Edited Transcript of MMAC earnings conference call or presentation 18-Mar-20 12:30pm GMT

We have expanded the disclosures in our 10-K filing to reflect various risks to the company’s projection of pretax book income. Additionally, because the impact of deferred taxes created a significant noncash recognition event on our financial statements, you will also see that we expanded disclosures in the filing, press release and investor presentation to include certain non-GAAP measures, including adjusted book value and adjusted book value per share, which exclude the impact of deferred tax assets and which we think are useful in assessing the company’s underlying financial performance and business trends because they eliminate the potential volatility in the value of our deferred tax assets.

That said, the company’s adjusted book value at year-end was $223.4 million, an increase of $10.5 million for the year or 4.9% versus 2018. On a per share basis, the company’s adjusted book value per share at year-end was 38 — $38.49, an increase of $2.29 or 6.3% for the year and $1.20 or 3.2% for the quarter. As discussed in prior quarters, part of our capital plan for the year involves obtaining reasonably priced debt capital in order to deploy additional capital into renewable energy investments as well as to generate improved returns on such investments.

During the third quarter, we successfully raised $70 million of debt capital in the form of the 3-year revolving credit facility. The committed amount of that credit facility increased to $100 million in the fourth quarter, and as of this call, now sits at $120 million. Assessing this new source of capital is a significant event in the effort to grow our portfolio and increase our return on equity.

Another capital strategy for the year was to continue recycling capital out of investments with lower returns, such as to leverage bond investments in the Hunt note and redeploy it into higher-yielding renewable energy investments. For the year, we liquidated a significant portion of our remaining bond investments, including all related debt used to finance such positions. In addition to bond liquidations at year-end, we received a prepayment of approximately $13 million on our note receivable from Hunt, and as we disclosed in the filing, the balance of the Hunt note of approximately $54 million was repaid in full in early January. This created $67 million of additional capital available for investment, most of which has been deployed into additional renewable energy investments thus improving the overall return on equity for a significant part of our overall portfolio.

We continue to see strong returns from our renewable energy investments during the fourth quarter and year-over-year. As Gary will further discuss, demand for capital to finance renewable energy projects in North America remains strong, and though the solar market is largely growing, financial — financing alternatives remain segmented and developers underserved. The result, we believe, we are well positioned to further invest in this sector and can continue to generate attractive risk-adjusted returns, which also generate positive environmental and social impact due to our external managers’ renewable energy loan origination platform.

In the next few minutes of the call, we will focus on the operations of the company during the fourth quarter and for the year just ended. However, before opening the call for questions from investors, I will address current marketing conditions due to the coronavirus outbreak and related market response.

Now for a further review of our investments and funding, let me turn the call over to Gary. Gary?

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [3]

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Thanks, Mike, and good morning, everyone. Before touching on the company’s investments and funding, I should note that effective with the fourth quarter, we no longer organize the company’s assets and liabilities into 2 portfolios. This change is the result of balance sheet simplification and reflects an approach that is consistent with our management and financial reporting conventions. That said, related to the company’s renewable energy investments, which represented 72% of the company’s loan receivables, bonds and investments and partnerships at year-end, the company invests alongside an institutional capital partner in solar ventures that mainly finance the development and construction of renewable energy projects in North America.

In the fourth quarter, the carrying value of the company’s renewable energy investments increased by $75 million to $289.6 million at December 31. This increase was primarily due to the deployment of net draws on our revolving credit facility, recycled equity and income recognized for the period.

Since the start of the year, the total carrying value of renewable energy investments increased $163.3 million or approximately 129%. As you will see in table 3 of our filing, during the year, the company recognized $23 million of income related to renewable energy investments, which represents an unleveraged net return on investment of 11.4% for the year versus 6.6% in 2018. The $23 million of income recognized on these investments represented an increase of $16.1 million or 231% year-over-year. Further, income in the quarter was $7.5 million, representing a $600,000 increase quarter-over-quarter or [19%.] At December 31, loans funded by the Solar Ventures had an aggregate unpaid principal balance, or UPB, of $654.4 million, a weighted average remaining maturity of 10 months and a weighted average coupon of 10.8% compared to $362.7 million, 9 months, and 10.8% at September 30. At December 31, 2018, the UPB was $250.8 million with a weighted average maturity and coupon of 7 months and 9.2%, respectively. This represents a 161% year-over-year growth in the UPB of commitments originated by the Solar Ventures.

As discussed on prior calls, we typically target loans that generate origination fees ranging from 1% to 3% on committed capital and coupons on funded loan balances ranging from 7% to 14%. Since their inception in 2015, the Solar Ventures have invested in more than 160 project-based loans that totaled $2.3 million of project debt commitments for the deployment and construction of over 660 renewable energy projects, but when completed, will contribute to the generation of over 6.2 gigawatts of renewable energy. Through December 31, 2019, $1.3 billion of commitments across 111 project-based loans were repaid with no loss of invested principal while generating a weighted average loan level IRR of 17.2%, which was on average higher than originally underwritten. The pipeline of renewable energy debt opportunities remains robust and continues to represent an asset class with attractive risk-adjusted return that also meet our environmental and social investment goals. As Mike mentioned earlier, we now have a revolving credit facility with a committed amount of $120 million, which should enable our equity capital to remain fully invested, which we believe will increase our returns in the future. We continue to explore ways to optimize the company’s capitalization, including additional debt capital where appropriate.

Turning to other assets and liabilities. The UPB and fair value of our bond related investments at December 31 was $30.9 million and $31.4 million, respectively, down slightly in the quarter as we continue to exit bond positions. With respect to the Hunt note, we previously disclosed repayment in full of the 5% note as of January 3 with a significant portion of the repayment proceeds being redeployed into renewable energy investments. As stated in prior quarters, we do not expect the other assets and liabilities to contribute consistently to quarterly income, and we will continue to pursue opportunities to recycle capital from this part of the company’s balance sheet at attractive levels.

With that, I’ll turn the call over to Dave, who will discuss our annual results in greater detail. Dave?

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David C. Bjarnason, MMA Capital Holdings, Inc. – Executive VP & CFO [4]

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Thanks, Gary, and good morning, everyone. As I provide an overview of our results, I will refer to various tables in item 7 of our Form 10-K.

As Mike mentioned, book value increased $68.2 million in 2019 to $281.1 million. In this regard, book value per share increased to $48.43 per share, which represented an $11.14 per share increase in the fourth quarter and $12.23 per share on a full year basis. As noted earlier, a significant driver of the reported increase in book value in 2019 was the partial release of the deferred tax asset valuation allowance in the fourth quarter, which resulted in the recognition of a $57.7 million net deferred tax asset. The basis for this partial release is further discussed in note 14 of the company’s financial statements. But at a high level, the release was primarily driven by 2 factors. First, an evaluation of pretax book income for the last 3 years, exclusive of nonrecurring items as well as an analysis of the company’s core earnings, provided positive evidence about the company’s ability to utilize a portion of its tax benefits prior to their expiration. Secondly, the company’s projection of pretax book income consequentially improved after the third quarter, given the full prepayment of the Hunt note and an increase in the amount of leverage used in connection with renewable energy investments, which collectively enabled the company to redeploy capital into higher-yielding renewable energy investments and achieve enhanced returns through the use of leverage. The overall weight of these factors and other types of evidence, we considered at December 31, 2019, supported our assessment that it was more likely than not that a portion of the company’s deferred tax assets would be realized. Consequently, we released a portion of the related valuation allowance that in consideration of the company’s forecast of pretax book income reflected a projected utilization over time of $210.2 million of our federal net operating losses. As Mike mentioned, determining the likelihood that deferred tax assets will be realized entails making estimates and assumptions that are inherently uncertain, and therefore, require significant judgment. In this regard, the reported carrying value of the net deferred tax assets could potentially change in the subsequent reporting periods and cause earnings volatility. Therefore, we expanded disclosures in the filing to identify various risks to the company’s projection of pretax book income. We also added disclosures in the filing, press release and investor presentation of certain non-GAAP performance measures that exclude the impacts of deferred tax assets and that we think are useful in assessing the company’s underlying financial performance and business trends because they eliminate the potential volatility in the value of our deferred tax assets. We will continually evaluate the usefulness, relevance and limitations, disclosed non-GAAP performance measures to determine how best to provide relevant information to the public. This said, increases in book value in 2019 were primarily driven by $70.9 million of comprehensive income, including $64.2 million recognized in the fourth quarter, which was partially offset by $2.7 million of other reductions to book value that were in large part driven by the repurchase of approximately 87,000 common shares at an average price of $31.71.

Comprehensive income that we reported in 2019, which exceeded what we reported in 2018 by $13.4 million, included $101 million in net income and $30.1 million of other comprehensive loss. Net income reported in 2019, which included $69.3 million recognized in the fourth quarter, exceeded amounts reported in 2018 by $40 million with 3 key drivers playing into this year-over-year increase. First, as you can see in Table 6 of the company’s filing, the company recognized a $60.5 million income tax benefit in 2019 compared to modest income tax expense in 2018 with the change primarily being due to the partial release of the deferred tax asset valuation allowance in the fourth quarter of 2019. Secondly, as you can see in Table 7 of the company’s filing, equity and income from the Solar Ventures recognized in 2019 increased $13.9 million compared to 2018, primarily as a result of a significant year-over-year increase in the volume of loans originated by the Solar Ventures, which drove net income of the Solar Ventures and the company’s share thereof higher. This net increase was also in part attributable to the elimination of the preferred return that was previously earned by a former investment partner prior to the company’s buyout of such partners interest in one of the Solar Ventures in the second quarter of 2018. Thirdly, as you can see in Table 8 of the company’s filing, operating expenses recognized by the company decreased by $5.9 million on a year-over-year basis, which was primarily due to a reduction in nonrecurring professional fees that were incurred in 2018 related to sale of various businesses and assets. While these 3 items drove the largest changes in net income, there were several other drivers worth noting. First, net interest income decreased by $1.5 million on a year-over-year basis, large part due to the disposition and redemption of various bond investments and the termination of all outstanding total return swap agreements. Secondly, net gains decreased by $2.6 million compared to 2018, primarily due to a net decrease in fair value gains related to interest rate and foreign-currency, foreign-exchange derivatives. Though this impact was partially offset by, among other items, an increase in holding gains that were realized in connection with the sale or redemption of bond investments. Lastly, other interest expense recognized in 2019 increased on a year-over-year basis, primarily due to the recognition of $1.2 million of interest expense in 2019 associated with the UPB of amounts drawn from the company’s revolving credit facility. This said, while net income increased $40 million in 2019, the amount of other comprehensive loss recognized during such reporting period also increased by $26.6 million. The consolidated statements of comprehensive income disaggregate the components of other comprehensive loss recognized in 2019 and 2018. In reviewing it, you can see that the net increase in other comprehensive loss recognized in 2019 was primarily driven by a $13.8 million decrease in the amount of holding related gains that were recognized in connection with bond-related investments and a $6.4 million increase in the amount of realized gains that were reclassified out of accumulated other comprehensive income and into earnings as a result of the disposition of bond-related investments. A year-over-year decrease in the amount of recognized cumulative translation adjustments was also a factor.

Lastly, with respect to the company’s liquidity and capital resources, the company had $12.8 million of cash, cash equivalents and restricted cash at December 31, 2019, $8.6 million of which was unrestricted.

As reported in Table 9 of our filing, the total amount of the company’s cash, cash equivalents and restricted cash decreased $21.1 million in 2019, which was primarily driven by $114.7 million of net cash used in investing activities associated with renewable energy investments. Such impact was partially offset by $84.7 million of cash that was provided by financing activities during 2019, which in large part was attributable to draws made by the company against the revolving credit facility that was closed in September. However, net cash flows of $8.9 million were provided by operating activities in 2019.

With that, I will turn the call back over to Mike.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [5]

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Thanks, Dave. One comment before I get started, at least on my line, Gary broke up when he talked about total lending since inception. The number for that is $2.3 billion. Just in case — I don’t know if that was just my line or if that was a broader problem.

Before we get to the Q&A, I’ll provide a brief update on our approach for the year ahead and our current visibility in the wake of the coronavirus news and market reaction.

From a business operations perspective, accessing reasonably priced sources of capital to continue to increase the scale of the company’s renewable energy investments remains a priority. That could include a combination of recycling out of our remaining noncore assets, further accessing credit markets and reviewing other strategic capital opportunities. Further, we will endeavor to identify additional investment opportunities that we think will produce attractive risk-adjusted returns and generate positive social or environmental impacts. We will seek to retain the flexibility to invest accordingly. Even apart from the current market dislocations, we realize some shareholders are interested in any new capital return programs for the company, including, in particular, share buyback. The board considers many factors when determining the appropriateness of a share buyback or any other capital return program. Given the current market uncertainty, including volatile activity throughout the capital markets, the board has decided to proceed more slowly before making any determination on a new plan at this time. The board will monitor events during the balance of the trading window, but there are no assurances that sufficient clarity around current market events will be available for the board to render a decision before March 31.

Finally, I wanted to touch on the impact of the coronavirus on the company’s operations. Obviously, this is a very fluid situation. But from the perspective of day-to-day operations, we have not seen an impact on our personnel or productivity. Hunt has worked hard with its IT and human resources to make sure that people can remain productive when working remotely, and we don’t foresee a material impact from that aspect of operations.

On the investment side, we haven’t seen any direct impact on our renewable energy investments, be in the form of defaults or slowdown in the ability to source new investment. Of course, as everyone knows, it’s too early to predict whether the coronavirus will have any longer-term impact on our borrowers, our current portfolio or our ability to generate new assets for investment. While we don’t yet know the potential long-term impact on our liquidity or access to capital markets, we remain in compliance with all of our financial covenants, and as of this call, have access to approximately $29 million of liquidity under our revolving credit agreements, should we need that capacity to manage our investments in the renewable energy portfolio.

In closing, even in this uncertain moment in time, we remain excited about the future committed to our shareholders, and we thank you for your continued support. We’ll now open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Stan Trilling of Morgan Stanley.

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Stanley Trilling, [2]

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I have basically 2 questions. Number one, the value of the residual assets that you are, contemplating liquidation, I think you said $30 million. Over what period of time do you think that liquidation could be done?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [3]

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This is Mike. I’ll let Gary or Dave speak to the exact number because I want to make sure we get that right. The — but I can speak generally. The 2 largest assets related to land development projects where we — or the 2 largest non renewables investments, I should say, relate to land development projects where we ended up taking back bonds in the last financial crisis. We are actively marketing both parcels and overall projects within those but it’s really hard to know how long that will take to move on. There’s a remaining tax-exempt bond that we would expect would move more quickly, but the land assets, particularly with the recent changes in the world, we just don’t know.

It’s not weeks. We would hope it’s months and it could be years.

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Stanley Trilling, [4]

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Okay. I understand. Second question is, what level of premium to net asset value? Would you consider doing a secondary offering to not only create capital too, but to create more liquidity to the company and its shareholders?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [5]

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Thanks for that question. I realized — let me go back one step. I realize I didn’t answer your question as the total amount. The total amount is closer to $60 million as opposed to $30 million in terms of the assets that we haven’t rotated out, it’s about $60 million, which is close to 30% of our [SER] total net assets. In terms of an offering, the — that is a question that is actually a great question and gets to the heart of sort of long-term growth of MMAC. We believe today that we have investment opportunities that are out there where if we could sell equity around our adjusted book value, it would be accretive. And so somewhere around adjusted book value, I think is probably the bogey that we would be looking at. The — Does it have to get all the way to par or a premium? I would say probably not, but we probably wouldn’t do it at a significant discount. It is all a function of — at the time, we have the opportunity to raise equity? Do we see reinvestment opportunities where we could deploy the capital and make it happen accretively? So that’s — we probably would be looking more at the adjusted value number for that decision than the GAAP book value number for that decision. But it will very much be a function of what the alternative investment opportunities are for the capital at the time.

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Stanley Trilling, [6]

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Okay. It’s always a matter of judgment based on what the situation at the time, that — I understand that. But that being said, I’m pleased that you are being reasonable in your valuation at a time of doing a potential offering.

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Operator [7]

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(Operator Instructions) The next question comes from Colin McLafferty of Lapides.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [8]

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I had a couple of questions related to the solar loan portfolio. So the first would be — my understanding is that you’re providing development and construction loans, so your borrowers need to eventually refinance those upon project completion in order to exit that — their business model. And so I want to get a better sense of who are the parties that are providing its permanent capital. So who are the lenders? If it’s parties who are tax credit equity syndicators? And then really, what’s their access to capital? So are they relying on the capital markets to get that dry powder to refinance? I have a couple more follow-ups on that as well.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [9]

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Gary, why don’t you take that one.

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [10]

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Yes. So thanks, Colin. The basic takeout for the construction loan and certain late-stage development loans are tax-credit equity as well as perm loans. And they’re typically provided by kind of large financial institutions, often banks. We obviously have been spending a lot of time trying to understand how each of those counterparties are kind of reacting in this environment. And at least to date, we have not seen issues with respect to liquidity or timing. But we’re still very early on in this. So we’re constantly assessing, but we don’t see an issue yet in any of the takeouts or the timing of the takeouts. But as — if there’s more sheltering in place, there could be delays. But I think that we have kind of the plan to kind of deal with short term delays.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [11]

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[And I] — just to add to your specific question, Colin. Our takeouts tend not to be “syndicators”. They tend to be the actual tax equity users. So it’s utilities, it’s banks. We did a loan-by-loan review earlier in the week on all the loans that are due to repay over the next few months. And I don’t remember seeing a “syndicator” as a source of equity in any of those. And the sources of permanent capital tend to be, again, insurance companies, utilities, some banks using various financing programs. Hopefully, that helps.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [12]

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It does, yes. And just a follow-up. So if the folks who are refinancing this for the developers and the EPCs who are building these projects, if they have trouble or they’re a little nervous about raising capital or putting capital to work here, what kind of levers do you have to pull to meet your — their capital call? So you’ve got $312.5 million of unfunded commitments in the Solar JV. What can you do in such a situation?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [13]

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We have a couple of options. One is we have cash on our balance sheet. Two is we have a line of credit, which is recently as Friday or Monday, I can’t remember which day it was, increased by $10 million, and we’re continuing to look at increasing that line of credit by continuing to bring in other banks. And three is we have a large partner in the Solar Joint Ventures who has significantly larger balance sheet than we knew and who is not legally obligated to but who has welcomed the opportunity to fund more than their fair share of obligations because they like the returns. So a pretty real risk-return profile. So that — those are our 3 levers.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [14]

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Okay. That’s helpful. And then just of the last couple on the portfolio. So I noticed in the 10-K that the Solar JV made a $104 million loan in 2019. And it seems like a very large percentage of the portfolio, about [6% or 7%] of the portfolio. Can you kind of speak to that loan? And is that type of — I guess, is your appetite for making such large loans relative to the size of the JV? Is that normal? Are there kind of risk controls in place for that?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [15]

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Gary, I’ll give you that one, too.

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [16]

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Yes. So it is a larger than normal. So we typically target loans that are $15 million to $25 million. We have done loans as small as $2 million and as large as $130 million. It’s a loan that we have kind of done a lot to our counterparty that we’ve done a lot of business with. It is certainly getting kind of more attention than a $10 million loan might. But it’s a loan that we were comfortable making as well as kind of the joint venture partner was comfortable making. And we’ll just kind of keep kind of asset managing as we otherwise would.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [17]

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Okay. And I guess, the big question that I think a lot of folks have is if you look at the market you’re lending to, it’s been the beneficiary of tax codes of the federal and the state level that are incentivizing people putting in solar capacity, and those credits they’re rolling off soon. I’m just curious, what have you all seen about demand in this market? What can you speak to that, would kind of give us a sense for over the next few years? Whether this dries up a little bit as those credits roll off and the investments become most attractive? Just would be helpful to hear your thoughts on that.

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [18]

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Sure. So right. Last year, we saw the federal tax credit fall from 30% at year-end to 26% this year, and then it falls again to 22% next year and then down to 10% thereafter. We saw around year-end, some accelerated activity as folks tried to get the benefit of the higher tax credit. That was really just moving some deals that would have been done early this year into late last year. And maybe in a slightly different form, right, where maybe it was an equipment finance loan as folks were getting the materials necessary to then do the construction. We continue to see a lot of demand, more kind of demand than probably we have capital for. The folks in the industry that kind of predict the future still believe that even with the step down in the federal tax credit that the amount of renewable energy projects, the commitments for renewable energy projects will double over the next 5 years. And I think that’s in large part because kind of the comparative cost of renewable energy compared to fossil fuels is in some markets already at parity cost. So there seems to be a lot of demand, and we don’t necessarily see that stepping down just because of the federal tax credit stepping away or down to 10%. And notwithstanding the fact that there is a bill to extend that credit, who knows if that will ever get extended, but we don’t foresee a big issue with demand for this type of product.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [19]

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I would also add that as a public policy matter, state policy matters just as much as federal policy. How they — how utilities are being regulated and how rates are being set. So the — it’s both a federal and a state policy issue. And when you look at the investor presentation, you can see a map of where we’ve done business. That’s a function in many ways of where state policy is most favorable.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [20]

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Okay, great. I don’t want to hog the line, so I can get back in the queue if there are other questions, but I’m not sure if there are other folks waiting.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [21]

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Why don’t you just keep going?

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [22]

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Please, yes, cut me off whenever you guys have other questions.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [23]

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When the questions get hard or dumb, I’ll cut you off. But so far, they’re both good questions. And I think, very relevant.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [24]

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Okay. All right. So the next one is still kind of related to risk around the portfolio. What is the revolver’s debt covenants? So you said that it’s basically limited by the assets that you have in the JV or your equity in the JV. Can you kind of just explain what that is to save us the time of looking through the credit agreement?

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [25]

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Sure. I can kind of give a big picture and approach and Mike can fill in details as necessary. But it’s a facility that is collateralized by the equity that we have invested in the JV. There are various financial covenants in place. And they’re basically set up to have advance rates based upon the type of the underlying loan. So lower advance rates for late-stage development, slightly higher advanced rates for construction loans and even higher advanced rates for permanent loans. And basically, it’s a facility that’s set up so that there is a predetermined investment criteria box, which basically serves as a collateral facility borrowing base amount. And then we can draw against that amount. Currently, we have kind of more collateral than we have drawn under the facility, but it’s constantly getting managed as loans — existing loans draw up, as existing loans pay off and as new loans get added in.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [26]

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So generally speaking, I think you said before that your appetite for how much leverage you want to put in the portfolio is about 50%. Is that kind of in the ballpark of, I guess, with your current mix of loans between development, construction, permanent, is that kind of the limit, if you will, on your facility? You had [50%] (inaudible)

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [27]

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It can go up — The advance rates are higher than 50%. But we don’t feel like it’s prudent to kind of put too much leverage on the portfolio, right? Currently, we have the subordinated debt at the company level, which is really only senior to the common shares, but really doesn’t have much of any financial covenants in place. It basically prohibits us from putting $1.2 billion of debt ahead of them. So aside from the subordinated debt, the asset-backed debt we have is really the revolver and the $120 million worth of commitments today is kind of we think a level that we could increase. The maximum committed facility amount is [$155 million.] But as we indicated, we are looking for additional capital to deploy in this facility. But it — we will not get kind of leveraged up [5:1], [10:1]. We think that this is going to be somewhere in that range of maybe $150 million, maybe $200 million in total of debt relative to this portfolio.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [28]

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Okay, great. I guess, maybe the last one on the Solar JV. You’re making development loans, construction loans, you’re getting a fairly high coupon on those loans. I think it’s that’s generally because it’s commensurate with the amount of risk that one bears by lending to projects that have a lot of uncertainty. And I think we’ve spoken offline about the types of projects that you’re lending against. But I’m just hoping you can kind of give us a sense for when you’re underwriting one of these loans, I’m assuming that you’re taking into account the potential or the probability for losses and then the loss given default for these loans. Can you kind of walk us through what some of your expectations are at a high level for the loss experience of a portfolio like this across an entire cycle? I know you haven’t had any losses yet, you’re not on wood in the 5 or so years you’ve been lending in the space. But I’m just curious for your kind of full cycle thoughts on those losses.

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [29]

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So you’re correct in that. We have not realized any losses of principal invested to date, but that we’ve only been doing this since 2015. We don’t really look at this through the lens of the theory of large numbers and think that x percent will kind of default over a long term cycle. It’s really an asset-by-asset underlying credit analysis. I think that we have been fortunate in that we have kind of lent to good counterparties, and we have been pretty accurate in estimating the underlying collateral that we’re lending against. But we have not gone through an analysis of kind of the length of a full cycle and how much losses we may kind of realize over time.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [30]

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Have you all looked at adjacent industries, so just lending in general for construction projects to get a feel for what that loss rate could be at base rate, if you will, for the portfolio, even though you’re not, I guess, assuming that for your loans?

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [31]

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So we certainly have had experience in doing construction lending when we were primarily focused on affordable housing. I’m not sure how relevant that experience was or other industries to this. I mean, it’s certainly higher than 0. But I’m not sure how prudent it would be to kind of compare kind of different industries to what we’re doing on the renewable side.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [32]

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Okay. That’s helpful. Can I keep going? Or are there other questions in the queue?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [33]

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There are some other questions in the queue. How about if we jump to those guys and then we can let you circle back.

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Operator [34]

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Next question comes from Jesse Greenfield of Greenfield Investments.

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Jesse Greenfield, [35]

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Mike, I got on a little late, so if you could just recap what’s the story with the buyback program?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [36]

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Sure. What we said is given the uncertainty in the marketplace right now, the board is taking a wait and see attitude, and we may or may not revisit the question — well, we will revisit the question whether we act or not prior to the March 31 closing of the window is an exceedingly fluid question based in part on the environment in which we operate today. On the one hand, it’s clear that relative to our book value, share price is significantly off. And it would be accretive to the shareholders to buy shares. On the other hand, the sort of lesson from the last financial crisis was every nickel of liquidity matters. So we’re kind of watching and waiting to see where markets settle down, what stimulus looks like and I just don’t know if we will be in a position to make that decision by March 31. I can tell you that, that sort of how we might return capital to shareholders, whether we might return shareholders — capital to shareholders has been a constant discussion at board meetings over the last 6 to 12 months. And recent events, I think, probably have caused us to go more slowly than we otherwise may have, given a little more stable environment.

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Jesse Greenfield, [37]

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Okay. Now, the window is going to close at the end of the month. How long does the window stay closed?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [38]

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Probably until about May 15. I mean, in the normal course of events, the window would stay closed until May 15.

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Jesse Greenfield, [39]

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Okay, fine. And now the quarter that we’re in right now, is it tracking pretty decently? Meaning pretty much following what happened last quarter?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [40]

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We don’t really give forward guidance. But I would say one of the things we said in the script was that we haven’t yet seen disruptions, but we don’t know where things are going to go over the next couple of weeks.

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Operator [41]

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The next question comes from Ted Lou of Valley Financial Group.

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Ted Lou, [42]

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Michael, I just wondered what the remaining amount is on the NOL.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [43]

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The unwritten up part, if you will?

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Ted Lou, [44]

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Yes, sir.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [45]

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[Brooks,] I think of that number — or Dave, I think of that number is around $180 million. Is that — one of you guys want to give me the right number?

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David C. Bjarnason, MMA Capital Holdings, Inc. – Executive VP & CFO [46]

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Yes, just looking for it. Yes, Ted, if you look at our footnotes to the financial statements, it’s in Note 14, which is located — or it starts on Page F 41.

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Ted Lou, [47]

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Okay. I just didn’t get that far.

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David C. Bjarnason, MMA Capital Holdings, Inc. – Executive VP & CFO [48]

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Yes, that’s fine.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [49]

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Come on, Ted.

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David C. Bjarnason, MMA Capital Holdings, Inc. – Executive VP & CFO [50]

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Yes, it’s pretty far back there. So we’ve recognized a $57.7 million asset. I’m just looking for — Give me one second. Scanning through this disclosure.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [51]

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Brooks, are you on a speaking line?

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Unidentified Company Representative, [52]

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I am. So there is — there remains about $160 million of NOLs that are impaired at this point.

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Ted Lou, [53]

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Okay. And congratulations on being so creative. You’re still my favorite stock.

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Operator [54]

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And we have a follow-up from Colin McLafferty of Lapides.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [55]

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Just 2 really quick ones, that should be fairly easy. The first is, other than the management fee, incentive fee and expense reimbursement for the external management contract, what do you expect recurring operating expenses to be this year and then thereafter? So for example, in last year, I think you had $10 million of additional OpEx aside from those 3 categories I mentioned. Can you guys walk us through how the income statement will shake out, going forward?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [56]

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Well, we don’t really give forward guidance in that regard. I think, Dave or Gary, it could be useful to talk about the elements of last year’s operating expenses just to sort of give Colin a sense of which of those things are — he can conclude are steady and which are sort of onetime items.

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David C. Bjarnason, MMA Capital Holdings, Inc. – Executive VP & CFO [57]

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Gary, do you want to comment first?

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [58]

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Yes. I was just kind of pulling up the income statement. I think that for the most part, the expenses on the income statement are largely recurring in nature. Right? There certainly will be a change in the amount of expense reimbursements relating to salary and benefits in 2019 as — in 2020 as a result of — compared to 2019 because of the change in the cap. But I can’t think of any other significant changes. Dave, do you see that differently?

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David C. Bjarnason, MMA Capital Holdings, Inc. – Executive VP & CFO [59]

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No, I was going to echo the same comment. So I don’t think besides the point on the cap that we would expect any sort of consequential change to amounts reported this year in 2019.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [60]

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Okay, very helpful. And the last one for me is just when you look at the discount, between your stock price and your adjusted book value, it seems to be about 30%. And as you mentioned before on the call, about 30% of your net asset value is tied up in those other noncore assets that you’re slowly recycling into the solar lending portfolio. And I’m just curious if you can kind of walk us through, I think there’s 5 categories there. Can you just walk us through of those 5 noncore asset categories? Some of these are cash flowing, some of them are not. Can you kind of give us a sense for your expectation for — on a recurring basis, how much income you’ll get from those — from that $60 million of bucket of assets? And the categories I’m referring to are the multifamily (inaudible) bonds, the infrastructure bond, the investment in U.S. real estate partnerships, the investment in the South Africa workforce Housing fund and then the real estate owned category.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [61]

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Sure. If you took the last 3 of those, South Africa real estate owned and U.S. real estate, those are essentially non income-producing assets and they will, at some point in the future, return capital to us, maybe with a gain, maybe not, depending on what happens in the world. The Spanish Fort bond, which is an infrastructure bond pays in the neighborhood of 6%. Megan, you might have the exact number there. And the multifamily bond pays in the same neighborhood the multifamily bond paid annually, though, because it’s paid out of net cash flow as opposed to paid quarterly, like a normal bond. Was that close enough, Megan, Gary, Dave?

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [62]

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Yes, I think so.

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Megan Targarona Sophocles, MMA Capital Holdings, Inc. – SVP [63]

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Yes.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [64]

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Those are what I call CEO numbers, Colin, which are the big round numbers I can keep in my head.

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David C. Bjarnason, MMA Capital Holdings, Inc. – Executive VP & CFO [65]

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Colin, this is — just one other quick follow-up point related to your question on expenses. I think you may be aware, potentially that for public companies that like MMA qualifies as smaller reporting companies. The SEC just recently announced a change to how they — basically, the — if you look at our opinion as of September — I’m sorry, as of December 31, our external auditor, KPMG, is required to opine on both numbers as well as controls. But given a recent change to the rules related to smaller reporting companies in terms of what external auditors are now required to opine on, we think going in 2020 given a recent announcement by the SEC, an opinion on internal controls will no longer be required. And I mentioned that because I think when you look at expenses of the company, particularly compliance costs, we think the audit costs, as a result of this recent development with the SEC will likely come in. So — by what number? I can’t really speak to, but at least sort of directionally, I just wanted to clarify that we expect that particular type of cost to come in for the reasons I just mentioned.

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Colin McLafferty, Lapides Asset Management, LLC – Research Assistant [66]

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Okay, great. So then the cost of the audit and financial reporting, that’s all on the MMAC income statement and not that’s not covered by the expense reimbursement paid back to your external manager?

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David C. Bjarnason, MMA Capital Holdings, Inc. – Executive VP & CFO [67]

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Yes, that’s correct. It’s a direct cost of MMA.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [68]

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Operator, are there any other questions?

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Operator [69]

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The next question comes from, just to verify, we have Greg Venit, a private investor.

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Gregory J. Venit, [70]

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For the stock buyback program, are there any things in your credit facility that prevent you from using cash for a stock buyback right now?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [71]

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We could not directly draw the line of credit by [acted] buy shares. But I don’t think that there is an effective limit on a share buyback as a result of the otherwise. It would just be our cash on hand, which is in the neighborhood of $10-ish million.

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Gregory J. Venit, [72]

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So if your board decided to approve between now and March 30, you would roughly have $10 million free if you wanted to utilize that?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [73]

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If we wanted to utilize all of our cash, yes, but I don’t think we would do that. I think it would be — whatever we would do would likely be smaller than $10 million.

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Gregory J. Venit, [74]

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Spanish Fort was supposed to — not Spanish Fort — south African fund, I think, is supposed to pay you back roughly $7 million sometime. I guess, it’s now in April. Do you still expect that?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [75]

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I expect that between April and this summer.

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Gregory J. Venit, [76]

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And that — would that free up cash that you could use for a stock buyback if you wanted to?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [77]

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It would free up cash for whatever use we determine, yes.

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Gregory J. Venit, [78]

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Okay. So on the tax-deferred asset, [putting that] the accountants, I would think, have you go through a long process for determining that you can utilize that? So there must have been a projection for what you expect your taxable income to be for — at least for this year, for 2020? You say you don’t give financial guidance, but it seems like that would have been something. Is there any way of sharing something with us for determining what you might have as far as taxable income from the, I guess, what I would call the ongoing business of the Solar Lending business?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [79]

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The rules that you have to apply to determine your net operating losses or your deferred tax asset, certainly have elements of the forward projection in them, but they have to meet a standard, which is in the GAAP literature called objectively verifiable. And so what we present to the board now as the sort of internal matter is forward-looking income statement based on objectively verifiable numbers and then a kind of addition to that of aspirations to get to sort of our forward-looking projections that the board uses. But the board has not made a decision to sort of make any of those numbers public at this point. And so we are not going to speak to forward-looking information.

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Gregory J. Venit, [80]

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Okay. Final question about loan-to-value or loans for solar, since we have not had a bad experience yet. On loans — the construction loans, the security behind that loan, is it the property itself? Or are there other guarantees in that? Or what is the security behind each one of these loans?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [81]

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Well, obviously, they sort of — generally, there’s a high level of variability. But the general package is a mortgage and is some sort of usually payment performance bond on construction loans. Gary, I don’t know if you’d want to add anything to that description? Or Megan?

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [82]

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Yes. I mean, so there’s a first lien on kind of all of the underlying value. So deposits that are made all of the underlying equipment, all of that serves as collateral. We really don’t always look to a guarantee of the borrower. We really are kind of most focused on the value of the underlying project and basically have a claim to kind of at that value in addition to the kind of first lien first mortgage position we have on all the underlying collateral.

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Gregory J. Venit, [83]

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Do you require the borrower to already have a contract for selling the asset to — or contract in hand for taking the power off the project before you lend on a construction loan?

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [84]

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More often, yes.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [85]

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Yes.

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Gregory J. Venit, [86]

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So there’s no — I guess, the terminology in homebuilding, there’s not like — you’re not spec building — you’re not financing a spec building?

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [87]

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Correct.

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Gary A. Mentesana, MMA Capital Holdings, Inc. – President & COO [88]

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So it’s a little bit different for the late-stage development loans. But you can think about the kind of all of the binary risk has been taken out of the equation. So they’re basically permits in place and you have kind of a line of sight as to kind of what the underlying project will be. You may not always have a binding contract for the takeout at the time you close, but you may. You may kind of have term sheets in place and kind of an understanding because of the various counterparties you’ve previously worked with to understand what the underlying project will look like, how we’ll get to market and how we can kind of lend against it.

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Gregory J. Venit, [89]

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Okay. So for whatever it’s worth, thank you, and thanks for the good performance. I think in these times, if possible, I think having the stock buyback program with the volatility in the market and a number of people, particularly in the ill-liquid stocks just hitting the bid would — anyway, I think it might be a good idea for shareholder value. And the discount is probably the biggest it’s been certainly in several years. So if you’re confident going forward, then it would be great if the board were to approve the stock buyback program because the next window won’t be until May 15, whether you are in there buying or not, anyway, I would — I think it would be a good idea. That’s my in my opinion.

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Operator [90]

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This concludes our question-and-answer session. I would like to turn the conference back over to Michael Falcone for any closing remarks.

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Michael L. Falcone, MMA Capital Holdings, Inc. – CEO & Director [91]

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Great. Thanks, operator. Obviously, sort of the environment which we operate looks dramatically different than the environment that existed a few weeks ago when we did our business plan, a month or 2 ago when we did our business plan. But at this point, we feel pretty good about our ability to continue to execute on the business plan. There certainly could be some disruption over the next month or so. But longer term, we’re excited about our future. But obviously, there is a great deal of uncertainty brought on by the virus and the economic impacts of virus and we’re doing the best we can to keep up with what’s happening in that regard. But it frankly gives us a very cloudy picture as I’m sure most people who are trying to run companies or businesses would tell you the same thing these days. So thanks for your support. We continue to be dedicated to the success of this company, and we thank you all very much for your continued support as shareholders and the time you took this morning. So everybody, be well. Thank you.

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Operator [92]

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The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.