MMA Capital 10Q 2021 Q2 Quarterly report | Trading Symbol(s) MMAC MMAC Filing

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number 001-11981

MMA CAPITAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

52-1449733
(I.R.S. Employer Identification No.)

3600 O’Donnell Street, Suite 600

Baltimore, Maryland 21224
(Address of principal executive offices,

including zip code)

(443) 263-2900
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Shares, no par value

Common Stock Purchase Rights

Trading Symbol(s)

MMAC

Name of each exchange on which registered
Nasdaq Capital Market

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☑	Smaller reporting company	☑

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

There were 5,743,570 shares of common shares outstanding at July 30, 2021.

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MMA Capital Holdings, Inc.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS					2

PART I – FINANCIAL INFORMATION					3

	Item 1.	Financial Statements (Unaudited)		31

		(a)	Consolidated Balance Sheets at June 30, 2021, and December 31, 2020	31

		(b)	Consolidated Statements of Operations for the three and six months ended June 30, 2021, and June 30, 2020	32

		(c)	Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2021, and June 30, 2020	33

		(d)	Consolidated Statements of Equity for the six months ended June 30, 2021, and June 30, 2020		34

		(e)	Consolidated Statements of Cash Flows for the six months ended June 30, 2021, and June 30, 2020		35

		(f)	Notes to Consolidated Financial Statements	37

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		64

	Item 4.	Controls and Procedures		64

PART II – OTHER INFORMATION					65

	Item 1	Legal Proceedings			65

	Item 1A.	Risk Factors			65

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			67

	Item 3.	Defaults Upon Senior Securities			67

	Item 4.	Mine Safety Disclosures			67

	Item 5.	Other Information			67

	Item 6.	Exhibits			68

SIGNATURES					S-1

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Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the period ended June 30, 2021, (this “Report”) should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020, (“2020 Annual Report”), filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”), to which reference is hereby made. This Report contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements often include words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “focus,” “intend,” “may,” “plan,” “potential,” “project,” “see,” “seek,” “should,” “will,” “would,” and similar words or expressions and are made in connection with discussions of future events and future operating or financial performance.

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties including the risks and uncertain aspects of the novel strain of the coronavirus (“COVID-19”) pandemic and risks and uncertainties related to our proposed merger with FP Acquisition Parent, LLC and FP Acquisition Merger Sub, LLC. We may be unable to complete the merger on the proposed terms or on the anticipated timeline, or at all, or realize the benefits of the merger and our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements. There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report. For a discussion of certain risks and uncertainties and the factors that could cause our actual results to differ materially because of those risks and uncertainties, see Part II, Item 1A. “Risk Factors” of this Report and Part I, Item 1A. “Risk Factors” of our 2020 Annual Report.

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we may make from time to time, and to consider carefully the factors discussed in Part II, Item 1A. “Risk Factors” of this Report and Part I, Item 1A. “Risk Factors” of our 2020 Annual Report in evaluating these forward-looking statements. We do not undertake to update any forward-looking statements contained herein, except as required by law.

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MMA Capital Holdings, Inc.

Consolidated Financial Highlights

(Unaudited)


	As of and for the three months ended
(in thousands, except per common share data)	June 30, 2021		March 31, 2021		December 31, 2020
Selected income statement data
Net interest income	$	329	$	2,701	$	340
Non-interest income (loss)		5,109		(8,120)		16,211
Other expenses		5,247		5,743		7,655
Net income (loss) before income taxes		191		(11,162)		8,896

Income tax (expense) benefit ⁽¹⁾		(53)		3,079		3,108
Net income (loss)	$	138	$	(8,083)	$	12,004

Earnings per share data
Net income (loss): Basic and Diluted	$	0.02	$	(1.39)	$	2.06

Net income (loss) before income taxes per share: Basic and Diluted	$	0.03	$	(1.92)	$	1.53

Average shares: Basic and Diluted		5,824		5,820		5,815

Market and per common share data
Market capitalization	$	155,995	$	131,011	$	140,439
Common shares at period-end		5,824		5,824		5,820
Share price during period:
High		27.40		26.48		28.99
Low		16.36		20.30		22.01
Closing price at period-end		27.16		22.81		24.60
Book Value per common share: Basic and Diluted		47.64		48.12		49.81
Adjusted Book Value per common share: Basic and Diluted ⁽²⁾		36.68		37.34		39.66

Selected balance sheet data
Cash and cash equivalents	$	17,032	$	16,164	$	28,644
Investments in debt securities		24,709		28,753		31,038
Investment in partnerships		354,055		355,815		376,198
Deferred tax assets, net		63,812		62,806		59,083
All other assets		35,425		35,998		38,099
Total assets	$	495,033	$	499,536	$	533,062

Debt	$	212,081	$	212,929	$	237,805
All other liabilities		5,519		6,351		5,373
Total liabilities		217,600		219,280		243,178
Common shareholders' equity ("Book Value")	$	277,433	$	280,256	$	289,884

Rollforward of Book Value
Book Value - at beginning of period	$	280,256	$	289,884	$	277,618
Net income (loss)		138		(8,083)		12,004
Other comprehensive (loss) income		(2,961)		(1,640)		150
Other changes in common shareholders' equity		—		95		112
Book Value - at end of period	$	277,433	$	280,256	$	289,884

Less: Deferred tax assets, net		63,812		62,806		59,083
Adjusted Book Value ⁽²⁾ - at end of period	$	213,621	$	217,450	$	230,801

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(1)

The Company recognized a net $2.9 million deferred tax asset (“DTA”) in the fourth quarter of 2020 that was driven by an increase in the amount of net operating loss carryforwards (“NOLs”) that, at December 31, 2020, the Company assessed were more likely than not to be utilized prior to their expiration.

(2)

Book Value excluding deferred tax assets (“Adjusted Book Value”) and Adjusted Book Value per share are financial measures that are determined other than in accordance with generally accepted accounting principles in the United States of America (“GAAP”). These non-GAAP financial measures are used to show the amount of our net worth in the aggregate and on a per-share basis, without giving effect to changes in Book Value due to the partial release of our deferred tax asset valuation allowance as of June 30, 2021, March 31, 2021, and December 31, 2020. Refer to “Use of Non-GAAP Measures” for more information, including a reconciliation of these non-GAAP financial measures to the most directly comparable historical measures determined under GAAP.

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PART I — FINANCIAL INFORMATION

Overview

MMA Capital Holdings, Inc. focuses on infrastructure-related investments that generate positive environmental and social impacts and deliver attractive risk-adjusted total returns to our shareholders, with an emphasis on debt associated with renewable energy projects. Unless the context otherwise requires, and when used in this Report, the “Company,” “MMA,” “we,” “our” or “us” refers to MMA Capital Holdings, Inc. and its subsidiaries. We were originally organized as a Delaware limited liability company in 1996, converted to a Delaware corporation on January 1, 2019, and are externally managed by Hunt Investment Management, LLC (our “External Manager”), an affiliate of Hunt Companies, Inc. (Hunt Companies, Inc. and its affiliates are hereinafter referred to as “Hunt”).

Our current objective is to produce attractive risk-adjusted returns by investing in the large, growing and fragmented renewable energy market in the United States (“U.S.”). We believe that we are well positioned to take advantage of these and other investment opportunities because of our External Manager’s origination network built off of extensive relationships and credit expertise gathered through years of experience. We also seek to increase the Company’s return on equity by prudently deploying debt and recycling equity out of lower yielding investments that are unrelated to renewable energy and other infrastructure-related projects.

In addition to renewable energy investments, we continue to own a limited number of bond investments and real estate-related investments, and we continue to have subordinated debt with beneficial economic terms. Further, we have significant net operating loss carryforwards (“NOLs”) that may be used to offset future federal income tax obligations, a portion of which were reported as deferred tax assets (“DTAs”) in our Consolidated Balance Sheets at June 30, 2021, and December 31, 2020.

We operate as a single reporting segment.

Merger and Termination Agreements

On May 24, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with FP Acquisition Parent, LLC, a Delaware limited liability company (“Parent”), and FP Acquisition Merger Sub, LLC, a Delaware limited liability company, and a wholly owned subsidiary of Parent (“Merger Sub”). Parent is wholly owned by its two members, Fundamental Partners III, LP and Fundamental Partners IV, LP., which are investment funds affiliated with Fundamental Advisors, LP. Concurrently with the entry into the Merger Agreement, the Company entered into a Termination Agreement (the “Termination Agreement”) with the External Manager. The discussion that follows provides an abridged summary of the Merger Agreement and Termination Agreement and is qualified in its entirety by the full text of such agreements, which are attached as exhibits to a Form 8-K that the Company filed with the SEC on May 24, 2021, and incorporated by reference in this Report.

Merger Agreement

Under the terms of the Merger Agreement, and subject to the terms and conditions thereof, the Company will merge with and into Merger Sub (the “Merger”), with Merger Sub as the surviving entity and a wholly owned subsidiary of the Parent. At the effective time of the Merger (the “Effective Time”), Merger Sub will change its name to MMA Capital Holdings, LLC and each share of common stock of MMA (“Company Common Stock”) then outstanding will be converted into the right to receive $27.77 in cash, without interest (the “Merger Consideration”), other than (i) those shares owned by Parent or any subsidiary of Parent or the Company (which will be cancelled without any consideration) and (ii) any shares as to which appraisal rights have been perfected (and not withdrawn or lost) in accordance with the Delaware General Corporation Law (“DGCL”), which shares will be cancelled and converted into the right to receive a payment determined in accordance with the appraisal rights procedures of the DGCL.

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amended (the “HSR Act”), of which the waiting period expired at midnight on July 19, 2021, (iii) the absence of a “Material Adverse Effect” (as defined in the Merger Agreement) with respect to MMA, and (iv) the consummation of the transactions described in the Termination Agreement and in a certain Assignment and Assumption Agreement also dated May 24, 2021, by and between the External Manager and Parent (the “Assignment Agreement”).

Termination Agreement

The Company is externally managed by the External Manager pursuant to a Management Agreement dated January 8, 2018 (as amended, the “Management Agreement”). The Management Agreement provides, among other things, that the Company must pay the External Manager a termination fee if the Company desires to terminate the Management Agreement other than for cause. Parent requires as a condition of the Merger that the Company terminate the Management Agreement immediately prior to the Effective Time. The External Manager has agreed to terminate the Management Agreement upon payment of the termination fee in order to allow the Merger to proceed. The termination fee shall be comprised of (i) an amount in cash equal to $16.5 million and (ii) the assignment by the Company to the External Manager of the Company’s South African assets, which were agreed to by the parties to have a value of $3.9 million.

Special Meeting of the Company’s Shareholders

A special meeting of the shareholders of the Company will be held at 9:00 a.m. on August 10, 2021. At the special meeting, holders of the Company’s common stock entitled to vote at the meeting will be asked to consider and vote upon:

●

a proposal to adopt the Merger Agreement, pursuant to which, subject to the terms and conditions of the Merger Agreement, the Company will merge with and into Merger Sub, with Merger Sub continuing as the surviving entity and a wholly owned subsidiary of Parent (the “Merger Proposal”); and

●

a proposal to approve one or more adjournments of the special meeting to a later date or dates, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting or any adjournment or postponement of the special meeting to approve the Merger Proposal (the “Adjournment Proposal”).

The Company’s board of directors (the “Board”), after considering the factors more fully described in the definitive proxy statement that was filed with the SEC on July 13, 2021, has approved the Merger Agreement and the transactions contemplated thereby, including the Merger, upon the terms and conditions set forth in the Merger Agreement, and determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, advisable and in the best interests of, the Company and its shareholders. The Board recommends that shareholders vote “FOR” the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated by the Merger Agreement and further recommends that shareholders vote “FOR” the Adjournment Proposal.

COVID-19 and Related Business Impacts

General

In many countries, including the U.S., the outbreak of COVID-19 and the actions taken in response have adversely impacted overall economic activity and contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak continues to evolve as many countries, including the U.S., continue to institute or modify quarantines, business closures and operating restrictions, governmental agency closures and restrictions on travel and group gatherings to contain COVID-19.

The impact of COVID-19 on our operational and financial performance has been modest to date but the long-term impact will depend on future developments, including the duration, spread, intensity and variability of COVID-19, the availability and acceptance of effective vaccines and other measures taken to control it, all of which remain uncertain and difficult to predict. While we are not able to estimate the long-term effects of these factors on our business at this time, the adverse impact on our business, results of operations, financial condition and cash flows could be material. Refer to Part I, Item

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1A. “Risk Factors” of our 2020 Annual Report for additional information about risks to our business that are posed by COVID-19.

Business Operations

We are managed by our External Manager. We also rely upon other third-party vendors to conduct business operations, including vendors that provide information technology services, legal and accounting services or other support services.

As of June 30, 2021, there were no disruptions to the services provided by the External Manager and support provided by other third parties in connection with our business operations.

Renewable Energy Investments

As of June 30, 2021, the construction and development of most of the renewable energy projects that have been financed through loans made by the Solar Ventures (as defined below) were not significantly impacted by the COVID-19 pandemic as the development and construction of these projects qualified as critical infrastructure or essential services. Furthermore, projects that were financed by loans made by the Solar Ventures did not experience any significant supply chain issues or construction delays during the three months and six months ended June 30, 2021. Lastly, origination activity at the Solar Ventures was not meaningfully impacted by COVID-19 during the three months and six months ended June 30, 2021.

As further discussed below, certain components of the national and some local renewable energy finance markets have been, and may further be, affected by changing market dynamics, resulting in supply and demand imbalances. These market dynamics have negatively impacted the performance of certain loans made by the Solar Ventures.

All loans made by the Solar Ventures are reported at fair value based upon the net present value of such instruments, which was estimated by applying discount factors that reflect market yields for similar credit risks to future contractual payments associated with such loans. The anticipated timing of near-term redemptions and underlying project values are also considered in such fair value measurements. The total fair value of loans outstanding at June 30, 2021, was 95.9% of their total unpaid principal balance (“UPB”) at such reporting date.

Other Investments and Hedging Instruments

We continue to monitor the economic impact of the COVID-19 pandemic on the performance of our other investments and underlying real estate values. We did not recognize any impairment charges in connection with our other investments during the three and six months ended June 30, 2021.

Hedging instruments used by the Company to manage interest rate and foreign currency risks have performed in accordance with the contractual terms.

DTAs

While COVID-19 caused a sharp deterioration in macro-economic conditions, the potential amount and permanence of long-term impacts of those conditions on the Company’s business continues to be uncertain. Given such uncertainty and other factors that are further discussed below that concern the Company’s exposure to loans made by the Solar Ventures to renewable energy projects that are located in the Electric Reliability Council of Texas (“ERCOT”) service area, we believe it is reasonably possible that, if the Merger were to fail to close, within the next 12 months, a reduction to the net carrying value of DTAs that is material to the Company’s financial statements could be recognized. However, whether we recognize such a loss, and the exact timing and amount of loss recognition depends upon future circumstances and, therefore, cannot be predicted at this time.

Liquidity and Capital Resources

During the three and six months ended June 30, 2021, COVID-19 has not prevented us from operating our business and making investments. However, we continue to have limited liquidity and rely on our capital partner, an affiliate of FP

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Acquisition Parent, LLC, for disproportionate funding contributions in connection with certain of our renewable energy investments. Our capital partner has continued to show a willingness to increase its commitment to the Solar Ventures, but we continue to consider our funding risk when assessing our liquidity and capital resources.

On February 24, 2021, a prospective purchaser filed a special litigation lien, known as a Lis Pendens, on the entire 150-acre property of our direct investment in real estate. The Company intends to vigorously defend against these claims and pursue available remedies. The Company has filed its own slander of title lawsuit against the prospective purchaser for wrongly filing the Lis Pendens on the entire 150-acre property rather than the 26-acres in dispute. Although the Company has filed motions to dismiss the lawsuit and the Lis Pendens, unless and until dismissed, the Lis Pendens constitutes a default under the Company’s financing of this property. The Company has been in communication with the lender and does not expect the lender to take any action in respect of the default in light of the lender’s first lien position but can provide no assurance that the lender will not take any action. At June 30, 2021, the UPB of this note payable was $9.7 million. Refer to Notes to Consolidated Financial Statements - Note 9, “Commitments and Contingencies,” for more information. At June 30, 2021, the Company was in compliance with all other covenants under its debt arrangements.

Renewable Energy Investments

We invest in loans that finance renewable energy projects to enable developers, design and build contractors and system owners to develop, build and operate renewable energy systems throughout the U.S. Renewable energy debt in which we invest is primarily structured as senior secured fixed rate loans that are made through joint ventures or directly on our balance sheet. We generally target loans that are short-term in nature, and that are typically made to borrowers when they are in the late stages of development or in construction of their commercial, utility or community solar scale photovoltaic (“PV”) facilities, but we may also make longer duration loans to these borrowers to finance completed facilities. These facilities are located across different states and benefit from various state and federal regulatory programs. The short duration of loans in which we have typically invested help us to manage interest rate risk, mitigate long-term risks such as credit exposure to off-take counterparties and provides us flexibility to target investments. However, there have been and there may in the future be opportunities to originate longer-dated investments that would potentially provide greater insight into our future earnings.

We generally invest in renewable energy investments through the following joint ventures: Solar Construction Lending, LLC (“SCL”); Solar Permanent Lending, LLC (“SPL”); and Solar Development Lending, LLC (“SDL”), these joint ventures are hereinafter collectively referred to as the “Solar Ventures.” We are a 50% investor member in the Solar Ventures, although we may periodically have a minority economic interest as a result of non-pro rata capital contributions made by our capital partner pursuant to non-pro rata funding agreements between our capital partner and us. Such non-pro rata funding agreements are generally executed in instances when the Company does not have sufficient liquidity at the time of a capital call. Distributions from the Solar Ventures generally are made in proportion to the members’ respective economic interests but may be made disproportionately to our capital partner, when our capital partner has made non-pro rata capital contributions, until such time that the amount of equity invested by the Company and its capital partner have come back into equal balance.

Investment Interests and Related Carrying Values

At June 30, 2021, through MMA Energy Holdings, LLC (“MEH” or “Borrower”), a wholly owned subsidiary of the Company, we held a minority economic interest of 33.5%, 45.0% and 34.7% in SCL, SPL and SDL, respectively, which represented a weighted-average economic interest of 36.6% in such ventures. At December 31, 2020, the Company held 45.2%, 45.0% and 42.3% economic interests in SCL, SPL and SDL, respectively. The Company is the sole member in Renewable Energy Lending, LLC (“REL”). The carrying value and income-related information related to investments that we have made in, or related to, the Solar Ventures are further discussed below.

During the period from June 30, 2021, through August 2, 2021, the Company and its capital partner in SCL and SDL funded various non-pro rata capital contributions, whereby our capital partner contributed $20.0 million of $30.0 million in SCL capital calls, while the Company contributed the balance of these capital calls, or $10.0 million. Additionally, our capital partner contributed the full $63.4 million in SDL capital calls, while the Company received the full $10.0 million of distributions from SDL. As a consequence of these non-pro rata capital contributions and distributions, at August 2,

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2021, our economic interest in SDL decreased to 29.7%. There was no change in our economic interest in SCL and SPL during the period from June 30, 2021, through August 2, 2021. The aforementioned non-pro rata capital contributions and distributions made during such period resulted in an overall weighted-average investment in the Solar Ventures of 33.6% at August 2, 2021.

Table 1 provides financial information about the carrying value of the Company’s renewable energy investments at June 30, 2021, and December 31, 2020.

Table 1: Carrying Values of the Company’s Renewable Energy Investments



	At		At
	June 30,		December 31,
(in thousands)	2021		2020
Equity investments in the Solar Ventures	$	340,847	$	363,157

The carrying value of the Company’s equity investments in the Solar Ventures decreased $22.3 million during the six months ended June 30, 2021, as a result of $14.3 million of net distributions and $8.0 million of equity in losses from the Solar Ventures that was recognized for such reporting period. Returns on equity investments in the Solar Ventures are further discussed below.

Lending Activities of the Solar Ventures - General

The Solar Ventures typically lend on a senior secured basis collateralized by solar projects, but may also invest in subordinated loans, mezzanine loans and revolving loans and may finance non-solar renewable technologies such as wind and battery storage or provide equipment financing and other customized debt solutions for borrowers. The Solar Ventures have historically targeted loans that are underwritten to generate internal rates of return (“IRR”) ranging from 10% to 15%, before expenses, with origination fees that range from 1.0% to 3.0% on committed capital and fixed-rate coupons that range from 7.0% to 14.0%. These loans typically range in size from $2 million to over $50 million and may exceed $100 million for utility scale projects.

Since their inception in 2015, the Solar Ventures have invested in more than 220 project-based loans that total $3.9 billion of debt commitments for the development and construction of over 815 renewable energy project sites. When completed, these projects are expected to contribute to the generation of over 9.6 gigawatts of renewable energy, thereby eliminating approximately 274.9 million metric tons of carbon emissions over their project lives. The Solar Ventures closed $300.6 million of commitments across 12 loans during the three months ended June 30, 2021, as compared to $247.5 million across 12 loans during the three months ended June 30, 2020.

At June 30, 2021, loans funded through the Solar Ventures had an aggregate UPB of $926.0 million and fair value (“FV”) of $888.5 million, a weighted-average remaining maturity of 15 months and a weighted-average coupon of 12.6%. At June 30, 2021, 52.1% of the total UPB of outstanding loans of the Solar Ventures were associated with a single sponsor and were secured by two renewable energy projects located in the ERCOT service area. Refer to “Lending Activities of the Solar Ventures – ERCOT Exposures,” for more information about loans made by the Solar Ventures to the ERCOT service area.

Table 2 provides financial information about the composition of the Solar Ventures’ loan portfolio at June 30, 2021, and December 31, 2020.

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Table 2: Composition of the Solar Venture’s Loan Portfolio


	At		At
	June 30,		December 31,
(in thousands)	2021		2020
Late-stage development ⁽¹⁾	$	485,901	$	375,390
Construction		183,813		114,013
Permanent		227,600		179,830
Other loans associated with renewable energy		28,648		31,921
Total UPB	$	925,962	$	701,154

(1)

At June 30, 2021, $250.1 million of UPB related to ERCOT Project 3. Although this loan is past its maturity date, the Solar Ventures continued to make incremental advances on the loan during the first six months of 2021 to fund the project’s construction activities to keep it on schedule to meet its target mechanical completion date in 2021.

At June 30, 2021, the Solar Ventures had $373.9 million of unfunded loan commitments that required borrowers to meet various conditions set forth in governing loan agreements in order for funding to occur. Based upon our 50% interest in these ventures, and various non-pro rata capital contribution agreements, the Company is obligated for up to $62.9 million of such commitments. Unfunded loan commitments that qualify for funding are anticipated to be funded primarily by capital within the Solar Ventures through a combination of existing loan redemptions and uninvested capital. Uninvested capital or capital shortfalls may arise due to the difficulty of aligning the timing of loan repayments with funding obligations on a dollar-for-dollar basis. To the extent capital within the Solar Ventures is not sufficient to meet their funding obligations, additional capital contributions by the members of the Solar Ventures is required.

Certain components of the national and some local renewable energy finance markets, such as the ERCOT service area, have been and may further be affected by changing market dynamics, resulting in supply and demand imbalances. These market dynamics may materially and negatively impact the Solar Ventures’ loan portfolio in a variety of ways, including, but not limited to, the availability and pricing of tax equity and the deterioration of underlying project value if the price of electricity falls due to competition or waning demand and a project has merchant exposure to variable market prices. Furthermore, energy generated by renewable energy projects is dependent upon suitable weather conditions and should unfavorable weather conditions be sustained or particularly severe, there may be significant supply and demand imbalances, or power production deficiencies, either of which could cause a significant increase in the price of power and a decrease in the availability of power, which may also cause merchant exposure to variable market prices to the extent power production agreements are not met. This could further impact the availability and pricing of tax equity or permanent take-out financing and result in a deterioration of the underlying project value. The Solar Ventures’ concentration in the ERCOT service area could further impact when invested capital is repaid and re-invested.

The repayment of the Solar Venture loans, or their “take-out,” is dependent upon the refinancing of the loans made by the Solar Ventures or the sale of the underlying renewable energy project to third parties, both of which typically require some combination of tax credit equity, sponsor equity and construction or term debt financing. The Solar Ventures may themselves participate in the take-out of such loans by providing financing, including long-term mezzanine financing or other credit enhancements. Additionally, the Solar Ventures may increase the size of funding commitments or extend the contractual maturity of loan receivables as necessary to preserve the value of loan investments made. Given the macro-economic conditions, uncertainty in the financial markets and our dependence on a functioning renewable energy finance market, we continue to closely monitor loan performance and expected sources of repayment.

At June 30, 2021, the Solar Ventures had three loans on nonaccrual status that had a combined UPB of $482.8 million, all of which funded projects located within the ERCOT service area and were associated with one sponsor (such projects are hereinafter referred to as the (“ERCOT Projects”), which are further discussed below. At June 30, 2021, all but one of the ERCOT Projects that was financed by two loans from the Solar Ventures had usual and customary take-out commitments in place as generally required under the Solar Ventures’ development and construction loan agreements.

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Lending Activities of the Solar Ventures – ERCOT Exposures

The Solar Ventures have provided financing to three ERCOT Projects:

●

SPL provided a $177.5 million mezzanine level sponsor equity loan to a 344 megawatts of direct current (“MWdc”) renewable energy project in the ERCOT west zone (“ERCOT Project 1”), which began operations in December 2020. This loan, which is senior to the sponsor’s equity but subordinate to tax-equity and back-leveraged permanent debt provided by a third-party, has a stated interest rate of 12.0% and contractual maturity date of December 4, 2024. The Solar Ventures provided certain guarantees of indemnity and project sponsor performance obligations to third parties in connection with the December 2020 recapitalization of this project. This loan is categorized above as a permanent loan in Table 2, “Composition of the Solar Venture’s Loan Portfolio.”

●

The Solar Ventures provided a $50.5 million late-stage development loan in the third quarter of 2019 and mezzanine financing in January 2020 to a 176MWdc renewable energy project located in the ERCOT south zone (“ERCOT Project 2”). On April 23, 2021, ERCOT Project 2 was sold to a third-party and recapitalized. The mezzanine loan was repaid and the Solar Ventures committed to provide a $105.0 million construction loan of which $37.0 million was funded at the time of recapitalization.

●

The Solar Ventures provided a $66.0 million late-stage development loan in the first quarter of 2019, which was upsized to $181.1 million in October 2020 as the project moved into construction, and mezzanine financing in January 2020 to a 258MWdc renewable energy project located adjacent to ERCOT Project 1 in the ERCOT west zone (“ERCOT Project 3”).

On January 12, 2021, a notice of default was issued by SDL in connection with the development loan that was made to ERCOT Project 3 because the loan was past its maturity date with no take-out commitment in place. In turn, this default caused an event of cross default associated with all mezzanine-based financing that was made to ERCOT Projects 2 and 3. During the first six months of 2021, $89.8 million of additional advances were made in connection with this loan, above its maximum loan commitment, to continue to fund the project’s construction activities and keep it on schedule to meet its target mechanical completion date in 2021.

During the second and third weeks of February 2021, a severe winter storm occurred in the southern and midwestern states in the U.S., including the ERCOT service area, that impaired the operational capabilities of numerous fossil fuel and renewable energy generating assets in the region. Extreme cold temperatures also caused the demand for electricity to surge to unprecedented levels, driving the market price of power to the maximum price permitted by ERCOT for multiple days. Weather conditions during this timeframe caused ERCOT Project 1 to be unable to meet its energy delivery requirements to its counterparty pursuant to various energy supply and pricing agreements. As a result, ERCOT Project 1 became obligated to purchase, at market prices in effect during that time, an amount of power equal to the shortfall in the electricity volumes that it was contractually obligated to deliver. The party which manages ERCOT energy deliveries and payments on behalf of ERCOT Project 1 under its supply agreements thereafter provided notification on March 10, 2021, that the net settlement cost associated with the power delivery shortfall during that period totaled $25.5 million (the “ERCOT Shortfall”). The project pledged $3.0 million of cash; however, given the liquidity constraints of the project and the sponsor member, the project owner was unable to meet the balance of the ERCOT Shortfall. At June 30, 2021, this loan was not borrowing base-eligible for our revolving credit facility.

On February 24, 2021, our economic interest in loans related to the ERCOT Projects, all of which were at that time owned by a single sponsor, became 45.0% and is expected to remain as such, based upon a non-pro rata capital contribution agreement executed with our capital partner.

On March 2, 2021, SDL and SCL executed loan amendments and other agreements in connection with financing provided to ERCOT Project 2 in order to facilitate the take-out of a development loan provided by SDL and a portion of a mezzanine loan provided by SCL that was allocated to ERCOT Project 2. To mitigate risk and reduce exposure to this project, SDL and SCL agreed to waive all interest and fees associated with SDL’s development loan and the allocated portion of SCL’s mezzanine loan. These loans were not borrowing base-eligible for our revolving credit facility.

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On April 1, 2021, the sponsor equity loan agreement made to ERCOT Project 1 was amended to increase the maximum loan amount to enable the project to satisfy the balance of the ERCOT Shortfall of $22.5 million and to make a $7.4 million payment to the third-party term debt provider that was required in connection with the final closing of the recapitalization of ERCOT Project 1 upon substantial completion of the project.

On April 23, 2021, ERCOT Project 2 was sold to a third-party and recapitalized, which was completed through both $84.7 million of sponsor equity that was committed by the third-party purchaser of the project and a $105.0 million construction loan that was provided by SCL. At June 30, 2021, $82.0 million of the sponsor’s committed equity and $44.9 million of SCL’s construction loan were funded, which repaid the prior development loan provided by SDL and the allocated portion of SCL’s mezzanine loan. The construction loan made by SCL has a first position lien on the project, has a stated interest rate of 5.0% and matures on December 31, 2021, with repayment due upon ERCOT Project 2 reaching substantial completion. Upon substantial completion of this project and the fulfillment of tax-equity funding, which is expected by December 31, 2021, we expect SCL’s construction loan will be repaid and SPL will make a $32.6 million permanent loan that will be senior to the sponsor’s equity and subordinate to tax-equity. SPL’s permanent loan will bear interest at 5.0% and will partially amortize over its four-year term. Additionally, SCL’s new construction loan and SPL’s future permanent loan are expected to be borrowing base-eligible for the revolving credit facility. The sale of ERCOT Project 2 and its recapitalization have significantly reduced the Solar Ventures’ exposure to ERCOT Project 2, to the original sponsor of the ERCOT projects and to the ERCOT service area, more broadly.

Table 3 provides a summary at June 30, 2021, of the UPBs and fair values of loans made to the ERCOT Projects.

Table 3: Summary of the UPBs and Fair Values of Loans Made to the ERCOT Projects


	At June 30, 2021				At December 31, 2020
(in thousands)	UPB		Fair Value		UPB		Fair Value
Loans Made to ERCOT Project 1	$	222,223	$	193,385	$	177,474	$	178,934
Loans Made to ERCOT Project 2		44,936		44,936		44,654		43,606
Loans Made to ERCOT Project 3 ⁽¹⁾		260,536		251,831		169,600		170,638
Total	$	527,695	$	490,152	$	391,728	$	393,178

(1)	At June 30, 2021, the UPB and fair value of the late-stage development loan made to ERCOT Project 3 were $250.1 million and $251.8 million, respectively. The balance of amounts reported are attributable to mezzanine financing that was provided to ERCOT Project 3.

During the three and six months ended June 30, 2021, the Solar Ventures recognized net fair value losses of $4.7 million and $36.5 million, respectively, related to loans made to the ERCOT Projects (the “MTM Impact”), while $17.7 million and $33.6 million, respectively, of interest income was not recognized by the Solar Ventures during such reporting periods related to such loans given their nonaccrual status (the “Nonaccrual Impact”). Table 4 attributes the Company’s share of such items to loans made to each of the ERCOT Projects.

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Table 4: The Company’s Share of Net Fair Value Losses and Nonaccrual Interest Income Related to Loans Made to the ERCOT Projects


	For the three months ended						For the six months ended
	June 30, 2021						June 30, 2021
(in thousands, except per share data)	Fair Value Adjustments		Interest Income Not Recognized		Project Total		Fair Value Adjustments		Interest Income Not Recognized		Project Total
Loans Made to ERCOT Project 1	$	(495)	$	(2,887)	$	(3,382)	$	(8,718)	$	(5,253)	$	(13,971)
Loans Made to ERCOT Project 2 ⁽¹⁾		91		(278)		(187)		(3,617)		(1,081)		(4,698)
Loans Made to ERCOT Project 3		(1,698)		(4,789)		(6,487)		(3,917)		(8,635)		(12,552)
Total	$	(2,102)	$	(7,954)	$	(10,056)	$	(16,252)	$	(14,969)	$	(31,221)

Total per share based on common shares outstanding at June 30, 2021	$	(0.36)	$	(1.37)	$	(1.73)	$	(2.79)	$	(2.57)	$	(5.36)

(1)Amounts for the three and six months ended June 30,2021, occurred prior to the sale and recapitalization.

In comparison, during the three months ended June 30, 2020, the MTM Impact was a net fair value gain of $7.0 million and the Company’s share of such amount was $3.0 million. No MTM Impact was recognized for the first six months of 2020.

While MTM and Nonaccrual Impacts reduced the amount of equity in income of the Solar Ventures recognized by the Company during the first and second quarters of 2021, only MTM Impacts contributed towards a decrease in the carrying value of the Company’s Renewable Energy Investments during such reporting periods since such adjustments reduced the carrying value of assets of the Solar Ventures. However, Nonaccrual Impacts, which caused only the non-recognition of loan-related interest income, did not have the same effect or result in the reduction of the carrying value of loan investments of the Solar Ventures during such reporting periods. Refer to “Returns on Renewable Energy Investments” for more information about equity in income of the Solar Ventures recognized by the Company in 2021 and 2020.

The ERCOT market remains volatile and uncertain primarily stemming from the February 2021 weather event and resulting energy crisis. There is litigation among various participants and potential legislative reform is being considered, all of which remain uncertain. Consequently, while fair value measurements at June 30, 2021, of loans made to ERCOT Projects reflect management’s best estimate of loan-related returns and value, it is possible that within the next 12 months, additional losses related to outstanding loans made to the ERCOT Projects could be recognized by the Solar Ventures that, based on the Company’s share thereof, could be material to the Company’s financial statements. However, whether we recognize such losses, and the exact timing and amount of loss recognition depends upon future circumstances and, therefore, cannot be predicted at this time.

Returns on Renewable Energy Investments

The Company applies the equity method of accounting to its equity investments in the Solar Ventures, which are not consolidated by the Company for reporting purposes. Accordingly, the Company recognizes its allocable share of the Solar Ventures’ net income based on the Company’s weighted-average economic interest during each reporting period.

Table 5 summarizes income recognized by the Company in connection with our renewable energy investments for the periods presented.

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Table 5: Income Recognized from Renewable Energy Investments


	For the three months ended						For the six months ended
	June 30,						June 30,
(in thousands)	2021		2020			Change	2021		2020			Change
Equity in income (losses) from the Solar Ventures	$	1,885	$	13,728	$	(11,843)	$	(8,040)	$	18,270	$	(26,310)
Interest income		—		26		(26)		—		45		(45)
Net gains on loans		—		20		(20)		—		11		(11)
Total investment income (losses)	$	1,885	$	13,774		(11,889)	$	(8,040)	$	18,326	$	(26,366)

The Company generated an unlevered net return on investment from our renewable energy investments, as measured on a twelve-month trailing basis, of 3.8% and 11.8% for the periods ended June 30, 2021, and June 30, 2020, respectively. These returns were measured on a trailing four quarter basis at each reporting period by dividing total income from renewable energy investments by the average carrying value of renewable energy investments.

The Company generated a leveraged net return on investment from our renewable energy investments, as measured on a twelve-month trailing basis, of 3.5% and 13.9% for the periods ended June 30, 2021, and June 30, 2020, respectively. These returns were measured on a trailing four quarter basis at each reporting period by dividing net income from renewable energy investments less the cost of funding associated with the Company’s revolving credit facility (as further described below in “Leveraging our Renewable Energy Investments”) by a net average value that incorporates the carrying value of renewable energy investments, the UPB of our funding from the revolving credit facility and restricted cash associated with our credit facility (where the UPB of attributed funding partially reduces the other two components in such net value).

Refer to the comparative discussion of our Consolidated Results of Operations for more information about income that was recognized in connection with the Company’s renewable energy investments.

Loan Portfolio Redemptions and Returns at the Solar Ventures

Through June 30, 2021, $2.5 billion of commitments across 172 project-based loans made by the Solar Ventures had been repaid, resulting in a weighted-average IRR (“WAIRR”) to the Solar Ventures of 18.9% that was on average higher than originally underwritten loan IRRs. During the three months ended June 30, 2021, eight loans totaling $135.1 million of commitments were repaid, resulting in a WAIRR of 7.7% to the Solar Ventures. WAIRR is measured as the total return in dollars of all repaid loans divided by the total commitment amount associated with such loans, where (i) the total return for each repaid loan was calculated as the product of each loan’s IRR and its commitment amount and (ii) IRR for each repaid loan was established by solving for a discount rate that made the net present value of all loan cash flows equal zero. WAIRR at the Solar Ventures has been higher than the net return on the Company's investments in the Solar Ventures because it is a measure of gross returns earned by the Solar Ventures on repaid loans and does not include the impact of certain items, including: (i) operating expenses of the Solar Ventures; (ii) the amortization of the purchase premium paid by the Company in the second quarter of 2018 to buy out our former investment partner’s interest in REL; and (iii) the opportunity cost of uninvested capital.

Leveraging our Renewable Energy Investments

On September 19, 2019, MEH, entered into a $125.0 million (the “Facility Amount”) revolving credit agreement with various lenders. During the first quarter of 2020, the maximum Facility Amount was increased to $175.0 million and the committed amount of the revolving credit facility increased from $100.0 million to $120.0 million upon the joinder of an additional lender and an increase in commitment by one of the existing lenders.

Obligations associated with the revolving credit facility are guaranteed by the Company and are secured by specified assets of the Borrower and a pledge of all of the Company’s equity interest in the Borrower through pledge and security documentation. Availability and amounts advanced under the revolving credit facility, which may be used for various

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business purposes, are subject to compliance with a borrowing base comprised of assets that comply with certain eligibility criteria, and includes late-stage development, construction and permanent loans to finance renewable energy projects and cash.

Borrowing on the revolving credit facility bears interest at the one-month London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements (subject to a 1.5% floor), plus a fixed spread of 2.75% per annum. The Borrower also has agreed to pay certain customary fees and expenses and to provide certain indemnities. In certain circumstances where the interest rate is unable to be determined, including in the likely event LIBOR ceases to be published, the administrative agent to the credit agreement will select a new rate in its reasonable judgment, including any adjustment to the replacement rate to reflect a different credit spread. The maturity date of the credit agreement is September 19, 2022, subject to a 12-month extension solely to allow refinancing or orderly repayment of the facility.

The UPB and carrying value of amounts borrowed under the revolving credit facility was $79.1 million and $103.7 million at June 30, 2021, and December 31, 2020, respectively. During the six months ended June 30, 2021, the Company paid down the amounts drawn on the revolving credit facility to remain in compliance with the borrowing base eligibility criteria of the facility due to increased lending on the ERCOT loans, which were ineligible for the facility during such reporting period. The Company recognized $1.2 million and $2.6 million of related interest expense in the Consolidated Statements of Operations during the three and six months ended June 30, 2021, respectively. In comparison, $1.6 million and $2.9 million of related interest expense was recognized during the three and six months ended June 30, 2020, respectively.

The liquidity accessed by the Company through the revolving credit facility since its inception has increased the amount of capital invested in the Solar Ventures. Not all of the loans made by the Solar Ventures are eligible for financing under our revolving credit facility.

Deferred Tax Assets

Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. DTAs are recognized if we assess that it is more likely than not that tax benefits, including NOLs and other tax attributes, will be realized prior to their expiration.

At June 30, 2021, the reported carrying value of the Company’s net DTA was $63.8 million, which increased $4.7 million during the first six months of 2021 primarily due to the tax impact associated with the recognition of net loss before taxes during such reporting period. A valuation allowance was also maintained at such reporting date against the portion of our DTAs that correspond to federal and state NOL carryforwards that, based upon our forecast of pretax book income at June 30, 2021, we expect will expire prior to their utilization.

Investment in Bonds

The Company has one tax-exempt municipal bond that financed the development of infrastructure for a mixed-use town center development located in Spanish Fort, Alabama that is owned by a joint venture (the “SF Venture”) in which we also maintain an equity investment (our bond investment is hereinafter referred to the “Infrastructure Bond”.) The Infrastructure Bond is secured by incremental tax revenues generated from the SF Venture’s development. At June 30, 2021, this Infrastructure Bond had a stated fixed interest rate of 6.3% and had a UPB and fair value of $26.2 million and $24.7 million, respectively. During the second quarter of 2020, a financing transaction was executed that involved the sale of this bond investment to a third-party with which the Company contemporaneously-executed a total return swap (“TRS”) agreement that referenced such bond investment. Given the economic interest retained in such bond investment through the TRS agreement, the Company reported the conveyance of such investment as a secured borrowing and, therefore, continued to recognize the Infrastructure Bond on the Company’s Consolidated Balance Sheets.

On May 3, 2021, the Company sold its tax-exempt multifamily bond for 102% of its UPB, or $4.1 million.

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Real Estate-Related Investments

At June 30, 2021, we maintained an 80% ownership interest in the SF Venture whose carrying value was $11.7 million. While we did not recognize any impairment charges in connection with this investment during the first six months of 2021, we believe it is reasonably possible, if the Merger does not close, that we may be required to recognize one or more material impairment charges over the next 12 months, particularly if underlying economic conditions deteriorate. However, because any such impairment charge will be based on future circumstances, we cannot predict at this time whether we will be required to recognize any further impairment charges and, if required, the timing or amount of any impairment charge.

We also owned one direct investment in real estate consisting of a parcel of land that is currently in the process of development. This real estate is located just outside the city of Winchester in Frederick County, Virginia. At June 30, 2021, the carrying value of this investment was $15.6 million.

At June 30, 2021, the Company maintained an 11.85% ownership interest in the South Africa Workforce Housing Fund (“SAWHF”). SAWHF is a multi-investor fund that matured in April 2020. However, the fund does not anticipate fully exiting all its remaining investments until December 31, 2022. The Company also owns 7.2 million common shares of a residential real estate investment trust (“REIT”) that is listed on the Main Board of the Johannesburg Stock Exchange. These REIT shares, which trade under the trading symbol “TPF,” are reported at their fair value and are denominated in South African rand. The carrying values of the Company’s equity investments in SAWHF and the REIT were $1.5 million and $2.3 million, respectively, at June 30, 2021.

The carrying value of our real estate related investments are not necessarily indicative of the price we would receive upon a sale of those assets which would be affected, possibly materially, by the then current macroeconomic and microeconomic market conditions, including the matters described in Part I, Item 1A. “Risk Factors” of our 2020 Annual Report.

Other Debt Obligations

At June 30, 2021, the Company had other debt obligations that included subordinated debt, notes payable and other debt used to finance certain non-interest bearing investments and asset related debt that was used to finance interest bearing investments. The carrying value and weighted-average yield of the Company’s other debt obligations was $133.0 million and 2.5%, respectively, at June 30, 2021. Refer to Table 11, “Debt,” for more information.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SUMMARY OF FINANCIAL PERFORMANCE

Net Worth

Common shareholders’ equity (“Book Value”) decreased $2.8 million during the three months ended June 30, 2021, to $277.4 million. This decline was driven by $2.8 million of comprehensive loss.

Book Value per share decreased $0.48, or 1.0%, during the three months ended June 30, 2021, to $47.64.

Book Value adjusted to exclude the carrying value of our net DTAs (“Adjusted Book Value”) decreased $3.8 million during the three months ended June 30, 2021, to $213.6 million. This change was driven by $4.0 million of other comprehensive losses, before income tax benefit, partially offset by $0.2 million of “Net income (loss) before income taxes.”

Adjusted Book Value per share decreased $0.66, or 1.8%, during the three months ended June 30, 2021, to $36.68.

Refer to “Use of Non-GAAP Measures” for more information regarding the reconciliation of Adjusted Book Value and Adjusted Book Value per share to our most comparable GAAP measures.

Comprehensive Loss

We recognized comprehensive losses of $2.8 million during the three months ended June 30, 2021, which consisted of $0.1 million of net income and $2.9 million of other comprehensive loss. In comparison, we recognized $3.3 million of comprehensive loss for the three months ended June 30, 2020, which consisted of $3.5 million of net loss and $0.2 million of other comprehensive income.

The $0.1 million of net income recognized during the three months ended June 30, 2021, was primarily driven by the sale of the Company’s multifamily tax-exempt bond and equity in income of the Solar Ventures. Refer to “Consolidated Results of Operations,” for more information.

Net income before income taxes for the three months ended June 30, 2021, was $0.2 million, or $0.03 per share, as compared to $1.5 million of net loss, or $(0.27) per share, for the three months ended June 30, 2020.

Other comprehensive loss of $2.9 million that we reported for the three months ended June 30, 2021, was primarily attributable to the realization of fair value gains stemming from the sale of our tax-exempt multifamily bond investment during such reporting period. The resulting decline in accumulated other comprehensive income (“AOCI”) was partially offset by the impact of an income tax benefit that was recognized during such reporting period in connection with our bond investments.

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CONSOLIDATED BALANCE SHEET ANALYSIS

This section provides an overview of changes in our assets, liabilities and equity and should be read together with our consolidated financial statements, including the accompanying notes to the financial statements.

Table 6 provides Consolidated Balance Sheets for the periods presented.

Table 6: Consolidated Balance Sheets


	At		At
	June 30,		December 31,
(in thousands, except per share data)	2021		2020		Change
Assets
Cash and cash equivalents	$	17,032	$	28,644	$	(11,612)
Restricted cash		15,423		17,617		(2,194)
Investments in debt securities		24,709		31,038		(6,329)
Investments in partnerships		354,055		376,198		(22,143)
Deferred tax assets, net		63,812		59,083		4,729
Other assets		20,002		20,482		(480)
Total assets	$	495,033	$	533,062	$	(38,029)

Liabilities
Debt	$	212,081	$	237,805	$	(25,724)
Accounts payable and accrued expenses		3,951		2,845		1,106
Other liabilities		1,568		2,528		(960)
Total liabilities	$	217,600	$	243,178	$	(25,578)

Book Value: Basic and Diluted	$	277,433	$	289,884	$	(12,451)

Less: Deferred tax assets, net		63,812		59,083		4,729
Adjusted Book Value: Basic and Diluted ⁽¹⁾	$	213,621	$	230,801	$	(17,180)

Common shares outstanding: Basic and Diluted		5,824		5,820		4

Book Value per common share: Basic and Diluted	$	47.64	$	49.81	$	(2.17)

Adjusted Book Value per common share: Basic and Diluted ⁽¹⁾	$	36.68	$	39.66	$	(2.98)

(1)

Adjusted Book Value and Adjusted Book Value per common share are financial measures that are determined other than in accordance with GAAP. These non-GAAP financial measures are used to show the amount of our net worth in the aggregate and on a per-share basis, without giving effect to changes in Book Value due to the partial release of our deferred tax asset valuation allowance as of June 30, 2021, and December 31, 2020. Refer to “Use of Non-GAAP Measures” for more information, including a reconciliation of these non-GAAP financial measures to the most directly comparable historical measures determined under GAAP.

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Cash and cash equivalents decreased by $11.6 million, primarily due to payments made in the first quarter of 2021 to reduce the UPB of amounts drawn from our revolving credit facility. Refer to the summary of cash flows within the “Liquidity and Capital Resources” section below for more information about operating, investing and financing activities that contributed to the reported change in the amount of cash and cash equivalents.

Restricted cash decreased by $2.2 million, primarily as a result of the partial release of cash collateral that was pledged in connection with outstanding interest rate swaps.

Investments in debt securities decreased by $6.3 million, primarily due to the realization of fair value gains in connection with the sale of the Company’s tax-exempt multifamily bond.

Investments in partnerships decreased by $22.1 million, primarily as a result of $14.3 million of net distributions and $8.0 million of equity in losses that were recognized during the first six months of 2021 in connection with our investments in the Solar Ventures.

Deferred tax assets, net increased $4.7 million, primarily due to the tax impact associated with the recognition of net loss before taxes during the first six months of 2021.

Other Assets decreased $0.5 million, primarily due to the amortization of debt issuance costs relating to the revolving credit facility.

Debt decreased by $25.7 million, primarily as a result of $24.6 million of cash payments made in the first six months of 2021 to reduce the UPB of amounts drawn from our revolving credit facility.

Accounts payable and accrued expenses increased by $1.1 million, primarily due to management fees and expense reimbursements payable to our External Manager and legal fees.

Other liabilities decreased $1.0 million, primarily as a result of net fair value losses that were recognized in the first six months of 2021 related to interest rate derivatives.

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CONSOLIDATED RESULTS OF OPERATIONS

This section provides a comparative discussion of our Consolidated Results of Operations and should be read in conjunction with our consolidated financial statements, including the accompanying notes. See “Critical Accounting Policies and Estimates,” for more information concerning the most significant accounting policies and estimates applied in determining our results of operations.

Net Income (Loss)

Table 7 summarizes net income (loss) for the periods presented.

Table 7: Net Income (Loss)


	For the three months ended						For the six months ended
	June 30,						June 30,
(in thousands)	2021		2020		Change		2021		2020		Change
Net interest income	$	329	$	554	$	(225)	$	3,030	$	1,113	$	1,917
Non-interest income
Equity in income (losses) from unconsolidated funds and ventures		1,824		13,351		(11,527)		(7,856)		17,499		(25,355)
Net gains (losses)		3,057		(765)		3,822		4,614		(2,485)		7,099
Other income		228		1		227		231		2		229
Other expenses
Other interest expense		(1,878)		(2,418)		540		(3,867)		(4,687)		820
Impairment losses		—		(8,972)		8,972		—		(8,972)		8,972
Operating expenses		(3,369)		(3,299)		(70)		(7,123)		(8,267)		1,144
Net income (loss) before income taxes		191		(1,548)		1,739		(10,971)		(5,797)		(5,174)
Income tax (expense) benefit		(53)		(1,960)		1,907		3,026		(769)		3,795
Net income (loss)	$	138	$	(3,508)	$	3,646	$	(7,945)	$	(6,566)	$	(1,379)

Net Interest Income

Net interest income represents interest income earned on our investments in bonds and other interest-earning assets less our cost of funding associated with the debt that we use to finance these assets.

Net interest income for the three months ended June 30, 2021, decreased compared to that reported for the three months ended June 30, 2020, primarily due to the related impacts of leveraging the Company’s infrastructure bond in the second quarter of 2020 and selling the Company’s tax-exempt multifamily bond in the second quarter of 2021.

Net interest income for the six months ended June 30, 2021, increased compared to that reported for the six months ended June 30, 2020, primarily due to recognition of $2.4 million of interest income on the Company’s tax-exempt multifamily bond in connection with the defeasance of such bond in the first quarter of 2021.

Equity in Income (Losses) from Unconsolidated Funds and Ventures

Equity in income (losses) from unconsolidated funds and ventures includes our allocable share of the earnings or losses from the funds and ventures in which we have an equity interest.

Table 8 summarizes equity in income (losses) from unconsolidated funds and ventures for the periods presented.

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Table 8: Equity in Income (Losses) from Unconsolidated Funds and Ventures


	For the three months ended						For the six months ended
	June 30,						June 30,
(in thousands)	2021		2020		Change		2021		2020		Change
Solar Ventures	$	1,885	$	13,728	$	(11,843)	$	(8,040)	$	18,270	$	(26,310)
U.S. real estate partnerships		(78)		(516)		438		115		(1,102)		1,217
SAWHF		17		139		(122)		69		331		(262)
Equity in income (losses) from unconsolidated funds and ventures	$	1,824	$	13,351	$	(11,527)	$	(7,856)	$	17,499	$	(25,355)

Equity in income of the Solar Ventures for the three months ended June 30, 2021, decreased compared to that reported for the three months ended June 30, 2020, primarily due to a significant decrease in the amount of (i) interest income recognized by the Solar Ventures given the nonaccrual treatment of the aforementioned loans made to the ERCOT Projects (the Company’s share of interest income not recognized during such reporting period related to such loans was $8.0 million) and (ii) net fair value gains recognized by the Solar Ventures for the three months ended June 30, 2020 (the Company’s allocable share of such net fair value gains in the second quarter of 2020 was $3.9 million as compared to $2.1 million of net fair value losses in the second quarter of 2021).

Equity in income of the Solar Ventures for the six months ended June 30, 2021, decreased compared to that reported for the six months ended June 30, 2020, primarily due to (i) net fair value losses recognized by the Solar Ventures in the first six month of 2021 related to loans made to the ERCOT Projects (the Company’s share of such net fair value losses was $16.3 million) and (ii) a decrease in the amount of interest income recognized by the Solar Ventures given the nonaccrual treatment of the aforementioned loans made to the ERCOT Projects (the Company’s share of interest income not recognized during such reporting period related to such loans was $15.0 million).

Equity in income from U.S. real estate partnerships for the three months and six months ended June 30, 2021, increased compared to that reported for the three months and six months ended June 30, 2020, primarily as a result of net income attributable to the Company from the SF Venture that was largely driven by an increase in the carrying value of the net assets of such venture.

Net Gains (Losses)

Net gains (losses) may include net realized and unrealized gains or losses relating to bonds, loans, derivatives, other assets, real estate and other investments as well as gains or losses realized by the Company in connection with the extinguishment of debt obligations.

The Company recognized net gains for the three months ended June 30, 2021, compared to net losses reported for the three months ended June 30, 2020, primarily due to the sale of the Company’s multifamily tax-exempt bond.

In addition to the above, the Company recognized net gains for the six months ended June 30, 2021, compared to net losses reported for the six months ended June 30, 2020, due to changes in interest rates referenced in the Company’s derivative instruments, which drove the recognition of $0.8 million of net fair value gains during the first six months of 2021 as compared to $2.3 million of net fair value losses in the first six months of 2020.

Other Interest Expense

Other interest expense for the three months and six months ended June 30, 2021, decreased compared to that reported for the three months and six months ended June 30, 2020, primarily due to a reduction in the cost of funding associated with subordinated debt, which was driven by a decrease in three-month LIBOR, and a reduction in the cost of funding associated with the revolving credit facility that was driven by a reduction in the UPB of amounts drawn during 2021.

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Impairment Losses

Impairment losses for the three months and six months ended June 30, 2020, were attributable to the Company’s equity investment in the SF Venture, which was determined to be other-than-temporarily impaired at June 30, 2020.

Operating Expenses

Operating expenses include management fees and reimbursable expenses payable to our External Manager, general and administrative expense, professional fees and other miscellaneous expenses.

Table 9 summarizes operating expenses for the periods presented.

Table 9: Operating Expenses


	For the three months ended						For the six months ended
	June 30,						June 30,
(in thousands)	2021		2020		Change		2021		2020		Change
External management fees and reimbursable expenses	$	(1,975)	$	(2,449)	$	474	$	(4,276)	$	(5,209)	$	933
General and administrative		(360)		(372)		12		(761)		(731)		(30)
Professional fees		(1,190)		(624)		(566)		(2,191)		(1,333)		(858)
Other expenses		156		146		10		105		(994)		1,099
Total operating expenses	$	(3,369)	$	(3,299)	$	(70)	$	(7,123)	$	(8,267)	$	1,144

Operating expenses for the three months ended June 30, 2021, increased compared to those reported for the three months ended June 30, 2020, primarily due to a $0.7 million increase in legal fees that were incurred in connection with the execution of the Merger and Termination Agreements. This increase was partially offset by a $0.4 million decrease in the amount of compensation-related expense reimbursements that were payable to the External Manager.

Operating expenses for the six months ended June 30, 2021, decreased compared to those reported for the six months ended June 30, 2020, primarily due to (i) a $1.1 million reduction in the amount of losses recognized in connection with the remeasurement of foreign currency-denominated assets into U.S. dollars as the South African rand strengthened against the U.S. dollar during the first six months of 2021, whereas the rand significantly weakened against the U.S. dollar during the first six months of 2020 and (ii) a $0.9 million decrease in the amount of compensation-related expense reimbursements that were payable to the External Manager. These decreases were partially offset by a $1.0 million increase in legal fees associated primarily with the execution of the Merger and Termination Agreements.

Income Tax (Expense) Benefit

During the three months and six months ended June 30, 2021, the Company recognized a significant decrease in income tax expense compared to that reported for the three months and six months ended June 30, 2020, primarily due to nonrecurring deferred income tax expense that was recognized in 2020 when the DTA valuation allowance was increased in the second quarter of 2020 as a result of a $9.0 million impairment loss recognized during such reporting period in connection with the Company’s equity investment in the SF Venture (the corresponding DTA was assessed to not be realizable because the decline in fair value of our equity investment was determined to be other-than-temporary).

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity is a measure of our ability to meet potential short-term (within one year) and long-term cash requirements, including ongoing commitments to repay borrowings, fund and maintain our current and future assets and other general business needs. Our sources of liquidity include: (i) cash and cash equivalents; (ii) cash flows from operating activities; (iii) cash flows from investing activities; and (iv) cash flows from financing activities.

Summary of Cash Flows

Table 10 provides a consolidated view of the change in cash, cash equivalents and restricted cash of the Company for the periods presented. At June 30, 2021, and June 30, 2020, $15.4 million and $17.3 million, respectively, of amounts presented below represented restricted cash.

Table 10: Net Increase in Cash, Cash Equivalents and Restricted Cash


	For the six months ended
(in thousands)	June 30, 2021
Cash, cash equivalents and restricted cash at beginning of period	$	46,261
Net cash provided by (used in):
Operating activities		8,294
Investing activities		3,555
Financing activities		(25,655)
Net decrease in cash, cash equivalents and restricted cash		(13,806)
Cash, cash equivalents and restricted cash at end of period	$	32,455


	For the six months ended
(in thousands)	June 30, 2020
Cash, cash equivalents and restricted cash at beginning of period	$	12,805
Net cash provided by (used in):
Operating activities		6,375
Investing activities		(21,944)
Financing activities		44,618
Net increase in cash, cash equivalents and restricted cash		29,049
Cash, cash equivalents and restricted cash at end of period	$	41,854

Operating Activities

Cash flows from operating activities include, but are not limited to, interest income on our investments, and income distributions from our investments in unconsolidated funds and ventures.

Net cash flows provided by operating activities during the six months ended June 30, 2021, increased $1.9 million compared to such net cash flows during the six months ended June 30, 2020. This net increase was primarily driven by (i) a $1.5 million increase in interest payments received that was primarily attributable to the Company’s tax-exempt multifamily bond and (ii) a $0.5 million reduction in interest payments made that was primarily driven by a decrease in three-month LIBOR.

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Investing Activities

Net cash flows associated with investing activities include, but are not limited to, principal payments; capital contributions and distributions; advance of loans held for investment; and sales proceeds from the sale of bonds, loans and real estate and other investments.

Net cash flows provided by investing activities during the six months ended June 30, 2021, increased $25.5 million compared to such net cash flows used in investing activities during the six months ended June 30, 2020. This net increase was primarily driven by (i) a $70.1 million decrease in net cash contributed to our Solar Ventures and (ii) a $5.8 million decrease in cash used for land improvements to our direct real estate investment. These net decreases in cash used were largely offset by a $49.7 million reduction in net principal payments received that was primarily due to the repayment of the Company’s loan receivable from Hunt in the first quarter of 2020.

Financing Activities

Net cash flows used in financing activities during the six months ended June 30, 2021, increased $70.3 million compared to net cash flows provided by financing activities during the six months ended June 30, 2020. The increase in the amount of cash used in financing activities was primarily attributable to (i) $24.6 million of payments made during the first half of 2021 to reduce the UPB of amounts drawn from our revolving credit facility and (ii) $32.8 million of advances received from financing transactions associated with the Company’s Infrastructure Bond investment and direct investment in real estate.

Capital Resources

Our debt obligations include liabilities that we recognized in connection with our subordinated debt, revolving credit facility debt and other notes payable. The major types of debt obligations of the Company are further discussed below. We use the revolving credit facility to finance our investments in the Solar Ventures. See Notes to Consolidated Financial Statements – Note 5, “Debt,” for more information.

Table 11 summarizes the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at June 30, 2021, and December 31, 2020.

Table 11: Debt


	At				At
	June 30, 2021				December 31, 2020
			Wtd. Avg.				Wtd. Avg.
			Effective				Effective
	Carrying		Interest		Carrying		Interest
(dollars in thousands)	Value ⁽¹⁾		Rate ⁽¹⁾		Value ⁽¹⁾		Rate ⁽¹⁾
Subordinated debt	$	92,097	1.5	%	$	93,212	1.5	%
Revolving credit facility debt obligations		79,150	6.1			103,700	5.6
Notes payable and other debt		17,847	7.4			17,739	7.2
Asset related debt		22,987	2.5			23,154	2.5
Total debt	$	212,081	3.8	%	$	237,805	3.8	%

(1)

Carrying value amounts and weighted-average interest rates reported in this table include the effects of any discounts, premiums and other cost basis adjustments. An effective interest rate represents an internal rate of return of a debt instrument that makes the net present value of all cash flows, inclusive of cash flows that give rise to cost basis adjustments, equal zero and in the case of (i) fixed rate instruments, is measured as of an instrument’s issuance date and (ii) variable rate instruments, is measured as of each date that a reference interest rate resets.

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Subordinated Debt

At June 30, 2021, and December 31, 2020, the Company had subordinated debt obligations that had a total UPB of $85.4 million and $86.3 million, respectively. This debt included four tranches that amortize 2.0% per annum over their contractual lives, are due to mature with balloon payments between March 2035 and July 2035 and require the Company to pay interest based upon three-month LIBOR plus a fixed spread of 2.0%. At June 30, 2021, the weighted-average interest pay rate on the outstanding debt was 2.2%.

Revolving Credit Facility Debt Obligations

At June 30, 2021, and December 31, 2020, MEH, a wholly owned subsidiary of the Company, had borrowed $79.1 million and $103.7 million, respectively, from the revolving credit facility. This debt obligation, which is guaranteed by the Company and secured by (i) specific assets of the Borrower and (ii) a pledge of all of the Company’s equity interest in the Borrower, which in turn owns our equity investments in the Solar Ventures, matures on September 19, 2022, and is subject to a 12-month extension solely to allow refinancing or orderly repayment of the debt obligation. This debt obligation bears interest equal to one-month LIBOR (subject to a 1.5% floor) plus a fixed spread of 2.75%, which, at June 30, 2021, was 4.25%.

Notes Payable and Other Debt

At June 30, 2021, and December 31, 2020, the Company had notes payable and other debt with a UPB of $18.0 million and $17.9 million, respectively.

At June 30, 2021, and December 31, 2020, $4.0 million of this debt relates to financing that was obtained to complete the purchase of the Company’s 11.85% ownership interest in SAWHF. This debt, which is denominated in South African rand, has a maturity date of January 18, 2022, and requires the Company to pay interest based upon the Johannesburg Interbank Agreed Rate (“JIBAR”) plus a fixed spread of 5.15%. At June 30, 2021, the interest rate on this debt was 8.83%.

At June 30, 2021, and December 31, 2020, $4.3 million, of the notes payable and other debt relates to debt obligations to the Morrison Grove Management, LLC principals (“MGM Principals”). This debt bears interest at 5.0%. The $2.8 million debt obligation amortizes over its contractual life and is due to mature on January 1, 2026. The $1.5 million debt obligation is interest only until March 31, 2026 and then amortizes in three equal installments until its maturity date of January 1, 2027.

At June 30, 2021, and December 31, 2020, $9.6 million and $9.4 million, respectively, of our debt relates to financing that was obtained to finance the development of our direct investment in real estate. This debt obligation is secured by our direct investment in real estate and is guaranteed by the Company. The contractual maturity date of this facility is June 1, 2023, although the facility is subject to three extension options (at the discretion of the borrower and lender): (i) the first extension term would expire on November 1, 2023; (ii) the second extension term would expire on May 1, 2024 and (iii) the final amortized term would expire three years after the initial term, first extension term and second extension term, as applicable. Amounts drawn from this debt facility are repayable on an interest only basis at a rate of 4.85% with all outstanding principal due at maturity during the initial term, first extension term and second extension term. However, during the final extension term the debt bears interest at a rate of three-month LIBOR plus 3.0% per annum, subject to a 5.0% floor with principal amortization required monthly over the three-year extension term.

Asset Related Debt

Asset related debt is debt that finances interest-bearing assets of the Company. The interest expense associated with this debt is included within “Net interest income” on the Company’s Consolidated Statements of Operations.

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At June 30, 2021, and December 31, 2020, the carrying value of $23.0 million and $23.2 million, respectively, of asset related debt was recognized in connection with the conveyance of our Infrastructure Bond in the second quarter of 2020 to our counterparty for a total return swap (“TRS”) that was executed in connection with such conveyance. Such conveyance was reported as a secured borrowing and, therefore, proceeds received from the Company’s counterparty were reported as a debt obligation. The TRS agreement has a maturity date of June 6, 2022, and requires the Company to pay interest based upon the Securities Industry and Financial Markets Association index rate, subject to a 0.5% floor, plus a spread of 2.0%, which at June 30, 2021, was 2.5%. These payment terms are used to accrue interest related to the secured borrowing that was recognized upon conveyance of the Company’s bond investment. Additionally, under the terms of the TRS agreement, the Company’s TRS counterparty is entitled to share in 10% of the increase in fair value, if any, of the Infrastructure Bond between the trade and termination dates of the TRS agreement. For reporting purposes, this provision is treated as a freestanding derivative instrument that is reported on a fair value basis.

Covenant Compliance

Off-Balance Sheet Arrangements

At June 30, 2021, and December 31, 2020, the Company had no off-balance sheet arrangements.

Other Contractual Commitments

The Company is committed to make additional capital contributions to certain of its investments in partnerships and ventures. Refer to Notes to Consolidated Financial Statements - Note 3, “Investments in Partnerships,” for more information.

At June 30, 2021, and December 31, 2020, the Company had no unfunded loan commitments. Refer to Notes to Consolidated Financial Statements - Note 4, “Other Assets” for more information.

The Company uses derivative instruments to hedge interest rate and foreign currency risks. Depending upon movements in reference interest and foreign exchange rates, the Company may be required to make payments to the counterparties to these agreements. Refer to Notes to Consolidated Financial Statements – Note 6, “Derivative Instruments,” for more information about these instruments. On July 28, 2021, the Company terminated its foreign currency hedge positions.

Other Capital Resources

Dividend and Share Buyback Policy

The Board makes the final determination regarding dividends and share buyback plans based on our External Manager’s recommendation, which is based on an evaluation of a number of factors, including our financial condition, business prospects, the predictability of recurring cash flows from operations and available cash, as well as other factors the Board deems relevant. The Board does not believe paying a dividend or repurchasing shares is appropriate at the current time.

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Tax Benefits Rights Agreement

Effective May 5, 2015, the Company adopted a Tax Benefits Rights Agreement (the “Rights Plan”) designed to help preserve the Company’s NOLs. In connection with adopting the Rights Plan, the Company declared a distribution of one right per common share to shareholders of record as of May 15, 2015. The rights do not trade apart from the current common shares until the distribution date, as defined in the Rights Plan. Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person.

On January 3, 2018, the Board approved a waiver of the 4.9% ownership limitation with respect to Hunt, increasing the limitation to 9.9% of the Company’s issued and outstanding shares in any rolling 12-month period without causing a triggering event.

On March 11, 2020, the Board approved an extension of the original five-year term of the Rights Plan until May 5, 2023, or until the Board determines that the plan is no longer needed, whichever comes first. Subsequently, shareholders ratified the Board’s decision to extend the Rights Plan at the Company’s 2020 annual meeting of shareholders.

On May 24, 2021, prior to the execution of the Merger Agreement, the Company amended its Rights Plan to provide that neither Parent nor Merger Sub nor any of their affiliates or associates will be deemed to be or become (i) an “Acquiring Person” as a result of the approval, adoption, execution, delivery and/or amendment of the Merger Agreement or the various voting agreements, (ii) a “Beneficial Owner” of, or have “Beneficial Ownership” of, or to “beneficially own” any shares of Company common stock under the Rights Plan; and (iii) neither a “Distribution Date” nor a “Stock Acquisition Date” under the Rights Plan will occur or be deemed to have occurred as a result of the approval, adoption, execution, delivery, and/or amendment of the Merger Agreement or various voting agreements; (iv) the rights issued under the Rights Plan will expire immediately prior to the effective time under the Merger Agreement, if the effective time occurs, and (v) nothing in the Rights Plan will be construed to give holders of rights certificates (or holders of Company Common Stock prior to the distribution date of the rights) under the Rights Plan any rights, remedies or claims as a result of the approval, adoption, execution, delivery, and/or amendment of the Merger Agreement or the various voting agreements. Such amendment will terminate automatically and will have no force or effect upon a termination of the Merger Agreement. A copy of the third amendment to the Rights Plan was included as an exhibit to a Form 8-K that the Company filed with the SEC on May 24, 2021, and incorporated by reference in this Report.

At June 30, 2021, the Company had two shareholders who held greater than a 4.9% interest in the Company, one of whom is its former Chief Executive Officer and current Chairman of the Board, Michael L. Falcone. Upon Mr. Falcone’s resignation as Chief Executive Officer on August 12, 2020, he became eligible for Board compensation. Pursuant to the policy of our Governance Committee, each Board member receives one-half of his or her Board compensation in common shares. On November 5, 2020, the Board adopted an Amended and Restated 2012 Non-Employee Directors’ Compensation Plan to coordinate elements of the Rights Plan and share compensation for directors. In addition, the Board named Mr. Falcone an exempted person in accordance with the Rights Plan for purposes of his share-based Board compensation.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our consolidated financial statements is based on the application of GAAP, which requires us to make certain estimates and assumptions that affect the reported amounts and classification of the amounts in our consolidated financial statements. These estimates and assumptions require us to make difficult, complex and subjective judgments involving matters that are inherently uncertain. We base our accounting estimates and assumptions on historical experience and on judgments that we believe to be reasonable under the circumstances known to us at the time. Actual results could differ materially from these estimates. We applied our critical accounting policies and estimation methods consistently in all material respects and for all periods presented and have discussed those policies with our Audit Committee.

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. Management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board. See Part I, Item 1A. “Risk Factors” in our 2020 Annual Report for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods. We have identified three of our accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition. These policies govern:

●

Income taxes;

●

fair value measurement of financial instruments; and

●

consolidation.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our 2020 Annual Report for a discussion of these critical accounting policies and estimates.

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ACCOUNTING AND REPORTING DEVELOPMENTS

We identify and discuss the expected impact on our consolidated financial statements of recently issued accounting guidance in Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies.”

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USE OF NON-GAAP MEASURES

We present certain non-GAAP financial measures that supplement the financial measures we disclose that are calculated under GAAP. Non-GAAP financial measures are those that include or exclude certain items that are otherwise excluded or included, respectively, from the most directly comparable measures calculated in accordance with GAAP. The non-GAAP financial measures that we disclose are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as similar non-GAAP financial measures used by other companies.

Adjusted Book Value represents Book Value reduced by the carrying value of the Company’s DTAs. We believe this measure is useful to investors in assessing the Company’s underlying fundamental performance and trends in our business because it eliminates potential volatility in results brought on by tax considerations in a given year. As a result, reporting upon, and measuring changes in, Adjusted Book Value enables a better comparison of period-to-period operating performance.

Adjusted Book Value per common share represents Adjusted Book Value at the period end divided by the common shares outstanding at the period end.

Management intends to continually evaluate the usefulness, relevance, limitations and calculations of our reported non-GAAP performance measures to determine how best to provide relevant information to the public.

Table 12 provides reconciliations of the non-GAAP financial measures that are included in this Report to the most directly comparable GAAP financial measures.

Table 12: Non-GAAP Reconciliations


	At		At		At
	June 30,		March 31,		December 31,
(in thousands, except per share data)	2021		2021		2020
Reconciliation of Book Value to Adjusted Book Value
Book Value (total shareholders' equity), as reported	$	277,433	$	280,256	$	289,884
Less: DTAs, net		63,812		62,806		59,083
Adjusted Book Value	$	213,621	$	217,450	$	230,801

Common shares outstanding		5,824		5,824		5,820

Reconciliation of Book Value per share to Adjusted Book Value per common share
Book Value (total shareholders' equity) per common share, as reported	$	47.64	$	48.12	$	49.81
Less: DTAs, net per common share		10.96		10.78		10.15
Adjusted Book Value per common share	$	36.68	$	37.34	$	39.66

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Item 1. Financial Statements

MMA Capital Holdings, Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)


	At		At
	June 30,		December 31,
	2021		2020
ASSETS
Cash and cash equivalents	$	17,032	$	28,644
Restricted cash		15,423		17,617
Investments in debt securities (includes $24,709 and $24,741 pledged as collateral at June 30, 2021, and December 31, 2020, respectively)		24,709		31,038
Investments in partnerships (includes $342,310 and $364,990 pledged as collateral at June 30, 2021, and December 31, 2020, respectively)		354,055		376,198
Deferred tax assets, net		63,812		59,083
Other assets (includes $17,934 and $17,973 pledged as collateral at June 30, 2021, and December 31, 2020, respectively)		20,002		20,482
Total assets	$	495,033	$	533,062

LIABILITIES AND EQUITY
Debt	$	212,081	$	237,805
Accounts payable and accrued expenses		3,951		2,845
Other liabilities		1,568		2,528
Total liabilities		217,600		243,178

Commitments and contingencies (see Note 9)		—		—

Shareholders' equity
Preferred shares, 0 par value, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2021, and December 31, 2020		—		—
Common shares, 0 par value, 50,000,000 shares are authorized (5,743,570 and 5,708,920 shares issued and outstanding and 80,422 and 111,032 non-employee directors' deferred shares issued at June 30, 2021, and December 31, 2020, respectively)		274,377		282,227
Accumulated other comprehensive income ("AOCI")		3,056		7,657
Total shareholders’ equity		277,433		289,884
Total liabilities and equity	$	495,033	$	533,062

The accompanying notes are an integral part of these consolidated financial statements.

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MMA Capital Holdings, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)


	For the three months ended				For the six months ended
	June 30,				June 30,
	2021			2020	2021		2020
Interest income
Interest on bonds	$	485	$	556	$	3,336	$	1,024
Interest on loans and short-term investments		8		45		21		136
Total interest income		493		601		3,357		1,160
Asset related interest expense
Bond related debt		164		47		327		47
Total interest expense		164		47		327		47
Net interest income		329		554		3,030		1,113

Non-interest income
Equity in income (losses) from unconsolidated funds and ventures		1,824		13,351		(7,856)		17,499
Net gains on bonds		4,080		—		4,080		—
Net (losses) gains on derivatives		(859)		(584)		756		(2,295)
Net losses on other assets		(164)		(201)		(222)		(201)
Net gains on loan		—		20		—		11
Other income		228		1		231		2
Non-interest income (loss)		5,109		12,587		(3,011)		15,016

Other expenses
Interest expense		1,878		2,418		3,867		4,687
External management fees and reimbursable expenses		1,975		2,449		4,276		5,209
General and administrative		360		372		761		731
Professional fees		1,190		624		2,191		1,333
Impairment losses		—		8,972		—		8,972
Other expenses		(156)		(146)		(105)		994
Total other expenses		5,247		14,689		10,990		21,926

Net income (loss) before income taxes		191		(1,548)		(10,971)		(5,797)
Income tax (expense) benefit		(53)		(1,960)		3,026		(769)
Net income (loss)	$	138	$	(3,508)	$	(7,945)	$	(6,566)

Basic and diluted loss per common share:
Income (loss) per common share	$	0.02	$	(0.60)	$	(1.36)	$	(1.13)

Weighted-average common shares outstanding:
Basic and Diluted		5,824		5,807		5,822		5,806

The accompanying notes are an integral part of these consolidated financial statements.

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MMA Capital Holdings, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)


	For the three months ended				For the six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Net income (loss)	$	138	$	(3,508)	$	(7,945)	$	(6,566)

Other comprehensive (loss) income
Bond related changes:
Net unrealized income (losses) ⁽¹⁾	$	224	$	467	$	(2,106)	$	(1,296)
Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations		(4,080)		—		(4,080)		—
Income tax benefit (expense)		1,059		(128)		1,699		356
Net change in other comprehensive (loss) income due to bonds, net of taxes		(2,797)		339		(4,487)		(940)
Foreign currency translation adjustment		(164)		(110)		(114)		716
Other comprehensive (loss) income	$	(2,961)	$	229	$	(4,601)	$	(224)

Comprehensive loss	$	(2,823)	$	(3,279)	$	(12,546)	$	(6,790)

(1)	During the six months ended June 30, 2021, net unrealized income (losses) include $2.4 million of net fair value gains that were realized in connection with the defeasance of the Company’s tax-exempt multifamily bond investment during such reporting period.

The accompanying notes are an integral part of these consolidated financial statements.

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MMA Capital Holdings, Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(in thousands)


	For the six months ended June 30, 2021
						Total Common
	Common Equity Before					Shareholders’
	AOCI			AOCI		Equity
	Shares	Amount
Balance, January 1, 2021	5,820	$	282,227	$	7,657	$	289,884
Net loss	—		(8,083)		—		(8,083)
Other comprehensive loss	—		—		(1,640)		(1,640)
Common shares (restricted and deferred) issued under employee and non-employee director share plans	4		95		—		95
Balance, March 31, 2021	5,824	$	274,239	$	6,017	$	280,256
Net income	—		138		—		138
Other comprehensive loss	—		—		(2,961)		(2,961)
Balance, June 30, 2021	5,824	$	274,377	$	3,056	$	277,433


	For the six months ended June 30, 2020
						Total Common
	Common Equity Before					Shareholders’
	AOCI			AOCI		Equity
	Shares	Amount
Balance, January 1, 2020	5,805	$	273,492	$	7,633	$	281,125
Net loss	—		(3,058)		—		(3,058)
Other comprehensive loss	—		—		(453)		(453)
Common shares (restricted and deferred) issued under employee and non-employee director share plans	3		96		—		96
Common share repurchases	(1)		(41)		—		(41)
Balance, March 31, 2020	5,807	$	270,489	$	7,180	$	277,669
Net loss	—		(3,508)		—		(3,508)
Other comprehensive income	—		—		229		229
Common shares (restricted and deferred) issued under employee and non-employee director share plans	4		97		—		97
Balance, June 30, 2020	5,811	$	267,078	$	7,409	$	274,487

The accompanying notes are an integral part of these consolidated financial statements.

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MMA Capital Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	For the six months ended
	June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,945)	$	(6,566)
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for credit losses and impairment		—		8,972
Net equity in losses (income) from investments in partnerships		7,856		(17,499)
Net gains on bonds		(4,080)		—
Net (gains) losses on derivatives		(1,000)		2,291
Net losses on other assets and loans		222		190
Current and deferred federal income tax (benefit) expense		(3,088)		777
Distributions received from investments in partnerships		14,720		14,823
Depreciation and amortization		367		277
Foreign currency (gains) losses		(112)		994
Stock-based compensation expense		95		193
Other, net		1,259		1,923
Net cash provided by operating activities		8,294		6,375
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments and sales proceeds received on bonds and loans held for investment (includes 0 and $53,600 from a related party)		4,108		53,770
Advances on and originations of loans held for investment		—		(702)
Investments in partnerships and real estate		(74,729)		(114,651)
Capital distributions received from investments in partnerships		74,176		39,639
Net cash provided by (used in) investing activities		3,555		(21,944)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing activity		348		112,272
Repayment of borrowings		(25,885)		(66,890)
Debt issuance costs		(118)		(723)
Repurchase of common shares		—		(41)
Net cash (used in) provided by financing activities		(25,655)		44,618
Net (decrease) increase in cash, cash equivalents and restricted cash		(13,806)		29,049
Cash, cash equivalents and restricted cash at beginning of period		46,261		12,805
Cash, cash equivalents and restricted cash at end of period	$	32,455	$	41,854

The accompanying notes are an integral part of these consolidated financial statements.

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MMA Capital Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued)

(Unaudited)

(in thousands)


	For the six months ended
	June 30,
	2021		2020
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	4,041	$	4,313
Income taxes paid		82		—

Non-cash investing and financing activities:
Unrealized losses included in other comprehensive loss		(4,601)		(224)
Debt and liabilities extinguished through sales and principal redemptions on bonds		207		—

	At		At
	June 30,		December 31,
	2021		2020
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents	$	17,032	$	28,644
Restricted cash		15,423		17,617
Total cash, cash equivalents and restricted cash shown in statement of cash flows	$	32,455	$	46,261

The accompanying notes are an integral part of these consolidated financial statements.

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MMA Capital Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1— Summary of Significant Accounting Policies

Organization

MMA Capital Holdings, Inc. focuses on infrastructure-related investments that generate positive environmental and social impacts and deliver attractive risk-adjusted total returns to our shareholders, with an emphasis on debt associated with renewable energy projects. Unless the context otherwise requires, and when used in these Notes, the “Company,” “MMA,” “we,” “our” or “us” refers to MMA Capital Holdings, Inc. and its subsidiaries. We were originally organized as a Delaware limited liability company in 1996, converted to a Delaware corporation on January 1, 2019, and are externally managed by Hunt Investment Management, LLC (our “External Manager”), an affiliate of Hunt Companies, Inc. (Hunt Companies, Inc. and its affiliates are hereinafter referred to as “Hunt”).

Our objective is to produce attractive risk-adjusted returns by investing in the large, growing and fragmented renewable energy market in the United States (“U.S.”). We believe that we are well positioned to take advantage of these and other investment opportunities because of our External Manager’s origination network built off of extensive relationships and credit expertise gathered through years of experience. We also seek to increase the Company’s return on equity by prudently deploying debt and recycling equity out of lower yielding investments that are unrelated to renewable energy and other infrastructure-related projects.

We operate as a single reporting segment.

Merger and Termination Agreements

Merger Agreement

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The obligations of the parties to consummate the Merger are subject to the satisfaction or waiver of closing conditions set forth in the Merger Agreement, including, among others, (i) the approval of the Company’s shareholders, (ii) the expiration or termination of any waiting period applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), of which the waiting period expired at midnight on July 19, 2021, (iii) the absence of a “Material Adverse Effect” (as defined in the Merger Agreement) with respect to MMA, and (iv) the consummation of the transactions described in the Termination Agreement and in a certain Assignment and Assumption Agreement also dated May 24, 2021, by and between the External Manager and Parent (the “Assignment Agreement”).

Termination Agreement

Special Meeting of the Company’s Shareholders

●

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

The Company evaluates subsequent events through the date of filing with the U.S. Securities and Exchange Commission (“SEC”).

Use of Estimates

The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, commitments and contingencies, and revenues and expenses. Management made estimates in certain areas, including the determination of the Company’s valuation allowance established against its

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DTAs as well as in the fair value measurement of bonds and derivative instruments. Actual results could differ materially from these estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company as well as those entities in which the Company has a controlling financial interest, including wholly owned subsidiaries of the Company. All intercompany transactions and balances are eliminated in consolidation. Equity investments in unconsolidated entities where the Company has the ability to exercise significant influence over the operations of the entity, but is not considered the primary beneficiary, are accounted for using the equity method of accounting.

Accounting Guidance

Adoption of Accounting Standards

Accounting for Financial Instruments – Fair Value Measurement

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance eliminates certain disclosure requirements for fair value measurements, requires public entities to disclose certain new information and modifies some disclosure requirements. We adopted this guidance on its effective date of January 1, 2020. The adoption of this guidance did not impact the Company’s Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows as of the adoption date.

Accounting for Financial Instruments – Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance is elective and is provided for contract modifications that meet certain Codification topics and subtopics. This new guidance is effective March 12, 2020 through December 31, 2022. We did not make any elections provided by this new guidance and, therefore, the adoption of these accounting principles did not impact the Company’s Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows as of the adoption date.

In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): An Amendment of the FASB Accounting Standards Codification.” This guidance is an update to ASU 2020-04, which clarifies the scope of the optional relief for reference rate reform provided by ASC Topic 848. The ASU permits entities to apply certain of the optional practical expedients and exceptions in ASC 848 to the accounting for derivative contracts and hedging activities that may be affected by changes in interest rates used for discounting cash flows, computing variation margin settlements and calculating price alignment interest (the “discounting transition”). These optional practical expedients and exceptions may be applied to derivative instruments impacted by the discounting transition even if such instruments do not reference a rate that is expected to be discounted. This guidance is effective upon issuance on January 7, 2021 and an entity may elect to apply the amendments as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. The adoption of this guidance did not have a material impact on the Company’s Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows.

Accounting for Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This guidance eliminates certain exceptions to the general principles in Topic 740. This new guidance is effective for us on January 1, 2021, with early adoption permitted. The adoption of this guidance did not impact the Company’s Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows as of the adoption date.

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Issued Accounting Standards Not Yet Adopted

Accounting for Financial Instruments – Credit Losses

In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates.” This guidance gives private companies, not-for-profit organizations, and certain smaller reporting companies additional time to implement FASB standards on credit losses, leases, derivatives and hedging and intangible-goodwill and other (ASC 350). Because the Company is a smaller reporting company the following “credit loss” ASUs will become effective for the Company on January 1, 2023. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Improvements.” This guidance is intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. This guidance establishes an impairment methodology that reflects lifetime expected credit losses rather than incurred losses. This guidance requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This new guidance is effective on January 1, 2023, with early adoption permitted. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements.

In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This guidance is intended to clarify aspects of accounting for credit losses, hedging activities, and financial instruments. This new guidance is effective on January 1, 2023, with early adoption permitted. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements.

In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief.” This guidance provides transition relief for entities adopting ASU 2016-13. This guidance allows entities to elect the fair value options on certain financial instruments. This new guidance is effective on January 1, 2023, with early adoption permitted. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements.

In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This guidance amends certain aspects of the FASB’s new credit losses standard, including an amendment requiring entities to include certain expected recoveries in the amortized cost basis in the allowance for credit losses for purchased credit deteriorated assets. This new guidance is effective on January 1, 2023, with early adoption permitted. We are currently evaluating the potential impact of the new guidance on our consolidated financial statements.

In February 2020, the FASB issued ASU No. 2020-02, “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) (SEC Update).” This guidance updates certain SEC guidance in the Codification for the issuance of SEC Staff Accounting Bulletin 119 and effective date related to the leases standard. This new guidance is effective upon issuance on February 6, 2020. However, because the Company is a smaller reporting company the ASU will become effective for the Company on January 1, 2023. We are currently evaluating the potential impact of this new guidance on our consolidated financial statements.

Accounting for Financial Instruments – General

In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments.” This guidance amends certain topics including fair value option disclosures and credit losses. This guidance is effective upon issuance on March 9, 2020 for some topics and on January 1, 2023 for topics relating to credit loss. The adoption of this guidance that is effective upon issuance did not impact the Company’s Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity or Consolidated Statements of Cash Flows. For those aspects of the new guidance that are not effective until January 1, 2023, we are evaluating the potential impact of the new guidance on our consolidated financial statements.

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Note 2—Investments in Debt Securities

At June 30, 2021, and December 31, 2020, the Company’s investments in debt securities consisted of 1 tax-exempt infrastructure bond, while at December 31, 2020, the Company also owned 1 multifamily tax-exempt mortgage revenue bond. These investments were classified as available-for-sale for reporting purposes and are measured on a fair value basis in our Consolidated Balance Sheets.

Multifamily tax-exempt bonds are issued by state and local governments or their agencies or authorities to finance affordable multifamily rental housing. Generally, the only source of security on these bonds is a mortgage on the underlying property. On May 3, 2021, the Company sold its tax-exempt multifamily bond to a third party for $4.1 million.

The Company’s infrastructure bond financed the development of infrastructure for a mixed-use town center development in Spanish Fort, Alabama and is secured by incremental tax revenues generated from the development and its landowners (this investment is hereinafter referred to as our “Infrastructure Bond”). The Company’s Infrastructure Bond amortizes on a scheduled basis and has a stated maturity date of December 2048.

The following tables provide information about the unpaid principal balance (“UPB”), amortized cost, gross unrealized gains and fair value (“FV”) associated with the Company’s investments in bonds that are classified as available-for-sale:


	At
	June 30, 2021
					Gross
			Amortized		Unrealized				FV as a %
(in thousands)	UPB		Cost ⁽¹⁾		Gains		FV		of UPB
Infrastructure Bond	$	26,205	$	20,389	$	4,320	$	24,709		94%


	At
	December 31, 2020
					Gross
			Amortized		Unrealized				FV as a %
(in thousands)	UPB		Cost ⁽¹⁾		Gains		FV		of UPB
Infrastructure Bond	$	26,440	$	20,532	$	4,209	$	24,741	94%
Multifamily tax-exempt bond		4,000		—		6,297		6,297	157%
Total	$	30,440	$	20,532	$	10,506	$	31,038	102%

(1)	Amortized cost consists of the UPB, unamortized premiums, discounts and other cost basis adjustments, as well as other-than-temporary-impairment (“OTTI”) recognized in “Impairments” in our Consolidated Statements of Operations.

See Note 7, “Fair Value,” which describes factors that contributed to the $6.3 million decrease in the reported fair value of the Company’s investments in debt securities for the six months ended June 30, 2021.

Nonaccrual Bonds

At June 30, 2021, and December 31, 2020, the Company had 0 bonds that were on nonaccrual status.

Bond Sales and Redemptions

The Company recognized cash proceeds in connection with sales or full redemption of its investments in bonds of $4.1 million for the three months and six months ended June 30, 2021. There were no sales or redemptions in full of investments in bonds during the three months and six months ended June 30, 2020.

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Note 3—Investments in Partnerships

The following table provides information about the carrying value of the Company’s investments in partnerships and ventures:


	At		At
	June 30,		December 31,
(in thousands)	2021		2020
Investment in Solar Ventures	$	340,847	$	363,157
Investments in U.S. real estate partnerships		11,745		11,208
Investment in South Africa Workforce Housing Fund ("SAWHF")		1,463		1,833
Total investments in partnerships	$	354,055	$	376,198

Investments Related to the Solar Ventures

At June 30, 2021, we were a 50% investor member in the joint ventures through which we invest in renewable energy projects though we may periodically have a minority economic interest as a result of non-pro rata capital contributions made by our capital partner pursuant to a non-pro rata funding agreement between the Company and our capital partner. Distributions from such ventures are generally made in proportion to the members’ respective economic interests but may be made disproportionately to our capital partner, when our capital partner has made non-pro rata capital contributions, until such time that the amount of equity invested by the Company and its capital partner have come back into equal balance. At June 30, 2021, the Company held a minority economic interest of 33.5%, 45.0% and 34.7% in Solar Construction Lending, LLC (“SCL”), Solar Permanent Lending, LLC (“SPL”) and Solar Development Lending, LLC (“SDL”), respectively, which represented a weighted-average economic interest of 36.6% in such ventures. These three joint ventures together, are hereinafter collectively referred to as the “Solar Ventures.” At December 31, 2020, the Company held 45.2%, 45.0% and 42.3% economic interests in SCL, SPL and SDL, respectively. The Company is the sole member in Renewable Energy Lending, LLC (“REL”).

At June 30, 2021, the carrying value of the Company’s equity investments in SCL, SPL and SDL was $73.0 million, $87.2 million and $180.6 million, respectively. None of these investees were assessed to constitute a Variable Interest Entity (“VIE”) and the Company accounts for all of these investments using the equity method of accounting. At June 30, 2021, these joint ventures had $373.9 million of unfunded loan commitments that required borrowers to meet various conditions set forth in governing loan agreements in order for funding to occur. At June 30, 2021, based upon our 50% interest in these ventures and various non-pro rata capital contribution agreements, the Company is obligated to $62.9 million of such commitments. The unfunded loan commitments that qualified for funding, were anticipated to be funded primarily by capital within the joint ventures through a combination of existing loan redemptions and uninvested capital. Uninvested capital or capital shortfalls may arise due to the difficulty of aligning the timing of loan repayments with funding obligations on a dollar-for-dollar basis. To the extent capital within the joint ventures is not sufficient to meet their funding obligations additional capital contributions by the members of the Solar Ventures is required.

The Company paid $5.1 million for the buyout of our prior investment partner’s ownership interest in REL, on June 1, 2018, which was allocated to the net assets acquired based upon their relative fair values. This allocation resulted in a cumulative basis adjustment of $4.5 million to the Company’s investments that is amortized over the remaining investment period of SCL. The amortization expense related to the Company’s basis difference was $0.2 million for the three months ended June 30, 2021, and June 30, 2020, and $0.4 million for the six months ended June 30, 2021, and June 30, 2020. At June 30, 2021, and December 31, 2020, the unamortized balance of the Company’s basis difference was $1.8 million and $2.2 million, respectively.

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distributions made during such period resulted in an overall weighted-average investment in the Solar Ventures of 33.6% at August 2, 2021.

The following table provides information about the carrying amount of total assets and liabilities of all renewable energy related investees in which the Company had an equity method investment:


	At		At
	June 30,		December 31,
	2021		2020
(in thousands)
Total assets ⁽¹⁾	$	929,271	$	831,077
Other liabilities ⁽²⁾		2,598		4,059

(1)Assets of these ventures are primarily comprised of loans that are carried at fair value.

(2)Other liabilities of these ventures are primarily comprised of interest reserves.

The following table provides information about the gross revenue, operating expenses and net income (loss) of all renewable energy related investees in which the Company had an equity method investment:


	For the three months ended				For the six months ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Gross revenue	$	16,329	$	24,596	$	29,822	$	46,417
Operating expenses		2,005		1,521		3,949		3,542
Net income (loss) and net income (loss) attributable to the entities ⁽¹⁾		9,685		32,005		(10,632)		42,831

(1)

Net income includes $4.6 million and $36.5 million of net fair value losses for the three and six months ended June 30, 2021, respectively, and excludes $17.7 million and $33.6 million of interest income given the nonaccrual treatment of certain loans for the three and six months ended June 30, 2021, respectively. Net income for the three months ended June 30, 2020, includes $8.9 million of net fair value gains related to loans funded by the Solar Ventures. Net fair value gains related to funded loans that were recognized during the six months ended June 30, 2020, were immaterial.

Investments in U.S. Real Estate Partnerships

At June 30, 2021, the $11.7 million reported carrying value of investments in U.S. real estate partnerships represented the Company’s 80% ownership interest in a joint venture that owns and operates a mixed-use town center and undeveloped land parcels in Spanish Fort, Alabama (“SF Venture”). Based upon the venture’s operating agreement, the Company has the right to a preferred return on its unreturned capital contributions with the exception of such contributions that have been contributed for the payment of undeveloped land license fees, which have a lower priority of repayment; as well as the right to share in excess cash flows of the real estate venture. As of June 30, 2021, the Company held a 79.8% economic interest based upon the partnership’s distribution waterfall. This entity was determined not to be a VIE because decision-making rights are shared equally among its members. Accordingly, the Company accounts for this investment using the equity method of accounting.

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The following table provides information about the total assets, debt and other liabilities of the U.S. real estate partnerships in which the Company held an equity investment:


	At		At
	June 30,		December 31,
	2021		2020
(in thousands)
Total assets	$	46,829	$	47,632
Debt		6,987		6,644
Other liabilities		9,167		9,612

The following table provides information about the gross revenue, operating expenses and net loss of U.S. real estate partnerships in which the Company had an equity investment:


	For the three months ended				For the six months ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Gross revenue	$	401	$	549	$	923	$	1,191
Operating expenses		432		392		961		1,107
Net loss and net loss attributable to the entity		(713)		(645)		(1,229)		(1,400)

Investment in SAWHF

SAWHF was determined not to be a VIE, and therefore, the Company accounts for this investment using the equity method of accounting. At June 30, 2021, the carrying value of the Company’s 11.85% equity investment in SAWHF was $1.5 million.

The following table provides information about the carrying value of total assets and other liabilities of SAWHF:


	At		At
	June 30,		December 31,
	2021		2020
(in thousands)
Total assets	$	12,717	$	15,861
Other liabilities		126		150

The following table provides information about the gross revenue, operating expenses and net income of SAWHF:


	For the three months ended				For the six months ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Gross revenue	$	357	$	405	$	366	$	1,517
Operating expenses		101		145		218		636
Net income and net income attributable to the entity		118		1,045		458		1,121

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Note 4—Other Assets

The following table provides information related to the carrying value of the Company’s other assets:


	At		At
	June 30,		December 31,
(in thousands)	2021		2020
Other assets:
Real estate owned	$	15,632	$	15,510
Debt issue costs		1,417		2,004
Equity investments		2,302		2,463
Derivative assets		242		61
Accrued interest receivable		138		139
Other assets		271		305
Total other assets	$	20,002	$	20,482

Real Estate Owned (“REO”)

The following table provides information about the carrying value of the Company’s REO held for use, net:


	At		At
	June 30,		December 31,
(in thousands)	2021		2020
Land improvements	$	13,013	$	12,891
Land		2,619		2,619
Total	$	15,632	$	15,510

Land improvements are depreciated over a period of 15 years.

The Company’s investments include the Company’s REO, which consists of a parcel of land that is currently in the process of being developed. Since the Company’s REO has not been placed in service, 0 depreciation expense was recognized in connection with this land investment for the three months and six months ended June 30, 2021, and June 30, 2020, nor were any impairment losses recognized by the Company during these periods in connection with our REO.

Debt Issuance Costs

The Company incurred, but deferred in the Consolidated Balance Sheets, $3.4 million of debt issuance costs in connection with the execution by MMA Energy Holdings, LLC (“MEH” or “Borrower”), a wholly owned subsidiary of the Company, of a credit agreement for a revolving credit facility with various lenders. These costs are being amortized ratably over the three-year term of the revolving credit facility as an adjustment of interest expense that is recognized in connection with the UPB of amounts drawn from such credit facility. During the three and six months ended June 30, 2021, the Company recognized $0.3 million and $0.6 million, respectively, and $0.3 million and $0.5 million during the three and six months ended June 30, 2020, respectively, of interest expense in the Company’s Consolidated Statements of Operations related to the amortization of debt issuance costs for the revolving credit facility. At June 30, 2021, and December 31, 2020, the unamortized balance of debt issuance costs was $1.4 million and $2.0 million, respectively. See Note 5, “Debt,” for more information.

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Equity Investments

On May 22, 2020, the Company received a $2.9 million pro rata distribution from SAWHF of 7.2 million shares of a residential real estate investment trust (“REIT”) that are listed on the Main Board of the Johannesburg Stock Exchange (“JSE”). These REIT shares, which trade under the trading symbol “TPF,” are reported at their fair value and are denominated in South African rand. These shares are pledged as collateral to the SAWHF debt included within notes payable and other debt. At June 30, 2021, the carrying value of these shares was $2.3 million. See Note 5, “Debt,” Note 7, “Fair Value,” and Note 8, “Guarantees and Collateral” for more information.

Derivative Assets

At June 30, 2021, and December 31, 2020, the Company recognized $0.2 million and $0.1 million, respectively, of derivative assets. See Note 6, “Derivative Instruments,” for more information.

Loans Held For Investment

On January 3, 2020, the UPB of $53.6 million of the Hunt Note was repaid and on December 30, 2020, the UPB of $1.3 million of the Company’s renewable energy-related loan was repaid. The Company had 0 unfunded loan commitments at June 30, 2021, and December 31, 2020.

Note 5—Debt

The table below provides information about the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at June 30, 2021, and December 31, 2020:


	At				At
	June 30, 2021				December 31, 2020
			Wtd. Avg.				Wtd. Avg.
			Effective				Effective
	Carrying		Interest		Carrying		Interest
(dollars in thousands)	Value ⁽⁴⁾		Rate ⁽⁴⁾		Value ⁽⁴⁾		Rate ⁽⁴⁾
Other Debt
Subordinated debt ⁽¹⁾
Due within one year	$	2,198	1.5	%	$	2,217	1.5	%
Due after one year		89,899	1.5			90,995	1.5
Revolving credit facility debt obligations
Due within one year		—	—			—	—
Due after one year		79,150	6.1			103,700	5.6
Notes payable and other debt ⁽²⁾
Due within one year		4,159	14.7			4,206	13.7
Due after one year		13,688	5.2			13,533	5.2

Total other debt		189,094	4.0			214,651	4.0

Asset Related Debt
Notes Payable and Other Debt
Bond related debt ⁽³⁾
Due within one year		22,987	2.5			242	2.5
Due after one year		—				22,912	2.5

Total asset related debt		22,987	2.5			23,154	2.5

Total debt	$	212,081	3.8	%	$	237,805	3.8	%

(1)	The subordinated debt balances include net cost basis adjustments of $6.7 million and $6.9 million at June 30, 2021, and December 31, 2020, respectively, that pertain to premiums and debt issuance costs.

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(2)	Included in Other Debt – notes payable and other debt were unamortized debt issuance costs of $0.2 million at June 30, 2021, and December 31, 2020.

(3)	Included in Asset Related Debt – notes payable and other debt – bond related debt were unamortized debt issuance costs of $0.1 million at June 30, 2021, and December 31, 2020.

(4)

Covenant Compliance and Debt Maturities

The following table provides information about scheduled principal payments associated with the Company’s debt agreements that were outstanding at June 30, 2021:


	Asset Related Debt
(in thousands)	and Other Debt
2021	$	1,115
2022		107,940
2023		11,568
2024		1,813
2025		3,131
Thereafter		80,066
Net premium and debt issue costs		6,448
Total debt	$	212,081

On February 24, 2021, a prospective purchaser filed a special litigation lien, known as a Lis Pendens, on the entire 150-acre property of our direct investment in real estate. The Company intends to vigorously defend against these claims and pursue available remedies. The Company has filed its own slander of title lawsuit against the prospective purchaser for wrongly filing the Lis Pendens on the entire 150-acre property rather than the 26-acres in dispute. Although the Company has filed motions to dismiss the lawsuit and the Lis Pendens, unless and until dismissed, the Lis Pendens constitutes a default under the Company’s financing of this property. The Company has been in communication with the lender and does not expect the lender to take any action in respect of the default in light of the lender’s first lien position but can provide no assurance that the lender will not take any action. At June 30, 2021, the UPB of this note payable was $9.7 million. Refer to Note 9, “Commitments and Contingencies,” for more information. At June 30, 2021, the Company was in compliance with all other covenants under its debt arrangements.

Other Debt

Other debt of the Company finances non-interest-bearing assets and other business activities of the Company. The interest expense associated with this debt is classified as “Interest expense” under “Other expenses” on the Consolidated Statements of Operations.

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Subordinated Debt

The table below provides information about the key terms of the subordinated debt that was issued by MMA Financial Holdings, Inc. (“MFH”), the Company’s wholly owned subsidiary, and that was outstanding at June 30, 2021:


(dollars in thousands)			Net Premium				Interim
			and Debt		Carrying		Principal
Issuer	UPB		Issuance Costs		Value		Payments ⁽¹⁾	Maturity Date	Coupon
MFH	$	25,229	$	2,035	$	27,264	Amortizing	March 30, 2035	three-month LIBOR plus 2.0%
MFH		22,941		1,847		24,788	Amortizing	April 30, 2035	three-month LIBOR plus 2.0%
MFH		13,224		985		14,209	Amortizing	July 30, 2035	three-month LIBOR plus 2.0%
MFH		24,043		1,793		25,836	Amortizing	July 30, 2035	three-month LIBOR plus 2.0%
Total	$	85,437	$	6,660	$	92,097

(1)	The subordinated principal amortizes 2.0% per annum.

Revolving Credit Facility Debt Obligations

On September 19, 2019, MEH entered into a $125.0 million (the “Facility Amount”) revolving credit agreement with various lenders. During the first quarter of 2020, the maximum Facility Amount increased to $175.0 million and the committed amount of the revolving credit facility increased from $100.0 million to $120.0 million upon the joinder of an additional lender and an increase in commitment by one of the existing lenders.

Obligations associated with the revolving credit facility are guaranteed by the Company and are secured by specified assets of the Borrower and a pledge of all of the Company’s equity interest in the Borrower, which holds the equity interests in the Solar Ventures, through pledge and security documentation. Availability and amounts advanced under the revolving credit facility are subject to compliance with a borrowing base comprised of assets that comply with certain eligibility criteria, and includes late-stage development, construction and permanent loans to finance renewable energy projects and cash.

The revolving credit facility contains affirmative and negative covenants binding on the Borrower that are customary for credit facilities of this type. Additionally, the credit agreement includes collateral performance tests and the following financial covenants of the Company and its consolidated subsidiaries: minimum debt service coverage ratio, maximum debt to net worth, minimum consolidated net worth and minimum consolidated net income.

Borrowing under the revolving credit facility bears interest at the one-month London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements (subject to a 1.5% floor), plus a fixed spread of 2.75% per annum. At June 30, 2021, the LIBOR base rate plus the fixed spread was 4.25%. At June 30, 2021, the weighted-average effective interest rate of the Company’s obligation was 6.1%. The Borrower has also agreed to pay certain customary fees and expenses and to provide certain indemnities. In certain circumstances where the interest rate is unable to be determined, including in the likely event LIBOR ceases to be published, the administrative agent to the credit agreement will select a new rate in its reasonable judgment, including any adjustment to the replacement rate to reflect a different credit spread. The maturity date of the credit agreement is September 19, 2022, subject to a 12-month extension solely to allow refinancing or orderly repayment of the facility.

At June 30, 2021, the UPB and carrying value of amounts borrowed from the revolving credit facility was $79.1 million. During the six months ended June 30, 2021, the Company paid down the amounts drawn on the revolving credit facility to remain in compliance with the borrowing base eligibility criteria of the facility due to increased lending on the ERCOT loans, which were ineligible for the facility during such reporting period.

Notes Payable and Other Debt

At June 30, 2021, the UPB and carrying value of notes payable and other debt that was used to finance the Company’s 11.85% ownership interest in SAWHF was $4.0 million. This debt, which is denominated in South African rand, has a maturity date of January 18, 2022, and requires the Company to pay its counterparty a rate equal to the Johannesburg

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Interbank Agreed Rate (“JIBAR”) plus a fixed spread of 5.15%. At June 30, 2021, the JIBAR base rate was 3.68% and this debt obligation’s weighted-average effective interest rate, which is recalculated over the life of the debt instrument when JIBAR resets and incorporates the impact of the unamortized balance of debt issuance costs into its derivation, was 14.09%.

At June 30, 2021, the UPB and carrying value of notes payable and other debt obligations to the Morrison Grove Management, LLC principals (“MGM Principals”) was $4.3 million. This debt bears interest at 5.0%. The $2.8 million debt obligation amortizes over its contractual life and is due to mature on January 1, 2026. The $1.5 million debt obligation pays interest only until March 31, 2026, and then amortizes in 3 equal installments until its maturity date of January 1, 2027.

At June 30, 2021, and December 31, 2020, $9.6 million and $9.4 million, respectively, of notes payable and other debt obligations relates to financing that was obtained to finance the development of our direct investment in real estate. This debt obligation is secured by our REO and is guaranteed by the Company. The contractual maturity date of this facility is June 1, 2023, although the facility is subject to 3 extension options (at the discretion of the borrower and lender): (i) the first extension term would expire on November 1, 2023; (ii) the second extension term would expire on May 1, 2024, and (iii) the final amortized term would expire three years after the initial term, first extension term and second extension term, as applicable. Amounts drawn from this debt facility are repayable on an interest only basis at a rate of 4.85% with all outstanding principal due at maturity during the initial term, first extension term and second extension term. However, during the final extension term the debt bears interest at a rate of three-month LIBOR plus 3.0% per annum, subject to a 5.0% floor with principal amortization required monthly over the three-year extension term. At June 30, 2021, the UPB of this debt obligation was $9.7 million.

Asset Related Debt

At June 30, 2021, under the terms of this TRS agreement, which has a maturity date of June 6, 2022, the counterparty is required to pay the Company an amount equal to the interest payments received on the underlying bond (UPB of $26.2 million with a pay rate of 6.3% at June 30, 2021). The Company is required to pay the counterparty a rate that is based upon the Securities Industry and Financial Markets Association (“SIFMA”) index rate, subject to a 0.5% floor, plus a spread of 2.0% (notional amount of $23.1 million with a pay rate of 2.5% at June 30, 2021). Additionally, under the terms of the TRS agreement, the Company’s TRS counterparty is entitled to share in 10% of the increase in fair value, if any, of the conveyed Infrastructure Bond between the trade and termination dates of the TRS agreement. For reporting purposes, this provision is treated as a freestanding derivative instrument that is reported on a fair value basis.

Letters of Credit

The Company had 0 letters of credit outstanding at June 30, 2021, and December 31, 2020.

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Note 6—Derivative Instruments

The Company uses derivative instruments for various purposes. Pay-fixed interest rate swaps, interest rate basis swaps and interest rate caps are used to manage interest rate risk. Foreign currency forward exchange agreements are used to manage currency risk associated with the financing of our SAWHF equity investment. On July 28, 2021, the Company terminated its foreign currency hedge positions.

Derivative instruments that are recognized in the Consolidated Balance Sheets are measured on a fair value basis. Because the Company does not designate any of its derivative instruments as fair value or cash flow hedges, changes in fair value of these instruments are recognized in the Consolidated Statements of Operations as a component of “Net (losses) gains on derivatives.” Derivative assets are presented in the Consolidated Balance Sheets as a component of “Other assets” and derivative liabilities are presented in the Consolidated Balance Sheets as a component of “Other liabilities.”

The following table provides information about the carrying value of the Company’s derivative instruments:


	Fair Value
	At				At
	June 30, 2021				December 31, 2020
(in thousands)	Assets		Liabilities		Assets		Liabilities
Basis swaps	$	—	$	133	$	—	$	542
Interest rate caps		242		—		61		—
Interest rate swaps		—		999		—		1,665
Foreign currency forward exchange		—		298		—		86
Gain share arrangement ⁽¹⁾		—		138		—		96
Total carrying value of derivative instruments	$	242	$	1,568	$	61	$	2,389

(1)	Refer to Note 5, “Debt” for more information.

The following table provides information about the notional amounts of the Company’s derivative instruments:


	Notional Amounts
	At		At
	June 30,		December 31,
(in thousands)	2021		2020
Basis swaps	$	35,000	$	35,000
Interest rate caps		35,000		35,000
Interest rate swaps		35,000		35,000
Foreign currency forward exchange		4,606		4,494
Total notional amount of derivative instruments	$	109,606	$	109,494

The following table provides information about the net losses that were recognized by the Company in connection with its derivative instruments:


	For the three months ended				For the six months ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Basis swaps ⁽¹⁾		(148)		143	$	371	$	(936)
Interest rate caps		(131)		(18)		181		(154)
Interest rate swaps ⁽²⁾		(268)		(466)		461		(2,044)
Foreign currency forward exchange		(215)		(207)		(213)		875
Gain share arrangement		(97)		(36)		(44)		(36)
Total net (losses) gains of derivative instruments	$	(859)	$	(584)	$	756	$	(2,295)

(1)	The accrual of net interest payments that are made in connection with basis swaps is classified as a component of “Net (losses) gains on derivatives” on the Consolidated Statements of Operations. Net cash paid was de minimis for the three months ended

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June 30, 2021, and June 30, 2020. Net cash paid was de minimis for the six months ended June 30, 2021, and net cash received was de minimis for the six months ended June 30, 2020.

(2)

The accrual of net interest payments that are made in connection with interest rate swaps is classified as a component of “Net (losses) gains on derivatives” on the Consolidated Statements of Operations. Net cash paid was $0.1 million and $0.2 million for the three months and six months ended June 30, 2021. Net cash received was de minimis for the three months and six months ended June 30, 2020.

Note 7—Fair Value

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis are presented in the first table below in this Note. From time to time, we may be required to measure at fair value other assets on a nonrecurring basis such as certain loans held for investment or investments in partnerships. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company measures the fair value of its assets and liabilities based upon their contractual terms and using relevant market information. A description of the methods used by the Company to measure fair value is provided below. Fair value measurements are subjective in nature, involve uncertainties and often require the Company to make significant judgments. Changes in assumptions could significantly affect the Company’s measurement of fair value.

GAAP establishes a three-level hierarchy that prioritizes inputs into the valuation techniques used to measure fair value. Fair value measurements associated with assets and liabilities are categorized into one of the following levels of the hierarchy based upon how observable the valuation inputs are that are used in the fair value measurements.

●

Level 1: Valuation is based upon quoted prices in active markets for identical instruments.

●

Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs or significant value drivers are observable in active markets.

●

Level 3: Valuation is generated from techniques that use significant assumptions that are not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.

Recurring Changes in Fair Value

The following tables present the carrying amounts of assets and liabilities that are measured at fair value on a recurring basis by instrument type and based upon the level of the fair value hierarchy within which fair value measurements of our assets and liabilities are categorized:


	At
	June 30,		Fair Value Measurements
(in thousands)	2021		Level 1		Level 2		Level 3
Assets:
Investments in debt securities	$	24,709	$	—	$	—	$	24,709
Equity investments		2,302		2,302		—		—
Derivative instruments		242		—		242		—

Liabilities:
Derivative instruments	$	1,568	$	—	$	1,568	$	—

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	At
	December 31,		Fair Value Measurements
(in thousands)	2020		Level 1		Level 2		Level 3
Assets:
Investments in debt securities	$	31,038	$	—	$	—	$	31,038
Equity investments		2,463		2,463		—		—
Derivative instruments		61		—		61		—

Liabilities:
Derivative instruments	$	2,389	$	—	$	2,389	$	—

Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the three months ended June 30, 2021:


	Investments in
(in thousands)	Debt Securities
Balance, April 1, 2021	$	28,753
Net gains included in earnings ⁽¹⁾		4,080
Net change in AOCI ⁽²⁾		(3,855)
Impact from sales or redemptions		(4,080)
Impact from settlements ⁽³⁾		(189)
Balance, June 30, 2021	$	24,709

(1)	This amount represents $4.1 million of net fair value gains that were realized during this reporting period in connection with the sale of the Company’s tax-exempt multifamily bond investment.

(2)

This amount represents the reclassification into the Consolidated Statements of Operations of $4.1 million of net fair value gains related to the Company’s tax-exempt multifamily bond investment that was sold during this period. This decline was partially offset by $0.2 million of net unrealized gains recognized during this reporting period in connection with the Company’s bond investment.

(3)	This impact considers the effect of principal payments received and amortization of cost basis adjustments.


	Investments
	in Debt		Loans Held for		Derivative
(in thousands)	Securities		Investment		Liabilities
Balance, April 1, 2020	$	29,645	$	1,271	$	—
Net losses included in earnings ⁽¹⁾		—		20		(36)
Net change in AOCI ⁽²⁾		467		—		—
Impact from sales or redemptions		—				—
Impact from settlements ⁽³⁾		(124)		—		—
Balance, June 30, 2020	$	29,988	$	1,291	$	(36)

(1)

This amount represents $20 thousand of unrealized gains recognized during this reporting period in connection with the Company’s loan investment held at June 30, 2020. This amount is classified as “Net gains on loans” in the Company’s Consolidated Statement of Operations. In addition, the Company recognized $36 thousand of unrealized losses during this reporting period related to the gain share arrangement that is classified as “Net (losses) gains on derivatives” in the Company’s Statement of Operations.

(2)	This amount represents $0.5 million of net unrealized gains recognized during this reporting period in connection with the Company’s bond investments.

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(3)	This impact considers the effect of principal payments received and amortization of cost basis adjustments.


	Investments
	in Debt
(in thousands)	Securities
Balance, January 1, 2021	$	31,038
Net gains included in earnings ⁽¹⁾		4,080
Net change in AOCI ⁽²⁾		(6,186)
Impact from sales or redemptions		(4,080)
Impact from settlements ⁽³⁾		(143)
Balance, June 30, 2021	$	24,709

(1)	This amount represents $4.1 million of net fair value gains that were realized during this reporting period in connection with the sale of the Company’s tax-exempt multifamily bond investment.

(2)

This amount represents the reclassification into the Consolidated Statements of Operations of $4.1 million of net fair value gains related to the Company’s tax-exempt multifamily bond investment during this period and $2.1 million of net unrealized losses recognized during this reporting period in connection with the Company’s bond investments.

(3)	This impact considers the effect of principal payments received and amortization of cost basis adjustments.


	Investments
	in Debt		Loans Held for		Derivative
(in thousands)	Securities		Investment		Liabilities
Balance, January 1, 2020	$	31,365	$	500	$	—
Net losses included in earnings ⁽¹⁾		—		11		(36)
Net change in AOCI ⁽²⁾		(1,296)		—		—
Impact from loan originations		—		780		—
Impact from settlements ⁽³⁾		(81)		—		—
Balance, June 30, 2020	$	29,988	$	1,291	$	(36)

(4)

This amount represents $11 thousand of unrealized losses recognized during this reporting period in connection with the Company’s loan investment held at June 30, 2020. This amount is classified as “Net gains on loans” in the Company’s Consolidated Statement of Operations. In addition, the Company recognized $36 thousand of unrealized losses during this reporting period related to the gain share arrangement that is classified as “Net (losses) gains on derivatives” in the Company’s Statement of Operations.

(5)	This amount represents $1.3 million of net unrealized losses recognized during this reporting period in connection with the Company’s bond investments.

(6)	This impact considers the effect of principal payments received and amortization of cost basis adjustments.

Fair Value Measurements of Instruments That Are Classified as Level 3

Significant unobservable inputs presented in the tables that follow are those we consider significant to the fair value of the Level 3 asset or liability. We consider unobservable inputs to be significant if, by their exclusion, the fair value of the Level 3 asset or liability would be impacted by a predetermined percentage change, or based on qualitative factors, such as nature of the instrument, type of valuation technique used and the significance of the unobservable inputs relative to

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other inputs used within the valuation. Following is a description of the significant unobservable inputs that are referenced in the tables below:

●

Market yield – is a market rate of return used to calculate the present value of future expected cash flows to arrive at the fair value of an instrument. The market yield typically consists of a benchmark rate component and a risk premium component. The benchmark rate component, for example, Municipal Market Data or SIFMA index rates, is generally observable within the market and is necessary to appropriately reflect the time value of money. The risk premium component reflects the amount of compensation market participants require due to the uncertainty inherent in the instrument’s cash flows resulting from risks such as credit and liquidity. A significant decrease in this input in isolation would result in a significantly higher fair value measurement.

●

Capitalization rate – is calculated as the ratio between the net operating income produced by a commercial real estate property and the price for the asset. A significant decrease in this input in isolation would result in a significantly higher fair value measurement.

The tables that follow provide quantitative information about the valuation techniques and the range and weighted-average of significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a recurring basis for which we use an internal model to measure fair value. The significant unobservable inputs for Level 3 assets and liabilities that are valued using dealer pricing are not included in the tables, as the specific inputs applied are not provided by the dealer.

Fair Value Measurement at June 30, 2021

Significant

Valuation

Unobservable

Weighted

(dollars in thousands)

Fair Value

Techniques

Inputs ⁽¹⁾

Range ⁽¹⁾

Average

Recurring Fair Value Measurements:

Investments in debt securities:

Infrastructure Bond

24,709

Discounted cash flow

Market yield

7.02

N/A

(1)

Unobservable inputs reflect information that is not based upon independent sources that are readily available. These inputs are based upon assumptions and internally generated data made by the Company, which may include significant judgment that has been developed based upon available information from third-party sources or dealers about what a market participant would use in valuing the asset.

Fair Value Measurement at December 31, 2020

Significant

Valuation

Unobservable

Weighted

(dollars in thousands)

Fair Value

Techniques

Inputs ⁽¹⁾

Range ⁽¹⁾

Average

Recurring Fair Value Measurements:

Investments in debt securities:

Infrastructure Bond

24,741

Discounted cash flow

Market yield

7.1

N/A

Multifamily tax-exempt bond

Subordinated cash flow

6,297

Discounted cash flow

Market yield

6.9

N/A

Capitalization rate

6.4

N/A

(1)

Nonrecurring Changes in Fair Value

There were no nonrecurring fair value adjustments recognized by the Company during the three months and six months ended June 30, 2021. At June 30, 2020, the Company’s equity investment in SF Venture was assessed to be other-than-temporarily impaired. Consequently, the Company adjusted the carrying value of such investment to its fair value as of such reporting date, which was estimated by determining the Company’s share of the net asset value (“NAV”) of the SF

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Venture at June 30, 2020, where the assets and liabilities of the SF Venture were adjusted to their fair values as of such reporting date and a discount for lack of marketability was then applied to the Company’s share of the measured NAV of the SF Venture. The Company recognized a $9.0 million impairment loss in adjusting this investment’s carrying value to its measured fair value at June 30, 2020. Because of the limited observability of certain valuation inputs that were used to measure the fair value of this equity investment, it was classified as level 3 in the fair value hierarchy at June 30, 2020.

Additional Disclosures Related to the Fair Value of Financial Instruments That Are Not Carried on the Consolidated Balance Sheets at Fair Value

The tables that follow provide information about the carrying amounts and fair values of those financial instruments of the Company for which fair value is not measured on a recurring basis and organizes the information based upon the level of the fair value hierarchy within which fair value measurements are categorized. Assets and liabilities that do not represent financial instruments (e.g., premises and equipment) are excluded from these disclosures.


	At
	June 30, 2021
	Carrying		Fair Value
(in thousands)	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	17,032	$	17,032	$	—	$	—
Restricted cash		15,423		15,423		—		—

Liabilities:
Notes payable and other debt - bond related		22,987		—		—		23,060
Notes payable and other debt - non-bond related		17,847		—		—		17,790
Revolving credit facility obligations		79,150		—		—		79,150
Subordinated debt issued by MFH		92,097		—		—		63,083


	At
	December 31, 2020
	Carrying		Fair Value
(in thousands)	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	28,644	$	28,644	$	—	$	—
Restricted cash		17,617		17,617		—		—

Liabilities:
Notes payable and other debt - bond related		23,154		—		—		23,267
Notes payable and other debt - non-bond related		17,739		—		—		17,552
Revolving credit facility obligations		103,700		—		—		103,700
Subordinated debt issued by MFH		93,212		—		—		53,204

Valuation Techniques

Cash and cash equivalents and restricted cash – The carrying value of these assets approximated fair value due to the short-term nature and negligible credit risk inherent in them.

Notes payable and other debt – Fair value is measured by discounting contractual cash flows using a market rate of interest or by estimating the fair value of the collateral supporting a debt arrangement, taking into account credit risk.

Subordinated debt – Fair value is measured by discounting projected contractual payments of principal and interest using the instrument’s estimated market yield, which was 7.1% and 8.4% at June 30, 2021, and December 31, 2020, respectively. As outlined in the table above, at June 30, 2021, the aggregate fair value was measured at $63.1 million. At June 30, 2021, the measured fair value of this debt would have been $78.6 million and $51.5 million had its market yield been 4.6% and 9.6%, respectively. The measured fair value of this debt is inherently judgmental and based on management’s assumption

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of market yields. There can be no assurance that the Company could repurchase the remaining subordinated debt at the measured fair values reflected in the table above or that the debt would trade at that price.

Revolving credit facility debt obligations – Fair value of these debt obligations is measured by discounting projected contractual payments of interest and principal using an estimated market yield.

Note 8—Guarantees and Collateral

Guarantees

The Company has guaranteed the performance of payment obligations of certain of its subsidiaries under various debt agreements to third parties. The Company has guaranteed all MFH payment obligations and performance under the terms of the Company’s subordinated debt. However, the Company’s guarantee of the subordinated debt is subordinated to repayment of any senior debt of the Company. Additionally, contemporaneously with the execution of the revolving credit facility, the Company agreed to guarantee all payment and performance obligations of MEH under the credit agreement to the lenders. Furthermore, the Company agreed to guarantee all payment and performance obligations of the borrower associated with financing obtained in the second quarter of 2020 related to our direct investment in real estate that is in process of development. Currently, the Company expects that it will not need to make any payments under these guarantees.

Collateral and Restricted Assets

The following tables summarize assets that are either pledged or restricted for the Company’s use at June 30, 2021, and December 31, 2020:


	At
	June 30, 2021
			Investments						Total
	Restricted		in Debt		Investments in			Other	Assets
(in thousands)	Cash		Securities		Partnerships			Assets	Pledged
Debt related to the revolving credit facility	$	1,011	$	—	$	340,847	$	—	$	341,858
Debt related to the Infrastructure Bond investment		9,827		24,709		—		—		34,536
Debt related to the Company's REO		250		—		—		15,632		15,882
Debt and derivatives related to the Company's 11.85% ownership interest in SAWHF		1,375		—		1,463		2,302		5,140
Interest rate swaps		2,960		—		—		—		2,960
Total	$	15,423	$	24,709	$	342,310	$	17,934	$	400,376


	At
	December 31, 2020
			Investments						Total
	Restricted		in Debt		Investments in		Other		Assets
(in thousands)	Cash		Securities		Partnerships		Assets		Pledged
Debt related to the revolving credit facility	$	1,502	$	—	$	363,157	$	—	$	364,659
Debt related to the Infrastructure Bond investment		10,020		24,741		—		—		34,761
Debt related to the Company's REO		250		—		—		15,510		15,760
Debt and derivatives related to the Company's 11.85% ownership interest in SAWHF		1,374		—		1,833		2,463		5,670
Interest rate swaps		4,463		—		—		—		4,463
Other		8		—		—		—		8
Total	$	17,617	$	24,741	$	364,990	$	17,973	$	425,321

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Note 9—Commitments and Contingencies

Operating Leases

The Company had 0 future rental commitments at June 30, 2021. The Company engaged our External Manager to manage the Company’s continuing operations on January 8, 2018, and conveyed all its operating lease agreements to Hunt at such time.

Litigation and Other Legal Matters

In the ordinary course of business, the Company and its subsidiaries are named from time to time as defendants in various litigation matters or may have other claims made against them. These legal proceedings may include claims for substantial or indeterminate compensatory, consequential or punitive damages, or for injunctive or declaratory relief.

The Company establishes reserves for litigation matters or other loss contingencies when a loss is probable and can be reasonably estimated. Once established, reserves may be adjusted when new information is obtained.

On February 11, 2021, SAH 2001 Fund III MM, Inc. (“SAH”) served Jolt Realty, LLC (“Jolt”) and MMA Capital TC Fund I, LLC (“TC Fund I”) with a Complaint filed in the Superior Court of California, County of Orange. SAH is the managing member of the LNR 2001 Fund III MM, Inc. (the “Fund”). TC Fund I, through Jolt, its wholly owned subsidiary, is the investing member of the Fund. In its Complaint, SAH alleges that in July 2017, it mistakenly paid $1.8 million to Jolt as part of the distribution of proceeds from the sale of property from the Fund. SAH seeks return of that payment based on an alleged breach of the Fund’s Operating Agreement (Count I), unjust enrichment (Count II), and breach of the implied covenant of good faith and fair dealing (Count III). On January 8, 2018, MMA entered into a Master Transaction Agreement with an affiliate of its External Manager (the “MTA”), pursuant to which, among other things, MMA sold its interest in TC Fund I to an affiliate of its External Manager. The terms of the MTA require MMA to indemnify Hunt for any losses associated with this claim and permitted MMA to assume the defense of this claim. MMA assumed the defense of this claim and is vigorously defending against the allegations in the Complaint and denies all counts of the Complaint. The parties have agreed to go to mediation. Although MMA has reason to believe that it will prevail on the merits, the ultimate outcome cannot be predicted at this time.

The Company and a prospective purchaser of a 26-acre portion of the Company’s one direct investment in real estate in Virginia are engaged in a dispute over the prospective purchaser’s option to acquire such portion of the property. The prospective purchaser has filed a lawsuit seeking, among other things, to compel the sale to the prospective purchaser and filed a special litigation lien, known as a Lis Pendens, on the entire 150-acre property. The Company intends to vigorously defend against these claims and pursue available remedies. The Company has filed its own slander of title lawsuit against the prospective purchaser for wrongly filing the Lis Pendens on the entire 150-acre property rather than the 26-acres in dispute. Although the Company has filed motions to dismiss the lawsuit and the Lis Pendens, unless and until dismissed, the Lis Pendens constitutes a default under the Company’s financing for the property. The Company has been in communication with the lender and does not expect the lender to take any action in respect of the default in light of the lender’s first lien position but can provide no assurance that the lender will not take any action. At June 30, 2021, the UPB of this note payable was $9.7 million.

On May 24, 2021, the Company, the Parent and the Merger Sub entered into a Merger Agreement, pursuant to which the Company will merge with and into Merger Sub. Upon completion of the Merger, Merger Sub will be the surviving entity, continuing as a wholly owned subsidiary of Parent, and the separate corporate existence of the Company will cease. The Company filed with the SEC on July 13, 2021, its definitive proxy statement relating to the proposed transaction (the “Proxy Statement”).

After the Company filed the Proxy Statement, various plaintiffs filed lawsuits related to the proposed transaction. Six plaintiffs filed individual actions in federal courts, alleging violations of the Securities Exchange Act of 1934 (“Exchange Act”). The cases are: Beraud v. MMA Capital Holdings, Inc., et al., 1:21-cv-04227 (E.D.N.Y.); Ciccotelli v. MMA Capital Holdings, Inc., et al., No. 1:21-cv-06423 (S.D.N.Y.); Morgan v. MMA Capital Holdings, Inc., et al., No. 1:21-cv-01088 (D. Del.); Ryan v. MMA Capital Holdings, Inc., et al., No. 1:21-cv-01082 (D. Del.); Whitfield v. MMA Capital Holdings, Inc., et al., No. 2:21-cv-03365 (E.D. Pa.); and Reinhardt v. MMA Capital Holdings, Inc., et al, 1:21-cv-01122 (D. Del.). The complaints in all six of these cases name the Company and all seven of its directors as defendants (collectively,

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“Defendants”). All six complaints allege, among other things, that the directors caused the Company to file a materially incomplete and/or misleading proxy statement relating to the proposed transaction in violation of Sections 14(a) and 20(a) of the Exchange Act. All six plaintiffs seek, among other relief, an injunction preventing the Company from consummating the Merger, attorney’s fees, and, in the event the court does not enjoin the Merger, rescission of the Merger or unspecified damages.

In a seventh case, Cohen v. Michael Falcone, et al., No. 2021-0646 (Del. Ch. Ct.), the plaintiff filed a putative class action lawsuit, on his behalf and on behalf of all similarly situated shareholders, against the Company and all seven directors in the Delaware Court of Chancery. Cohen alleges that the directors breached their fiduciary duties by failing to provide the Company’s public shareholders with all material information necessary to decide whether to vote in favor of or against the Merger or exercise appraisal rights. Cohen’s complaint seeks, among other things, an injunction preventing both the shareholder vote and the Merger, attorney’s fees, and, if the court does not enjoin the Merger, rescission of the Merger or unspecified damages. In addition, Cohen has filed with the court a motion for a preliminary injunction.

While the Company believes that the disclosures in connection with the proposed transaction, including those set forth in the Proxy Statement, comply fully with applicable law, the Company has voluntarily supplemented the Proxy Statement with the supplemental disclosures set forth in a Current Report on Form 8-K filed with the SEC on August 3, 2021 (the “Supplemental Disclosures”). The Company specifically disclaimed in the Supplemental Disclosures any admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth therein. To the contrary, the Company specifically denied all allegations in the litigation that any additional disclosure was or is required. Further, it is the Company’s position that the Supplemental Disclosures render all of the litigation moot and that all of the cases should therefore be dismissed.

Plaintiffs’ counsel have agreed in six of the seven cases that the Supplemental Disclosures render their respective lawsuits moot. The Company has not heard from counsel in the seventh case, Beraud v. MMA Capital Holdings, Inc., et al., but the Company’s litigation counsel believes the Supplemental Disclosures render that case moot as well and that the Plaintiff’s counsel will not take a contrary position. In the Cohen case, the court had initially scheduled a hearing on Cohen’s Motion for Preliminary Injunction for August 9, 2021, but that hearing has now been cancelled in light of the case becoming moot.

At June 30, 2021, we had no other significant litigation matters and we were not aware of any other claims that we believe would have a material adverse impact on our financial condition or results of operations.

Other Risks and Uncertainties

We continue to monitor the economic impact of the COVID-19 pandemic on the performance of our other investments and underlying real estate values. Although we have not recognized impairment charges during the first quarter of 2021, we believe it is reasonably possible that we may be required to recognize one or more material impairment charges over the next 12 months, particularly if underlying economic conditions deteriorate. Because any such impairment charge will be based on future circumstances, we cannot predict at this time whether we will be required to recognize any further impairment charges and, if required, the timing or amount of any impairment charge.

With respect to recognized DTAs, while COVID-19 caused a sharp deterioration in macro-economic conditions, the potential amount and permanence of long-term impacts of those conditions on the Company’s business was uncertain at June 30, 2021. Given such uncertainty and other factors pertaining to the Company’s exposure to loans made by the Solar Ventures to renewable energy projects that are located in the Electric Reliability Council of Texas (“ERCOT”) service area, we believe it is reasonably possible that, if the Merger were to fail to close, within the next 12 months, a reduction to the carrying value of net DTAs that is material to the Company’s financial statements could be recognized. However, whether we recognize such a loss and the exact timing and amount of gain or loss recognition depends upon future circumstances and, therefore, cannot be predicted at this time.

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Note 10—Equity

Preferred Share Information

On January 1, 2019, as part of the Company’s conversion to a corporation, the Company was authorized to issue 5,000,000 of preferred shares, in one or more series, with 0 par value. As of June 30, 2021, the Board of Directors (“Board”) has not authorized any of these shares to be issued and no rights have been established for any of these shares.

Common Share Information

As of June 30, 2021, the Company was authorized to issue 50,000,000 common shares. The following table provides information about net (loss) income to common shareholders as well as provides information that pertains to weighted-average share counts that were used in per share calculations as presented on the Consolidated Statements of Operations:


	For the three months ended				For the six months ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Net income (loss)	$	138	$	(3,508)	$	(7,945)	$	(6,566)

Basic and diluted weighted-average shares ⁽¹⁾		5,824		5,807		5,822		5,806

(1)	Includes common shares issued and outstanding, as well as deferred shares of non-employee directors that have vested but are not issued and outstanding.

Common Shares

Effective May 5, 2015, the Company adopted a Tax Benefits Rights Agreement (the “Rights Plan”) to help preserve the Company’s net operating losses (“NOLs”). In connection with adopting the Rights Plan, the Company declared a distribution of 1 right per common share to shareholders of record as of May 15, 2015. The rights do not trade apart from the current common shares until the distribution date, as defined in the Rights Plan. Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person.

On March 11, 2020, the Board approved an extension of the original five-year term of the Rights Plan until May 5, 2023, or until the Board determines the plan is no longer needed, whichever comes first. Subsequently, shareholders ratified the Board’s decision to extend the Rights Plan at the Company’s 2020 annual meeting of shareholders. On May 24, 2021, prior to the execution of the Merger Agreement, the Company amended its Rights Plan to provide that neither Parent nor Merger Sub nor any of their affiliates or associates will be deemed to be or become (i) an “Acquiring Person” as a result of the approval, adoption, execution, delivery and/or amendment of the Merger Agreement or the various voting agreements, (ii) a “Beneficial Owner” of, or have “Beneficial Ownership” of, or to “beneficially own” any shares of Company common stock under the Rights Plan; and (iii) neither a “Distribution Date” nor a “Stock Acquisition Date” under the Rights Plan will occur or be deemed to have occurred as a result of the approval, adoption, execution, delivery, and/or amendment of the Merger Agreement or various voting agreements; (iv) the rights issued under the Rights Plan will expire immediately prior to the effective time under the Merger Agreement, if the effective time occurs, and (v) nothing in the Rights Plan will be construed to give holders of rights certificates (or holders of Company Common Stock prior to the distribution date of the rights) under the Rights Plan any rights, remedies or claims as a result of the approval, adoption, execution, delivery, and/or amendment of the Merger Agreement or the various voting agreements. Such amendment will terminate automatically and will have no force or effect upon a termination of the Merger Agreement.

A copy of the third amendment to the Rights Plan was included as an exhibit to a Form 8-K that the Company filed with the SEC on May 24, 2021 and incorporated by reference in this Report.

On January 3, 2018, the Board approved a waiver of the 4.9% ownership limitation for Hunt, increasing this limitation to the acquisition of 9.9% of the Company’s issued and outstanding shares in any rolling 12-month period without causing a triggering event.

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Accumulated Other Comprehensive Income

The following table provides information related to the net change in AOCI for the three months ended June 30, 2021:


	Investments		Foreign
	in Debt		Currency
(in thousands)	Securities		Translation		AOCI
Balance, April 1, 2021	$	5,931	$	86	$	6,017
Net unrealized gains (losses)		224		(164)		60
Reclassification of realized gains on sold or redeemed bonds into the Consolidated Statements of Operations		(4,080)		—		(4,080)
Income tax benefit		1,059		—		1,059
Net change in AOCI		(2,797)		(164)		(2,961)
Balance, June 30, 2021	$	3,134	$	(78)	$	3,056

The following table provides information related to the net change in AOCI for the three months ended June 30, 2020:



	Investments		Foreign
	in Debt		Currency
(in thousands)	Securities		Translation		AOCI
Balance, April 1, 2020	$	6,387	$	793	$	7,180
Net unrealized gains (losses)		467		(110)		357
Income tax expense		(128)		—		(128)
Net change in AOCI		339		(110)		229
Balance, June 30, 2020	$	6,726	$	683	$	7,409

The following table provides information related to the net change in AOCI for the six months ended June 30, 2021:


	Investments		Foreign
	in Debt		Currency
(in thousands)	Securities		Translation		AOCI
Balance, January 1, 2021	$	7,621	$	36	$	7,657
Net unrealized losses		(2,106)		(114)		(2,220)
Reclassification of fair value gains on sold or redeemed bonds into the Consolidated Statements of Operations		(4,080)		—		(4,080)
Income tax benefit		1,699		—		1,699
Net change in AOCI		(4,487)		(114)		(4,601)
Balance, June 30, 2021	$	3,134	$	(78)	$	3,056

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The following table provides information related to the net change in AOCI for the six months ended June 30, 2020:


	Investments		Foreign
	in Debt		Currency
(in thousands)	Securities		Translation		AOCI
Balance, January 1, 2020	$	7,666	$	(33)	$	7,633
Net unrealized (losses) gains		(1,296)		716		(580)
Income tax benefit		356		—		356
Net change in AOCI		(940)		716		(224)
Balance, June 30, 2020	$	6,726	$	683	$	7,409

Note 11—Stock-Based Compensation

On January 8, 2018, the Company engaged the External Manager through the execution of a management agreement with the External Manager (the “Management Agreement”) to externally manage the Company’s operations. In connection therewith, all employees of the Company were hired by the External Manager. The Company has stock-based compensation plans (“Plans”) for non-employee Directors (“Non-employee Directors’ Stock-Based Compensation Plans”) and stock-based incentive compensation plans for employees (“Employees’ Stock-Based Compensation Plans”).

The following table provides information related to total compensation expense that was recorded for these Plans:


	For the three months ended				For the six months ended
	June 30,				June 30,
(in thousands)	2021		2020		2021		2020
Non-employee Directors’ Stock-Based Compensation Plans	$	194	$	194	$	418	$	388

Employees’ Stock-Based Compensation Plans

At June 30, 2021, there were 571,066 share awards available to be issued under Employees’ Stock-Based Compensation Plans. While each existing Employees’ Stock-Based Compensation Plan has been approved by the Board, not all of the Plans have been approved by the Company’s shareholders. The Plans that have not been approved by the Company’s shareholders are currently restricted to the issuance of only stock options. As a result, of the 571,066 shares available under the plans, 73,556 are available to be issued in the form of either stock options or shares, while the remaining 497,510 shares available for issuance must be issued in the form of stock options. Since the Company has no employees, the Company does not expect to issue any of these shares or options.

Non-Employee Directors’ Stock-Based Compensation Plans

The Non-employee Directors’ Stock-based Compensation Plans authorize a total of 1,130,000 shares for issuance, of which 363,883 were available to be issued at June 30, 2021. The Non-employee Directors’ Stock-based Compensation Plans provide for grants of non-qualified common stock options, common shares, restricted shares and deferred shares.

The Non-employee Directors’ Stock-based Compensation Plans provide for directors to be paid $120,000 per year for their services. In addition, the Chairman receives an additional $20,000 per year, the Audit Committee Chair receives an additional $15,000 per year and the other committee chairs receive an additional $10,000 per year. Under this plan, 50% of such compensation is paid in cash and the remaining sum through common share-based grants. In the event that a receipt of shares by a director would potentially result in a trigger event under the Tax Benefits Rights Agreement, such compensation shall be paid in cash, absent action by the Board to specifically exempt such share payment prior to the issuance date.

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The table below summarizes non-employee director compensation, including cash, vested options and common and deferred shares, for services rendered for the six months ended June 30, 2021, and June 30, 2020. The directors are fully vested in the deferred shares at the grant date.


				Common		Deferred		Weighted-average
				Shares		Shares		Grant Date		Options		Directors' Fees
		Cash		Granted		Granted		Share Price		Vested		Expense
June 30, 2021	⁽¹⁾	$	323,125		1,284		2,756	$	23.36		—	$	417,500
June 30, 2020	⁽²⁾		193,750		3,668		3,813		25.90		—		387,500

(1)	During the first quarter of 2021, one of the Company’s directors retired. All compensation in the second quarter of 2021 was paid in cash.

(2)	During the first quarter of 2020, the Board approved the addition of two independent directors and during the third quarter of 2020, our former Chief Executive Officer became a non-employee director.

Note 12—Related Party Transactions and Transactions with Affiliates

Transactions with Hunt

External Management Fees and Expense Reimbursements

On January 8, 2018, the Company sold certain businesses and assets (the “Disposition”) and entered into the Management Agreement. At the time of the Disposition, all employees of the Company were hired by the External Manager. In consideration for the management services being provided by the External Manager, the Company pays the External Manager a base management fee, which is payable quarterly in arrears in an amount equal to (i) 0.50% of the Company’s first $500 million of common shareholders’ equity determined in accordance with GAAP in the U.S. on a fully diluted basis, adjusted to exclude the effect of (a) the carrying value of the Company’s DTAs, and (b) any gains or losses attributable to noncontrolling interests (“GAAP Common Shareholders’ Equity”); and (ii) 0.25% of the Company’s GAAP Common Shareholders’ Equity in excess of $500 million. Additionally, the Company agreed to pay the External Manager an incentive fee equal to 20% of the total annual return of diluted common shareholders’ equity per share in excess of 7%, which excludes the effects of the Company’s DTAs. The Company also agreed to reimburse the External Manager for certain allocable overhead costs including an allocable share of the costs of (i) noninvestment personnel of the External Manager and an affiliate thereof who spend all or a portion of their time managing the Company’s operations and reporting as a public company (based on their time spent on these matters) and (ii) the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) based on the percentage of their time spent managing the Company. Reimbursement of compensation-related expenses is, however, subject to an annual cap of $2.5 million through 2019 and $3.5 million thereafter, until the Company’s GAAP common shareholders’ equity exceeds $500 million.

The current term of the Management Agreement extends to December 31, 2022, and automatically renews thereafter for additional two-year terms. Either the Company or the External Manager may, upon written notice, decline to renew or terminate the Management Agreement without cause, effective at the end of the initial term or any renewal term. If the Company declines to renew or terminates the Management Agreement without cause or the External Manager terminates for cause, the Company is required to pay a termination fee to the External Manager equal to 3 times the sum of the average annual base and incentive management fees, plus 1 times the sum of the average renewable energy business expense reimbursements and the employee cost reimbursement expense, in each case, during the prior two-year period. The Company may also terminate the Management Agreement for cause. NaN termination fee is payable upon a termination by the Company for cause or upon a termination by the External Manager without cause.

For the three months and six months ended June 30, 2021, and June 30, 2020, 0 incentive fee was earned by our External Manager. During the three months ended June 30, 2021, and June 30, 2020, the Company recognized $2.0 million and $2.4 million, respectively, and $4.3 million and $5.2 million for the six months ended June 30, 2021, and June 30, 2020, respectively, of management fees and expense reimbursements payable to our External Manager in its Consolidated Statements of Operations. At June 30, 2021, and December 31, 2020, $2.0 million and $1.2 million, respectively, of management fees and expense reimbursements was payable to the External Manager.

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Termination Agreement

As further discussed in Note 1, Summary of Significant Accounting Policies, the Company entered into a Termination Agreement with the External Manager. The Parent requires as a condition of the Merger that the Company terminate the Management Agreement immediately prior to the Effective Time. The External Manager has agreed to terminate the Management Agreement upon payment of the termination fee in order to allow the Merger to proceed. The termination fee shall be comprised of (i) an amount in cash equal to $16.5 million and (ii) the assignment by the Company to the External Manager of the Company’s South African assets, which were agreed to by the parties to have a value of $3.9 million.

Loans HFI and Investment in Partnerships

As consideration for the Disposition, Hunt agreed to pay the Company $57.0 million and to assume certain liabilities of the Company. The Company provided seller financing through a $57.0 million note receivable from Hunt that had an initial term of seven years, prepayable at any time and bearing interest at the rate of 5% per annum. On October 4, 2018, the Company’s receivable from Hunt increased to $67.0 million as part of Hunt’s election to take assignment of the Company’s agreements to acquire (i) the LIHTC business of Morrison Grove Management and (ii) certain assets pertaining to a specific LIHTC property from affiliates of Morrison Grove Management, LLC (these agreements are collectively referred hereinafter to as the “MGM Agreements”). On December 20, 2019, Hunt prepaid $13.4 million of the note receivable. On January 3, 2020, the note receivable of $53.6 million was repaid.

Note 13—Segment Information

At June 30, 2021, and December 31, 2020, the Company operates as a single reporting segment. Therefore, all required segment information can be found in our consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings and submissions to the SEC under the Exchange Act is recorded, processed, and reported within the time periods specified in the SEC’s rules and forms. These controls and procedures include those designed to ensure that information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.

An evaluation was conducted under the supervision and with the participation of management, including the CEO and CFO, on the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) under the Exchange Act. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective at June 30, 2021.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the three months ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings see Notes to Consolidated Financial Statements – Note 9, “Commitments and Contingencies,” which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

During the quarter ended June 30, 2021, there were no material changes from the risk factors disclosed in our Part I, Item 1A, “Risk Factors,” of the 2020 Annual Report, except as set forth below.

Risks Related to the Proposed Merger

Failure of the Merger to be Completed, the Termination of the Merger Agreement or a Significant Delay in the Consummation of the Merger could Negatively Impact Us.

The Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the Merger, including approval by our shareholders. Please see the section entitled “The Merger Agreement—Conditions to the Merger” in the Proxy Statement. These conditions to the consummation of the Merger may not be fulfilled and, accordingly, the Merger may not be completed or may be significantly delayed. In addition, if the Merger is not completed by February 24, 2022, either Parent or we may choose to terminate the Merger Agreement at any time after that date if the failure to consummate the transactions contemplated by the Merger Agreement is not primarily caused by any failure to fulfil any obligation under the Merger Agreement by the party electing to terminate the Merger Agreement. Furthermore, the consummation of the Merger may be significantly delayed due to various factors, including the receipt of a competing acquisition proposal, or litigation related to the Merger. See Notes to Consolidated Financial Statements - Note 9, “Commitments and Contingencies,” for more information about litigation related to the Merger.

If the Merger is not consummated or is significantly delayed, our ongoing business, financial condition and results of operations may be materially adversely affected.

We have incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. If the Merger is not completed or is significantly delayed, we would have to recognize these expenses without realizing the expected benefits of the Merger.

Additionally, our business may have been and may in the future be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. If the Merger Agreement is terminated, our shareholders cannot be certain that we will be able to find a party willing to engage in a transaction on more attractive terms than the Merger Agreement, or at all, and our results of operations may be adversely impacted by the costs incurred, and by the diversion of management attention, in connection with the Merger. Moreover, the market price of our common share might decline to the extent that the current market price reflects a market assumption that the Merger will be completed. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, could have a material adverse effect on our business, financial condition and results of operations.

We Will be Subject to Business Uncertainties and Contractual Restrictions While the Merger is Pending.

Uncertainty about the effect of the Merger may have an adverse effect on our business, financial condition and results of operations. These uncertainties may impair our ability to attract, retain and motivate key personnel and maintain relationships with third parties pending the consummation of the Merger. Additionally, these uncertainties could cause third parties with whom we deal to seek to change, or fail to extend, existing business relationships with us.

The pursuit of the Merger and preparation for a potential closing thereof may place a burden on our management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the closing process could have a material adverse effect on the Company’s business, financial condition and results of operations.

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In addition, the Merger Agreement restricts us from taking certain actions without Parent’s consent while the Merger is pending. If the Merger is not completed, our inability to take such actions while the Merger is pending could have a material adverse effect on our business, financial condition and results of operations. Please see the sections entitled “The Merger Agreement—Conduct of Business Pending the Merger” and “—Other Covenants and Agreements” in the Proxy Statement for a description of the restrictive covenants applicable to us and Parent.

Litigation Against Us, or the Members of Our Board of Directors, Could Prevent or Delay the Completion of the Merger.

While we believe that any claims that are or may be asserted by purported shareholder plaintiffs related to the Merger would be without merit, the results of any such potential legal proceedings are difficult to predict and could delay or prevent the Merger from being competed in a timely manner. Moreover, any litigation could be time consuming and expensive, could divert our management’s attention away from our regular business and, any lawsuit adversely resolved against us or members of our board of directors, could have a material adverse effect on our business, financial condition and results of operations.

One of the conditions to the consummation of the Merger is the absence of any statute, rule, regulation, executive order, decree, ruling, temporary restraining order, preliminary or permanent injunction or other order issued by a court or other government entity of competent jurisdiction having the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a regulatory authority issues an order or other directive having the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger, then such injunctive or other relief may prevent the Merger from becoming effective in a timely manner or at all, which could have the adverse consequences set forth above.

The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire the Company for greater consideration than what Parent has agreed to pay pursuant to the Merger Agreement.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a party other than Parent. These provisions include a general prohibition on the Company soliciting any acquisition proposal or offer for a competing transaction. Further, subject to certain exceptions, the Company’s board of directors will not withdraw or modify in a manner adverse to Parent the recommendation of the Company’s board of directors in favor of the approval and adoption of the Merger Agreement, and Parent generally has a right to match any competing acquisition proposals that may be made. Notwithstanding the foregoing, at any time prior to the approval and adoption of the Merger Agreement by the Company’s shareholders, the Company’s board of directors is permitted to withdraw or modify in a manner adverse to Parent the recommendation of the Company’s board of directors in favor of the approval and adoption of the Merger Agreement in certain circumstances if it determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties to the Company’s shareholders under applicable law. The Merger Agreement does not require that the Company submit the approval and adoption of the Merger Agreement to a vote of the Company’s shareholders if the Company’s board of directors changes its recommendation in favor of the approval and adoption of the Merger Agreement in a manner adverse to Parent and terminates the Merger Agreement in order to enter into an alternative acquisition agreement with respect to a competing transaction in accordance with the terms of the Merger Agreement. In certain circumstances, upon termination of the Merger Agreement, we will be required to pay a termination fee of $4.85 million to Parent, including if the Company terminates the Merger Agreement prior to obtaining shareholder approval in order to enter into an alternative acquisition agreement with respect to a competing transaction in accordance with the terms of the Merger Agreement.

While both the Company and Parent believe these provisions and agreements are reasonable and customary and are not preclusive of other offers, the restrictions, including the added expense of the $4.85 million termination fee that may become payable by the Company to Parent in certain circumstances, might discourage a third party that has an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per share value than the consideration payable in the Merger pursuant to the Merger Agreement.

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The Company will be responsible for certain Merger related transaction costs even if the Merger does not occur.

The Company expects to incur a number of nonrecurring costs associated with the Merger, some of which have been or will be paid even if the Merger does not occur. These costs include, among others, fees and expenses of counsel and other advisors and representatives, expenses of the Company’s financial advisor, and filing fees, mailing costs and proxy solicitation fees for the proxy statement and defense costs of various lawsuits that have been filed related to the proxy solicitation. These costs could have an adverse impact on our results of operations if the Merger does not close.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

None for the three months ended June 30, 2021.

Use of Proceeds from Registered Securities

None for the three months ended June 30, 2021.

Issuer Purchases of Equity Securities

None for the three months ended June 30, 2021.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit No.	Description	Incorporation by Reference

2.1	Agreement and Plan of Merger dated as of May 24, 2021, by and among with FP Acquisition Parent, LLC, FP Acquisition Merger Sub, LLC and MMA Capital Holdings, Inc.	Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 24, 2021

3.1	Certificate of Incorporation of MMA Capital Holdings, Inc.	Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 2, 2019

3.2	By-laws of MMA Capital Holdings, Inc.	Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 2, 2019

4.1	Third Amendment to Tax Benefits Rights Agreement dated as of May 24, 2021 by and between MMA Capital Holdings, Inc. and Broadridge Corporate Issuer Solutions, Inc.	Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 24, 2021

10.1	Termination Agreement dated as of May 24, 2021, by and between MMA Capital Holdings, Inc. and Hunt Investment Management, LLC	Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 24, 2021

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	Inline XBRL Instance Document

101.SCH	Inline XBRL Taxonomy Extension Schema

101.CAL	Inline XBRL Taxonomy Extension Calculation

101.LAB	Inline XBRL Taxonomy Extension Labels

101.PRE	Inline XBRL Taxonomy Extension Presentation

101.DEF	Inline XBRL Taxonomy Extension Definition

104	Cover Page Interactive Data File (formatted as an Inline XBRL document and included in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


		MMA CAPITAL HOLDINGS, INC.

Dated:	August 5, 2021	By:	/s/ Gary A. Mentesana
		Name:	Gary A. Mentesana
		Title:	Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.


By:	/s/ Gary A. Mentesana	August 5, 2021
Name:	Gary A. Mentesana
Title:	Chief Executive Officer (Principal Executive Officer)


By:	/s/ David C. Bjarnason	August 5, 2021
Name:	David C. Bjarnason
Title:	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

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MMA Capital (Trading Symbol(s) MMAC MMAC) 10-Q2021 Q2 Quarterly report

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