HA Sustainable Infrastructure Capital, Inc.

literally 100% of the loans in Resy are performing. So, again, it's well within our underwriting guidelines, and we're not seeing stress in that portfolio.

Got it. Thanks. And then, you know, maybe as a follow-up here, you know, the tightness in the tax equity waiting for treasury clarity, is that translating to any sort of funding opportunity for you all where maybe there's a hole in the cap stack and you're able to kind of fill it here?

Thanks. I'm going to ask Susan to answer that. I think on, or at least respond to the part about the tightness in the market in terms of refilling gaps in the capital stack, that's usually not the dynamic. You know, the tax equity obviously serves a specific purpose in terms of the tax attributes that it would be hard to substitute traditional HACI capital for that tranche. But the first part of the question around the tightness of tax equity, I'm going to let Susan answer.

Yeah, thanks. A couple of comments on that. One is that Just in terms of tightness, it's important to note that the reports from last year is that the tax equity market actually grew significantly. Crux is one of the Crux platform tracks from that data. And the total market increased 26% to $63 billion. And very importantly, the tax transfer market, which is still in its third year, grew 50% to $42 billion. So as we move, at the end of the year, some of the corporates, and there's now nearly 25% of Fortune 1000 companies participating in the market, were dealing with their own understanding of where their corporate tax bill was going to settle with the change in the tax laws. But as we move into this year, I think some of that tightening that's been reported is what we're seeing and hearing from companies from some of the stakeholders, but also from Crux is starting to have more liquidity as corporate buyers know where they're settling out in that regard and providing some uplift. I think the second issue, which is a bit different, is regarding the FIAC rules related to clean energy tax credits being transferred and not to foreign entity of concern ownership. And that relates, again, to 2026 tech neutral tax credits, not the 25 or before substantial safe harbor pipelines through 23, which many of the players already have their inventory set. So what we expect in that regard is certainly the IRS and Treasury have been coming out with guidelines, and we need people waiting for that guideline to be clarified on the tax credit ownership. Again, there's precedence, but as we know, with ambiguity, some tax equity investors and banks are waiting for that clarity, which should come. And that is important, obviously, for the whole industry because nuclear, carbon capture, geothermal, all the technologies need that guidance. And I say, lastly, we certainly want to keep working to expand the tax credit market, given there'll be continuing growth in the supply with all the different projects being built with these technologies in manufacturing and has he's working with the industry in American Clean Power to develop standardization documents to help facilitate growing the corporate tax credit market. Does that help address what you've heard?

Well, I guess maybe just a quick follow-up would be, I mean, is this any way to have a bearing on the investment pace that you all are going at right now?

Not in our pipeline. Again, as we talked about significant, our sponsors, and it's really across certainly the grid connected, and I think Sunrun and others have mentioned it, have safe harbored their pipelines through 2030, if not the next two years. Okay. So it wouldn't directly impact what we're seeing in terms of growth.

Yeah. Thanks. Our next question comes from Ben Callow with Beard. Please state your question.

Hi. Good evening. My first question is just on CCH1 and the capacity left there under that agreement. And then, you know, following that, has anything changed with your partner in, you know, their appetite to invest more after that first tranche?

So, thanks, Ben. On the second part of the question, no. Our partner has continued to express significant enthusiasm around the partnership and, as evidenced by the upsides late last year, has shown a strong willingness to continue to invest. As we disclosed here on page 11, the assets are $2.3 billion. The commitments are a bit higher than that for some things that our NCCH1 just haven't funded yet. And as I think we mentioned last quarter, As structured right now and given our pipeline, we certainly have enough capacity for this year, and we're working on a CCH2. We started to commence some activity there. I can't say too much in terms of detail there, but we certainly are intending to have that up and going by the time CCH1 capacity has been utilized.

Sorry, Ben, just also to provide a little bit of context for the capacity that we have. And we've said that in the past that we've got roughly about $5 billion in capacity available. And that's comprised of the equity commitments between us and KKR. That's roughly about $3 billion. And then, as we said before, we are and we did mention in our call here that we have issued some debt at CCH1. keeping our leverage ratio at CCH one, uh, under one time, you know, anywhere between 0.5 to one times that the equity that gets you to a total of 5 billion, uh, and comparing that to the 2.3 that we currently have in there.

Okay, great. Um, in terms of your cost of capital, um, could you talk about how much you think you can reduce your cost of capital? I know you guys have done a lot. But also, I just, you know, going from 25, I think, you know, on slide 17, you had 5.8% interest expense over average debt balance. It ticked up in Q1. So maybe could you explain that a bit? And then just, you know, how much more do you think you can reduce your total cost of capital going forward? And thank you, guys.

Yeah, so the uptick that you're seeing in Q1 is largely attributable to the issuance that we've done on the junior subordinated notes. So they do carry a little bit higher of a coupon, but from an overall cost of capital standpoint, because we get 50% equity credit for purposes of our leverage ratios with the rating agencies, we do get the issue less equity. So a little bit higher coupon that we're paying an interest expense, but we are issuing less shares. So overall, you know, it is a benefit to our cost of capital. And I think if you took out from that 6.1, the interest expense related to those hybrids, the debt costs relatively flat around 5.8 or so. compared to last year. Now, on the how much further can they go question, we've obviously seen a benefit reduction of spreads on the debt that we're issuing. And I think a large part of that is due to just the efforts that we put into getting out there and talking to the investment-grade investor market, and we've had some success with that. We're still relatively new to the market, so there is a little bit of improvement we could see on the spread, but as you probably know, spreads across the board are a little bit tight in the investment-grade market, and they can only go so far. Right now, with the guidance that we have out there, do we need this to go lower? No, we absolutely don't. And with the margins and the yields that we're seeing on our assets and the equity efficiency that we're seeing, we don't really need it to go down to further increase our returns.

Great. Thank you, guys.

Thank you. A reminder to all participants, to ask a question, please press star and one on your telephone keypad. Our next question comes from Mahdeep Mandeloy with Mizuho Securities. Please state your question.

Thanks for the question, Maheep Mandeloy from Mizuho. Can you just talk about the rationality over there or like what motivated you to invest? Is it somewhat similar to what we have seen with on the solar side which helps with ITC or something else which helps you capture more value with the RNG assets?

Thanks. Sure. Thanks, Mandeep. You know, I think, and I talked a little bit about this in the prepared remarks, you know, some of the attributes that really attracted us here were, first and foremost, the partnership we have with Amresco and the trust and familiarity we have with their team. It's very consistent with how we've built the business with programmatic partners. Here, we were able to, again, diligence all of the investments day one. R&G is something we're very familiar with, and we've been very active in R&G, as you know. And so it's an asset class we well understood. And then there was great alignment with the Amarisco team of what we want to do with this business going forward, what the relative structure of the parties would be in terms of ownership and cash flows. And so it's a real opportunity for us to do something perhaps slightly different than we've done in the past, but with very, very similar attributes and certainly more upside than most of what we do at the project level investing.

I appreciate it. And on the Amarisco's tech, they kind of talked about a total $4 million of net income to you guys from the – for this year for Neogenics. Is that like the framework we should think about and build upon that going forward, or how do you think about the modeling here?

Sorry, I missed one word there, Manjit. Can you just repeat that question, please?

Manjit Sidharthi Rao Yes, sure. On Amoresco's presentation, they talked about your minority interest in the net income at around $2 million to $4 million for this joint venture. I'm curious if that's something we should assume for modeling purposes for this year on your model.

Now, from a HACI perspective, our accounting, of course, is different than Amarisco's. Our accounting here will be simply an equity method investment, consistent with what we've done in the past. We underwrote this in terms of cash-on-cash IRR, and we're going to account for it consistent with how we've accounted for our other equity method investments. So there's no pass through of direct income as part of our accounting. And Chuck, may I want to expand on that?

Yeah, Maheep, I think Amorescu's release, all they did for that number was simply just take 30% of the total EBITDA expectations for that project, which as we've mentioned, this is an investment that is very similar to what we do where it's a structured equity investment. And when you have structured equity investments, we're focused on the cash on cash returns. There's targeted returns that we go after. And it's not as simple as just taking 30% of the total project EBITDA. Appreciate it.

Thank you. Thanks, Manik.

Our next question comes from Noah Coy with OpenHammer and Company. Please state your question.

Sure. Thanks all for taking the questions, and hope you're all well. The first one, just on the 12-month pipeline, you replenished this quarter over quarter. It's still greater than $6.5 billion. It looks like the largest percentage increase, and therefore dollar increase, was in grid-connected assets. And certainly that tracks with the increase in grid-scale renewables being deployed, but Maybe just comment a little bit on, you know, what drove that uptick, and can you talk a little bit about the nature of those, you know, transactions? Are these primarily, you know, MES debt, PREF equity, or of a different nature?

Sure. Thanks, Noah, for the question. And I always caution against too much precision on pipeline disclosure. Of course, it's greater than six and a half, and it's a 12-month pipeline, so there's um always a little bit of judgment involved but to answer your question grid connected uh does have a very strong pipeline the vast majority of it is programmatic partners that has he's worked with before and the majority of it is pref equity on solar projects so i think that's the um the the majority of that pie slice of the pipeline very helpful thanks

And then this was a quarter where there was zero ATM issuance. The progress from the company on becoming more capital light, we're all seeing it. I think in the deck it says minimal equity issuance expected for 26. Not asking you to put any kind of finer point on that, but from an equity perspective, I mean, how close do you feel this business is to really a self-funding model?

I would say very close. I think that minimal you can interpret as if the volume of fundings this year is within the expectation that we set, that could very well be zero. If we're a little more successful than that estimate and we end up doing four or five billion, then certainly you would see us issuing more equity, but that's accretive equity and that's a really big year in terms of new origination, so that's a good scenario as well. But I think if we hit the expectation range that we established, I think we'll be, we, we are already self funding.

And no, I'll also add to this that, you know, we certainly, um, have seen an uptick in, uh, transaction closings that, that we've, uh, that we've had and looking forward, you know, we, we do expect some, some growth in that number. And if you go back to, um, the slide that we prepared last quarter where it shows how far each dollar of equity goes, we are making much better progress on how little equity we need to issue when we're making our fundings. But what you will certainly see in the future is that if we are issuing equity, the percentage of that equity relative to the total fundings is much, much lower percentage than you've seen historically.

Yeah, it's a very significant milestone, so congratulations to all. I'll jump back into you.

Thanks, Noah.

Ladies and gentlemen, that was the last question for today. The conference call of HACI has now concluded. Thank you for your participation. You may now disconnect your lines.