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  "documentTitle": "Hannon Armstrong Sustainable Infrastructure Capital (HASI)",
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  "presentationDate": "2022-07-12 00:00:00",
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  "notes": "This slide functions as a forensic accounting critique, highlighting potential aggressive revenue recognition.",
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      "text": "Accordingly, a lowering of HASI's discount rate can mean tens of millions in extra annual non-cash, unrealizable gains.",
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      "text": "Per HASI, gains on securitizations are “the proceeds received from the securitization (less any transaction costs) plus any retained interests obtained over the cost basis of the assets sold”.70 Previously, HASI's gains on sales of receivables and investments revenue came almost exclusively from securitizations that HASI did for government-associated energy efficiency projects: HASI securitized or sold receivables from these projects to buyers, typically insurance companies. HASI sold these receivables for a small spread, per a former HASI employee, while receiving an annual servicing fee of up to 0.2%.71 The receivable cash flows are not secured by the government and are still at risk as the cash flows are contingent on project performance.",
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      "text": "HASI has reduced the average discount rate it applies to residuals from 8%-10% in 2013, which had been the discount rate used by comparable market transactions with a range of 7%-15%, to a “market-based risk-free” average rate of 4.3% in 2021, with a range of 2%-8%.72,73,74 At the same time, the residual mix has shifted from substantially all government-associated receivables to 50.5% higher-risk commercial receivables at year-end 2021.75",
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      "text": "government receivables to lower quality commercial receivables; and, HASI now retains residual interests, approximately half of which are commercial. During this time, HASI has significantly dropped the discount rate it applies to the residuals to implausible levels, which increases reported income. We adjust down HASI's 2020 and 2021 gains on securitizations by -25% and -37% at the midpoint, respectively, to eliminate the impact of aggressive residual booking by applying an improperly low average discount rate to residuals that it retains on balance sheet.",
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      "text": "HASI also states that “[f]or retained interests, we generally estimate fair value based on the present value of future expected cash flows using our best estimates of the key assumptions of anticipated losses, prepayment rates, and current market discount rates commensurate with the risks involved.” Accordingly, a lowering of HASI's discount rate can mean tens of millions in extra annual non-cash, unrealizable gains.",
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      "text": "Income associated with gains on securitizations appears now to come mostly from problematic non-cash write-ups of residual interest in receivables that HASI keeps after performing securitizations. These appear problematic for two reasons. First, in the event of an issue with the underlying asset, the residuals are subordinated to the receivables, making them more risky",
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      "text": "Our residual assets are subordinate to investors' interests, and their values are subject to credit, prepayment and interest rate risks on the transferred financial assets. The investors and the securitization trusts have no recourse to our other assets for failure of debtors to pay when due. In computing gains and losses on securitizations, we use the same 8% discount rate for the fair value calculation of residual assets, which is determined based on a review of comparable market transactions. — HASI 2021 10-K, p. 96",
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      "text": "70-75 Footnotes detailing HASI 10-K references and interview data.",
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