HA Sustainable Infrastructure Capital, Inc. Q1 FY2025 earnings call

• Despite policy and economic uncertainty, HASI is operating normally, closing new investments, maintaining a large pipeline, enhancing the liquidity platform, and growing adjusted earnings per share. Business activity is robust with a historically high volume of incoming capital requests. - Closed over $700 million in new investments in Q1 2025 with an average yield >10.5%. - The portfolio is well-diversified across different asset classes. - The CCH1 co-investment vehicle with KKR has a funded balance of $1 billion, and they are considering placing debt at the vehicle to increase its investment capacity, with the investment period extended to the fourth quarter of 2026. - The company's seventh annual sustainability and impact report was published.

HASI achieved a historic first quarter with over $700 million in new investments closed, having an average yield on these new investments greater than 10.5%. Managed assets increased 12% year-over-year. The portfolio stands at $7.1 billion, with a portfolio yield of 8.3% and a cost of debt of 5.7%. Adjusted earnings per share was $0.64. Additionally, 50% of balance sheet transactions closed into the CCH1 co-investment vehicle don't show in portfolio growth but contribute earnings via upfront and annual management fees.

• HASI reaffirmed its guidance of 8% to 10% compound annual growth and adjusted earnings per share through 2027. - As HASI continues to originate and fund investments at higher yields, it expects the portfolio yield to continue increasing.

• Tariffs: HASI is not directly impacted as projects in the portfolio and pipeline are mostly operational/near operational or under construction, so limited impact is expected. - Recession: If a recession occurs in 2025, investments in clean energy generation are expected to be only marginally impacted with no resulting material impact on financial results.

Q: Could you discuss the leverage profile of debt at the CCH1 level and the interest rate strategy?

A: I would envision the leverage at CCH1 would be relatively low, likely more equity than debt, and the interest rate would likely be of an investment-grade type cost of funds, in the same general vicinity as HASI's cost of debt.

Q: Regarding the extension of the CCH1 term through 4Q '26, comment on the timing expectations?

A: The extension is because they aim to increase the capacity of CCH1, so it was logical to extend the investment period in mutual agreement between HASI and KKR, making it a larger vehicle than originally contemplated.

Q: What are the unique factors behind the 1Q record originations and their implications for future quarters?

A: There is no specific pull forward of the pipeline; it's just the level of business activity growing. Also, HASI's competitive position has increased with some competition leaving the market.

Q: Break down the dispersion of the average yield on new investments and whether the yield expansion is from equity investments?

A: Asset yields are consistent with the previous quarter. We're not seeing asset yields jump into the mid-double digits currently. Investments are made at the asset level, and we continue to see strong double-digit yields.

Q: Talk about the dynamics in resi solar and its relation to SunStrong?

A: Investments in resi solar are unrelated to SunStrong, which is a servicing platform. The performance of the underlying resi solar assets is not impacted by the sponsor's financial position.

Q: Share thoughts on the outlook for and timing of potential changes to the IRA, and sub-sector appeal?

A: The pipeline is well-balanced. We're very bullish on continued volumes. There's a low probability that the core components of the IRA will be repealed, and business is as usual with no impact from policy items currently. Sub-sectors are well-balanced by the timing of closings.

Q: What's the view on the outlook for and timing of potential changes to the IRA?

A: There's anticipation of next steps with the IRA, with the first draft of the bill expected from the House Ways and Means. The industry remains confident the bill won't be repealed as the majority realize the importance of energy dominance, AI, and the low cost of renewable energy.

Q: How would the removal of tax credit transferability impact the project funnel under the IRA?

A: The tax market includes traditional tax equity and transferability. However, the pipeline is insulated from changes in the tax bill, and transferability has broad support from utilities and corporates.

Q: How is the cost of capital managed when locking in drop-down yields with volatile interest rates?

A: Typically, we use our revolver and available liquidity to fund investments. We have hedging products to lock in the interest rates we're paying on those investments, so we don't really wear interest rate risk once we fund the investments. We also have hedging products for the long-term takeout of the short-term facility.

Q: Provide more color on the wind opportunities mentioned in the pipeline, including timeline?

A: The wind opportunities in the pipeline are all onshore, consistent with past projects and solar projects in terms of revenue streams and risk profile. We're starting to see more wind assets available, but the revenue streams and risk profile are very consistent with what we've seen in the past.

Q: Was there a conversation about creating a new vehicle like CCH2 instead of extending the existing CCH1?

A: The existing CCH1 is working well. Both parties are pleased with it. Putting debt on CCH1 to grow it without additional equity contributions is a prudent approach. There might be a CCH2 someday, but currently, the focus is on extending and growing CCH1.