subsidiaries with certain tax matters and certain obligations if our joint venture partners exercise their right to withdraw from our partnerships.

The HASI Sustainable Yield Bond (“HASI SYB”) 2015-1 consists of two instruments, (i) $101 million in aggregate principal amount of 4.28% HASI SYB 2015-1A, Class A Bonds (the “Class A Bonds”) and (ii) $18 million in aggregate principal amount of 5.0% HASI SYB 2015-1B, Class B Bonds (the “Class B Bonds”), both with an anticipated repayment date in October 2034. The Class A Bonds rank senior to the Class B Bonds in priority of payment. In January 2017, we borrowed $14 million through the HASI Sustainable Yield Bond 2015-1B Note.

In connection with several of our non-recourse debt borrowings, we have entered into the following interest rate swaps that are designated as cash flow hedges:

 

										Notional Value as of December 31,								Fair Value as of December 31,
		Base Rate				Hedged Rate				2017				2016				2017				2016				Term
										(dollars in millions)
HASI SYB Loan Agreement 2015-1 (1)			3 month Libor				1.55	%		$	—			$	67			$	—			$	—				December 2015 to September 2021
HASI SYB Loan Agreement 2015-2			3 month Libor				1.52	%			31				37				0.1				—				December 2015 to December 2018
HASI SYB Loan Agreement 2015-2			3 month Libor				2.55	%			29				29				(0.2	)			(0.2	)			December 2018 to December 2024
HASI SYB Loan Agreement 2015-3			1 month Libor				2.34	%			119				119				—				1.0				November 2020 to August 2028
HASI SYB Loan Agreement 2016-1			3 month Libor				1.88	%			120				72				1.1				0.2				November 2016 to November 2021
HASI SYB Loan Agreement 2016-1			3 month Libor				2.73	%			107				107				(1.1	)			—				November 2021 to October 2032
2017 Master Repurchase Agreement			3 month Libor				2.42	%			32				—				—				—				August 2019 to March 2033
Total										$	438			$	431			$	(0.1	)		$	1.0

 

(1)	This interest rate swap was financially settled in June 2017.

 

The fair values of our interest rate swaps designated and qualifying as effective cash flow hedges are reflected in our consolidated balance sheets as a component of other assets (if in an unrealized gain position) or accounts payable, accrued expenses and other (if in an unrealized loss position) and in net unrealized gains and losses in AOCI. As of December 31, 2017 and 2016, all of our derivatives were designated as hedging instruments which were deemed to be effective. The following is a presentation of the total balance of the financial statement line item related to our hedging activities in our consolidated statements of operations and the impact of our hedges that is included in this total balance.

 

		Year ended December 31,
		2017				2016				2015
		(in thousands)
Total interest expense		$	65,472			$	45,241			$	26,385
Impact of hedging			972				1,316				(4	)

The stated minimum maturities of non-recourse debt as of December 31, 2017, were as follows:

 

Year Ending December 31,		Future minimum maturities
		(in millions)
2018		$	66
2019			146
2020			182
2021			154
2022			26
Thereafter			664
Total minimum maturities			1,238
Deferred financing costs, net			(27	)
Total non-recourse debt		$	1,211

The stated minimum maturities of non-recourse debt above include only the mandatory minimum principal payments. To the extent there are additional cash flows received from our investments in renewable energy projects serving as collateral for certain of our non-recourse debt facilities, these additional cash flows are required to be used to make additional principal payments against the respective debt. Any additional principal payments made due to these provisions may impact the anticipated balance at maturity of these financings.

SunPower, which originated and services the residential solar leases that are the collateral for the HASI SYB Loan Agreement 2015-3 and the HASI SYB Loan Agreement 2016-1, has provided us certain limited indemnities and warranties and as servicer, provides various services including billing, monitoring payments by homeowners to a third-party lockbox and customer service. The portfolios of residential solar leases are held in bankruptcy remote special purpose entities (“SPEs”) that are performing in line with our expectations and the SPEs, and not SunPower, are the source of repayment under our loans.

In June 2017, SunPower amended a loan agreement to remove a debt-to-EBITDA leverage covenant which SunPower was not in compliance with. Our loan agreements included the same debt-to-EBITDA covenant to monitor changes in SunPower’s credit, as is typical for a servicer. As a result, for HASI SYB Loan Agreement 2015-3, our lender is entitled to apply approximately $1 million of the cash flow after payment of principal and interest each quarter to further reduce the principal balance on our loan. In October 2017, the HASI SYB Loan Agreement 2016-1 was amended to remove this covenant. We continue to monitor the situation and anticipate having further discussions with our lenders and with SunPower but at the present time, do not anticipate any other impact.

 

Convertible Senior Notes

In August 2017, we issued $150 million aggregate principal amount ($145 million net of issuance costs) of 4.125% convertible senior notes due September 1, 2022. Holders may convert any of their convertible notes into shares of our common stock at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, unless the convertible notes have been previously redeemed or repurchased by us. The convertible notes are senior unsecured obligations of ours and have an initial conversion rate of 36.7107 shares for each $1,000 principal amount of convertible notes which is equal to a total of approximately 5.5 million shares with an initial conversion price of $27.24. The conversion rate is subject to adjustment for dividends declared above $.33 per share per quarter and certain other events that may be dilutive to the holder. As of December 31, 2017, none of these dilutive events have occurred and the conversion rate remains at the initial rate.

Following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the conversion rate for a holder that converts its convertible notes in connection with such make-whole fundamental change. There are no cash settlement provisions in the convertible notes and the conversion option can only be settled through physical delivery of our common stock. Additionally, upon the occurrence of certain fundamental changes involving us, holders of the convertible notes may require us to redeem all or a portion of their convertible notes for cash at a price of 100% of the principal amount outstanding, plus accrued and unpaid interest.

We have a redemption option to call the convertible notes prior to maturity (i) on or after March 1, 2022 and (ii) at any time if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT. The redemption price will be equal to the principal of the notes being redeemed, plus accrued and unpaid interest. In the event of redemption after March 1, 2022, there will be an additional make-whole premium paid to the holder of the redeemed notes unless the redemption is deemed reasonably necessary to preserve our qualification as a REIT.

The following table presents a summary of the components of the convertible notes:

 

		December 31, 2017
		(in millions)
Principal		$	150
Accrued interest			3
Less:
Unamortized financing costs			(5	)
Carrying value of convertible notes		$	148
Interest expense		$	3