{ "docId": "019dd923-622c-750b-8b97-386a39fe2e3c", "docSlug": "5f1b43d262e5", "documentTitle": "Hannon Armstrong Sustainable Infrastructure Capital (HASI)", "authorId": "51_Muddy_Waters", "authorName": "Carson Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2022-07-12 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 10, "pageCount": 27, "prevPage": 9, "nextPage": 11, "slideType": "appendix_disclosure", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 6, "notes": "The slide details specific financial transactions involving 'Replacement Loan' and 'HA Helix LLC' to argue that HASI engaged in circular debt recycling to inflate operating cash flow.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b97-386a39fe2e3c/10", "deckHref": "/decks/019dd923-622c-750b-8b97-386a39fe2e3c", "deckJsonHref": "/decks/019dd923-622c-750b-8b97-386a39fe2e3c.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-386a39fe2e3c#slide-10", "components": [ { "bbox": null, "kind": "callout", "text": "This circular activity implies SunStrong is capable of repaying its loans from HASI, when it did not in substance do so.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-0931-74b9-a331-f2c98797adc6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.78, "x": 0.11, "y": 0.11 }, "kind": "paragraph", "text": "In January 2020, HASI issued a new loan to SunStrong (the “Replacement Loan”). SunStrong’s financial statements show that the Replacement Loan carries interest at 11.66%, which is immaterially different from the weighted average rate of the aforementioned Mezzanine Loans. The Replacement Loan matures in January 2045, which is immaterially different from maturities of the mezzanine loans. As of December 31, 2020 and 2021, SunStrong financial statements show the outstanding balances of the Replacement Loan were $55.3 million.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "29fe3fed-0769-4827-b214-6426c7aa972b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.78, "x": 0.11, "y": 0.72 }, "kind": "paragraph", "text": "HA Helix LLC owns the Class B membership interest in Helix Fund I, LLC. SunStrong’s financials describe Helix Fund I as an entity that owns and operates solar power generation systems.46 SunStrong’s financials report that it purchased 100% of HA Helix for $17.1 million.47 SunStrong’s investing cash flows show an outflow of $17.1 million for investment in unconsolidated LLCs. Also in July, SunStrong reported a new $26.0 million loan which Delaware UCC filings show is a loan from HA Felix Lender LLC.48", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8bfddf0a-5185-41d6-9b72-ae8d54000b2b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.78, "x": 0.11, "y": 0.43 }, "kind": "paragraph", "text": "HASI would have booked the proceeds from the refinancing as principal collections from receivables within investing cash flows, giving the proceeds the appearance of loan paydowns even though the transaction effectively recycled debt. Such circular activity implies SunStrong is capable of repaying its loans from HASI, when it did not in substance do so.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ad96e6e6-6f44-49e1-9ce0-87de36b45291", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.78, "x": 0.11, "y": 0.27 }, "kind": "paragraph", "text": "SPWR’s 2019 10-K states that the Replacement Loan “refinanced two mezzanine loans previously borrowed from Hannon Armstrong.”43 SunStrong-related Delaware UCC filings show that the liens from Mezzanine Loans 2 and 3 were terminated on January 16, 2020. Both loans were only approximately one year old at that time.44 The two loans also show no balances as of either December 31, 2020 or 2021.45 Therefore, it is obvious that the Replacement Loan was used to refinance Mezzanine Loans 2 and 3, despite almost identical interest rates and maturities.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b607606f-e2ca-4751-ae42-f8aaaaad9fae", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.78, "x": 0.11, "y": 0.59 }, "kind": "paragraph", "text": "It is difficult to see how HASI’s July 2021 conveyance of HA Helix LLC to SunStrong was executed in good faith. It further appears that HASI recorded operating cash inflows from the transaction, which we believe violates accounting standards. HASI conveyed HA Helix to SunStrong as a sale. However, the convoluted way the transaction was structured creates the misleading appearance that HASI collected cash on SunStrong’s loan principal and accrued PIK interest.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c020ff6f-3b37-4f22-9885-59d3de750296", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "The Replacement Loan “refinanced two mezzanine loans previously borrowed from Hannon Armstrong.” — SPWR 2019 10-K", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-0931-74b9-a331-f6fa0e85789a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.78, "x": 0.11, "y": 0.85 }, "kind": "source-note", "text": "43 SPWR 2019 10-K, p. 159\n44 Mezzanine Loan 2 was 15 months old, while Mezzanine Loan 3 was 9 months old.\n45 SunStrong Capital Holdings, LLC Financial Statements for years 2021 and 2020, Table: Third Party Financing Arrangements, also see Appendix A\n46 Helix Fund I, LLC Financial Statements, p. 6; filed as exhibit to HASI 2019 10-K\n47 SunStrong Capital Holdings, LLC Financial Statements, p. 14; filed as exhibit to HASI 2021 10-K\n48 Note, Felix with an “F” is not a typo.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5cb629f8-166a-46ca-9645-186aed5d7a4a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.78, "x": 0.11, "y": 0.53 }, "kind": "title", "text": "HASI’s Convoluted Conveyance of a Portfolio Interest to SunStrong Seemingly Enabled HASI to Record Operating Cash Flow", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3c622c33-a812-478a-914e-9a99a43b311a", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }