Hannon Armstrong Sustainable Infrastructure Capital Inc

NYSE:HASI

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon. And welcome to Hannon Armstrong's Conference Call on its Q1 2020 Financial Results. Leadership will be utilizing a slide presentation for this call, which is available now for download on the company’s Investor Relations page at investors.hannonarmstrong.com.

Today's call is being recorded and we have allocated 30 minutes for prepared remarks and Q&A. All participants will be in a listen-only mode. [Operator Instructions]

At this time, I would like to turn the conference call over to Chad Reed, Vice President, Investor Relations and ESG for the company. Please go ahead.

[Chad Reed, Vice President, Investor Relations and ESG]

Thank you, Operator. Good afternoon, everyone, and welcome. Earlier this afternoon Hannon Armstrong distributed a press release detailing our first quarter 2020 results, a copy of which is available on our website. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be available later today.

Before the call begins, I would like to remind you that some of the comments made in the course of this call are forward-looking statements and within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act -- and Exchange Act of 1934 as amended. The company claims the protections of the Safe Harbor for forward-looking statements contained in such sections.

The forward looking statements made in this call are subject to the risks and uncertainties described in the Risk Factors section of the company's Form 10-K and other filings with the SEC. Actual results may differ materially from those described during the call.

In addition, all forward-looking statements are made as of today and the company does not undertake any responsibility to update any forward-looking statements based on new circumstances or revised expectations.

Please note that certain non-GAAP financial measures will be discussed on this conference call. A presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. A reconciliation of GAAP to non-GAAP financial measures is available on our posted earnings release and slide presentation.

Joining me on today's call are Jeff Eckel, the company's Chairman and CEO; and Jeff Lipson, our CFO.

With that, I'd like to turn the call over to Jeff, who will begin on slide three. Jeff?

[Jeff Eckel, Chairman and CEO]

Thank you, Chad, and good afternoon, everyone. I hope you and your families are as well as they can be. I have to admit, I've struggled more in preparation for this call than I have for my prior 28 earnings calls.

Today, Hannon Armstrong is announcing that fortunately we maintain a healthy workforce and access markets for growth capital, our reporting record first quarter earnings, continue to manage a portfolio that is performing to expectations and are able and willing to reaffirm guidance for 2020.

This good news stands in stark contrast with the impact of this pandemic on people and businesses to-date and in the future. This is my struggle. There are so many impacted directly and indirectly, so many first responders and healthcare workers taking risks. We at Hannon Armstrong are not directly exposed to. We are deeply humbled by and grateful for their work.

Rather than jump right into the numbers, I want to highlight a few actions we've taken during the pandemic. First, we closed the office on March 10th, earlier than most companies in order to ensure our staff and their families stay healthy. Fortunately, we have stayed healthy and will continue to put employee health first.

The good news is that financial service firms are better suited to remote work than most. Other than the working parents of school aged children struggling with school and childcare closures. Our team is highly functional.

Second, we made significant donations to three local organizations, the Maryland Food Bank, the YWCA in Annapolis, Indianapolis Lighthouse, organizations providing food security, protection for domestic abuse victims and shelter for the homeless. We in our staff will continue to support these and other community organizations during the pandemic.

As for the resiliency of the business, I've reflected on a number of factors that caused Hannon Armstrong business model to prosper in this unprecedented environment. First, virtually all of our investments saved the obligor money. This is a profoundly important distinction that is often missed in more normal times.

Second, our clients, the leading energy and infrastructure companies in the country in the world, our large, responsible corporate citizens, who will survive and prosper as we exit from this crisis.

Finally, the investment pipeline which drives our future growth remains intact, not only because these investments save people money and are sponsored by our terrific clients. But also because the underlying theme of investing in climate change solutions is proving a durable asset class and one that we believe will come out of this crisis even stronger.

Now on to the numbers for our first quarter results on page four of the slide deck. Today we're announcing GAAP earnings per share of $0.35 up to 67% year-over-year, core earnings per share of $0.44 up 33% year-over-year. Later, Jeff L will detail a new accounting standard and how our definition of core earnings has changed as a result. But until then, when I refer to core earnings, it is consistent with the last quarter’s definition to allow investors to compare our results to our guidance.

We raised nearly $550 million in growth capital through April including $400 million in unsecured green bonds and $150 million in equity through our ATM. We achieved 40% year-over-year growth in GAAP net income, excuse me, GAAP net investment income and 52% growth in core net investment income.

We report a portfolio yield of 7.7% and as Jeff L will detail in a bit, our portfolio is performing to expectations and is in great shape. We closed $186 million of transactions compared to $319 million in the first quarter last year. But importantly, still expect full year originations to exceed the $ 1billion mark.

And finally at a time when challenging economic conditions and uncertainty about the future, are forcing many companies to withdraw guidance, fortunately for the reasons I outlined. We remain confident about our ability to weather the current crisis and are reaffirming our guidance for 2020 with core EPS expected to exceed $1.43 per share.

Turing to slide five, let's turn to our more than $2.5 billion pipeline the majority of which is behind the meter. Although, you will notice this quarter and increase in grid connected pipeline. We continue to identify attractive efficiency and renewable opportunities in the federal and municipal markets, as well as universities, schools and hospitals. Investments that have been engineered before the crisis are generally proceeding. While the to be engineered investments may be pushed back a quarter or two.

With regard to residential solar, deployments of projects already in our pipeline continue, even as new originations have understandably slowed as a result of social distancing and the economic downturn. The quick shift by the resi solar companies to online selling, engineering and permitting has been impressive.

We also continue to look closely at a number of opportunities in the grid connected sector. As federal tax credits for wind step down, wind project execution is accelerating, potentially leading to new investment opportunities for Hannon.

As a final note, we occasionally get the question on the impact of low oil prices on our renewable pipeline. The answer is there is virtually zero impact, whether the price of oil is $10 or $100, because oil is not used for electric power generation, except a little bit in Hawaii. Hopefully, we can put this question to rest for good.

Turning to slide six, our balance sheet portfolio is more diverse and longer dated than it was at the end of 2019, as at the end of the first quarter, we have 180 investments, with an average size of approximately $12 million and a weighted average life of approximately 15 years.

Behind the meter market represents over 60% of our portfolio and generates a forward looking yield of 8.1%. The fact, that virtually all of these assets save money for the Obligor. It’s one of the reasons for a strong credit profile.

I think one of the outcomes of the crisis is that people will be more focused on the reliability and resiliency of power where they work and live, as reliable power is proving even more critical. This will only help strengthen both our credit profile, as well as expand the storage opportunity.

At 38% of our portfolio generating a forward looking yield of 7.1%, the grid connected market continues to be driven by both solar/land and onshore wind. In sum, our $2.1 billion balance sheet portfolio remains well diversified with long-dated assets and poised to support our projected growth in 2020 and beyond.

Let's turn now to slide seven, which highlights a transaction that went from our pipeline to our portfolio in Q1. We invested $115 million in preferred equity into the Hawkeye Energy, a landmark public private partnership between NG and the University of Iowa.

Hawkeye Energy was awarded $1 billion 50-year utility management concession contract and in the investment reach financial close on March 10th. Hawkeye will support the university's energy, water and sustainability objectives for two campuses spanning 1,700 acres, including meeting at zero carbon energy transition objectives and becoming coal free in campus energy production on or before 2025.

Innovative in both scope and ambition, it serves as a campus utility system model for major U.S. Universities and research hospitals that look to achieve their cost and sustainability objectives. The investments financial profiles strong with an attractive 50-year risk adjusted return for contracted cash flows from a high investment grade counterparty. This is expansion in the higher education P3 market also grows and diversifies our pipeline and strengthens the portfolio, while fully aligning with our climate positive ESG objectives.

Now, I'll turn it over to Jeff L who will detail our financial performance.

[Jeff Lipson, Chief Financial Officer]

Thanks, Jeff. Summarizing, excuse me, summarizing our first quarter results on side eight. We recorded GAAP earnings per share of $0.35 in the first quarter, an increase of 67% over the same period last year, due to increases in both interest revenue and equity method investment earnings.

For core earnings per share, allow me to reiterate our definition that beginning this quarter, core earnings will now include CECL-related provisions, which I will explain further in a few moments.

However, for 2020, we will also disclose pre-provision core EPS as that is the comparable metric related to prior periods and is also the metric we are utilizing for our guidance. Core earnings per share was $0.43 in the first quarter and core earnings per share on the pre-provision basis was $0.44 cents, reflecting a 30% increase from 2019.

As we turn to slide nine, I want to highlight the $29 million of core net investment income in Q1, a 52% increase year-over-year. This increase has been the result of growth in our portfolio, as well as improvement in our portfolio yield.

We are encouraged by this migration of the business to more significant levels of net investment income, as this enhances the predictability of our core EPS. However, we would expect the growth rate in core net investment income to moderate somewhat over the next one to two quarters, due to a substantial amount of low yielding cash on the balance sheet from our recent capital raises. It is also notable we achieved a core ROE in excess of 12% in the first quarter.

As we turn to slide 10, I want to emphasize that even in the midst of an extraordinarily challenging macroeconomic environment, our diversified liquidity platform is working as intended.

We primarily fund our business in four ways, bank credit facilities, unsecured debt, public equity, and secured financings both on and off balance sheet primarily with life insurance companies. Despite all of this disruption – despite all the disruption in capital markets over the last two months, we've utilized all four of these sources actively and each of them remained open to us.

After a brief period in which non-investment grade debt markets were inaccessible, we issued $400 million of green bonds soon after the market reopened in a transaction that was well received by investors and significantly oversubscribed.

The substantial fundraising we completed over the last two months positions us extremely well for the current recessionary environment, with a substantial amount of cash available to continue to fund accretive investments.

We ended the quarter with $173 million of unrestricted cash, much of it generated from equity issuance via our ATM platform and we significantly increase that balance with the debt offering and additional ATM sales in April.

In fact, the ATM has been a successful low cost equity issuance platform and we intend to refresh our registration, allowing for another $350 million of issuance. To reiterate, our motivation for raising this debt and equity was our confirmation from our clients that our pipeline transactions continue to move forward.

I'll also note we have limited refinance risk, as we have no material recourse debt maturities until September 2022, when our convertible bonds mature and that given this baby settles in shares this maturity does not necessarily reflect the cash need. We also have limited interest rate risk, as the vast majority of our assets and liabilities are fixed rate.

Turning to slide 11, the credit quality of our portfolio remains stable, as depicted in the pie chart on the right. All of our governments and the vast majority of our commercial obligors enjoy investment grade ratings.

In addition, the obligors of our residential solar assets include approximately 150,000 high credit quality consumers located across 22 states. And then our equity method investments we are typically preferred in the investment structure.

On slide 12, as I discussed in our last call. We highlight that beginning this year we've implemented the new accounting standard referred to as CECL. Similar to the method that banks and many finance companies have utilized for years.

As a result, we have created an allowance for losses on the balance sheet and recorded a provision on the income statement for certain of our assets. Notably, equity method investments are excluded from CECL.

For the first quarter, we recorded approximately 650,000 net provision expense, hence the $0.01 in core EPS mentioned earlier. It's important to note two things, one, utilizing provision and allowance does not change the profitability of our investments over their full life, but typically reduces profitability in the first year of the investment.

And two, if CECL is an accounting methodology change and does not impact the actual credit quality of our investments and should not be interpreted as a change in our expectations of portfolio performance. We've also included for reference a simple example of the timing impact of CECL income recognition in the appendix of today's presentation.

Further to give investors additional transparency into our portfolios performance, we provided a new disclosure table on slide 12. Currently 99% of our portfolio is performing, 1% is performing slightly below our metrics, but it’s a low probability of loss of invested capital and $8 million of assets are performing below – significantly below our metrics. However, please note the investments in category three have been fully reserved for 2019.

Turning slide 13, we're also providing details on the credit attributes of our residential solar investments, including the customer savings component that Jeff referenced earlier, modest monthly payment amounts, widespread usage of ACH, FICO scores well above national averages, transferability of panels, portfolio granularity and geographic diversity.

We also highlight that these portfolios have been under by multiple sophisticated investors and rating agencies as part of the senior debt, financing the same pools of assets. These debt financings are also structured with an identified backup servicing plan.

Towards the bottom of this slide, we reflect that we have substantial equity providing credit enhancement for our mezzanine investments. We can report that since the COVID-19 pandemic commenced based on information we've received to-date and other public disclosures, the increase in customer delinquencies and deferrals in the underlying portfolio have not been significant. However, we continue to work closely with our solar partners to monitor the portfolio given the current macroeconomic environment.

We've also included in the appendix, a slide outlining the collections procedures of the solar providers. We hope these enhanced asset quality disclosures are helpful to investors in better understanding our credit risk and portfolio performance.

With that, I'll turn the call back over to Jeff.

[Jeff Eckel, Chairman and CEO]

Thanks. Turning to slide 14, I will highlight notable recent developments on the ESG front that continue to demonstrate our leadership. Following our most recent green bond offering, we joined the NASDAQ sustainable bond network, which sharpens accountability for issuers and should enhance liquidity for green bond investors.

In addition to the donations I mentioned at the beginning of the call to support COVID-19 relief efforts by local charities. We also offered 100% match of employee charitable contributions and an employee bonus to help with hardship expenses. We also invite you to check out our 2019 impact report, which we published in March, you can find on our website. Well, that seems like a long time ago that we published that report.

Well, I believe we get appropriate credit for our environmental and governance practices in most quarters. The social element of ESG is generally not as visible to investors. When this crisis has passed, and it will, I'm certain that the investments we have made in our staff and our community will elevate the essence social to equal visibility and prominence with the E&G in investors’ eyes and you as investors should see the financial benefit from our unwavering commitment to industry leading ESG business practices.

I'll conclude on slide 15. We believe our core markets and clients will prove strong and capable of continuing to develop an engineer programmatic, high quality long dated assets for us to invest in for our portfolio.

That portfolio is geographically and technologically diverse in over 180 investments and has shown strength in class financial crises by being uncorrelated to the general business cycle. Our durable capital structure is Jeff detailed, with ample liquidity, conservative leverage and access to diverse funding sources will allow us to make investments and grow the business.

Finally, we remain focused on the sizeable and growing investment opportunities in climate change solutions that our clients continue to create.

Thank you for joining us today. Stay well. And Operator, we'll open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Chris Van Horn with B. Riley FBR. Please go ahead.

[Chris Van Horn, B. Riley FBR]

Good afternoon. Thanks for taking my call and hope everyone as well.

[Jeff Eckel, Chairman and CEO]

Thanks, Chris.

[Chris Van Horn, B. Riley FBR]

I am wondering if you could give us maybe a real time update, how the month of April has progressed and how your conversations with the pipeline has been going?

[Jeff Eckel, Chairman and CEO]

Chris, it’s kind of hard to address. April, I think you could take from particularly my comments on the pipeline and the reaffirmation of guidance that we've not heard anything in April that would change what our view was at the end of the quarter.

Most of the assets in construction are considered essential services. We've not seen any notable reduction in construction. And I think the key -- maybe a key thing to think about is when we see an investment opportunity, say, like the University of Iowa, there's been a year or two have selling and engineering and originating and structuring that investment before we see it.

There is a stock of those assets sitting out there in our clients pipeline that we fully expect to be able to transact on in 2020. I mentioned that some assets that haven't been sold or engineered yet, might have a one quarter or two quarter delay. I think that's quite possible and I think most of the clients believe they can play catch up at the end of the year and get their pipelines back intact.

[Chris Van Horn, B. Riley FBR]

Got it. Okay. Great. And then, when you look at your pipeline, I imagine there is a lot of military or government exposure and just curious or even municipal -- down to the municipal level. I'm wondering if you are seeing any budget effects affecting that pipeline or if because of the scope of work is to save money, you're actually seeing an increase in demand, which I think you alluded to a little bit?

[Jeff Eckel, Chairman and CEO]

Yeah. I think, I mean, the federal government, obviously, they can issue that and make more dollars. We've been through this -- through several financial crisis with the federal government and the issues -- they'll have the same remote working issues as any employee person. But from a credit standpoint that has never been an issue. We don't anticipate it.

For the -- let's say, the most market municipal, university schools and hospitals. They obviously can't issue debt and one should worry about credit. But you hit exactly on the answer is these assets save them money to not pay us, will eventually cost them more money and also the credit profile of particularly municipal exposure we've got is quite high.

[Chris Van Horn, B. Riley FBR]

Got it. Great. And I guess, finally, the resi solar piece of the portfolio. It seems like it's somewhat holding up mainly due to the high FICO score. But in your conversations with the servicers is what's kind of the temperature moving forward and how do they see that playing out?

[Jeff Eckel, Chairman and CEO]

Well, I think, SunPower doing their call right now. Sunrun has reported not sure about the event. Yeah, but in talks with SunPower and Sunrun comments, you are given the impression and we have zero loan, we have the information that the assets are performing and there is a sense of optimism among SunPower and Sunrun that this is actually an assets class the people will value more post-crisis then they might have pre-crisis. We are still early days, but we love the credit profile of what we have got and where we are in the capital stack in these transaction. Jeff, anything you would add to that answer.

[Jeff Lipson, Chief Financial Officer]

No. Nothing reiterate what I said in the prepared remarks that we are seeing significant deferrals or delinquency yet, but we are watching it very closely and we have underwritten as a priority payment and we continue to have thesis that this is a priority payment to the customers.

[Chris Van Horn, B. Riley FBR]

Okay. Great. Thank you so much for the time and stay safe and healthy.

[Jeff Eckel, Chairman and CEO]

Thank you Chris.

[Jeff Lipson, Chief Financial Officer]

Thank you.

[Operator]

The next question is from Julien Dumoulin-Smith with Bank of America. Please go head.

[Anya Shelekhin, Bank of America]

Hey. This is actually Anya filling for Julien.

[Jeff Eckel, Chairman and CEO]

Hi, Anya.

[Anya Shelekhin, Bank of America]

Hi. How are you?

[Jeff Eckel, Chairman and CEO]

Good.

[Anya Shelekhin, Bank of America]

First, just wanted to ask what is your expectations are for the pace of origination grid, just given circumstances? And similar for gain on sales securitization, may be more for 2021 than 2020 since seem you pretty confident on 2020 originations as the conversations that have been ongoing and just yeah more color on that?

[Jeff Eckel, Chairman and CEO]

2021 question. I think the companies that are dealing with are actually looking at this in many respects as an opportunity to accelerate the infrastructure from less sustainable infrastructure to more sustainable. There are other companies and other energy industries, who are not looking at all optimistically about 2020 or 2021. Those aren't our clients.

So given that it is early days and we don't have a vaccine, how long this last is really quite the right question and we're no better at answering it than anybody else. But to the extent construction projects are getting done, that saves people money. Our clients are going to do them and we'll have I think, a good pipeline.

One other way to look at it, Anya, is I've reemphasized that we expect to get to $1 billion in close transactions in 2020. We are carrying more than $2.5 billion pipeline. Now, the problem historically with our pipe as things move to the right. I'm sure things will move to the right. But that right just happens to be 2021 and I do believe new transactions will surface to fill in the transactions that we move from pipeline to portfolio. With respect to securitizations, Jeff, do you want to take it or -- go ahead.

[Jeff Lipson, Chief Financial Officer]

Sure. Again the forecast gain on sale in 2021 would be challenging. As you know, Anya, most of what we securitize is energy efficiency transactions. That market remains strong, but I would think we'd be hesitant to be definitive about what 2021 gain on sale would look like at this point.

[Jeff Eckel, Chairman and CEO]

Except maybe I would add that the insurance companies are who the buyers of our gain on sale are functioning open, we're doing business with them and just as we did in ’08 and ’09, they have insurance premium money coming in, they have to reinvest it and in this extremely low interest rate environment, they have no choice but to do – to keep doing transactions and that's good news for us.

[Anya Shelekhin, Bank of America]

Okay. Thanks. And just to follow-up on just across the asset classes, where are you seeing growth opportunities today maybe in the P3 asset class and then elsewhere?

[Jeff Eckel, Chairman and CEO]

Well, I think, yeah, the P3 area. For those of you who don't know what P3 is, well, it's not paycheck protection plan in our context its public private partnerships. Thrilled to be in the transaction with NG and supporting them.

The offering that they're making to the P3 customers is a really compelling one, and I think, they're going to have a lot of success in this market and we look forward to participating in future transactions.

We're certainly seeing governments continue to go after their sustainability goals, which is largely achieved through efficiency, but also through solar and storage. And then, as I mentioned, the wind industry is having, maybe not the Uber record that they were planning on having in 2020, but they're going to have a terrific year and that creates opportunities for us as well.

[Anya Shelekhin, Bank of America]

Okay. Thanks. I'll jump back in the queue.

[Operator]

The next question is from Noah Kaye with Oppenheimer. Please go ahead.

[Noah Kaye, Oppenheimer]

Good afternoon. Thanks for taking the questions.

[Jeff Eckel, Chairman and CEO]

Hi, Noah.

[Noah Kaye, Oppenheimer]

Hi. How are you?

[Jeff Eckel, Chairman and CEO]

Good.

[Noah Kaye, Oppenheimer]

And thanks for providing extremely transparent view of the health of the business, and frankly, doing so in a manner that fits the company's values. Jeff, I'm not sure if you were alluding to this as a potential opportunity, but it's something we've been thinking about. There's quite a lot of discussion about, what the built environment needs to look like and how that needs to change, as we all hopefully do go back to work and recongregate? Some of the partners that you have for institutional building improvements, commercial building improvement, they've been talking about this and there's quite a lot that they need to be done from a perspective of making buildings more resilient and now really from a public health perspective as well. It's not strictly talking about energy saving, but it is life saving some of these measures being considered. And so, I'm wondering if, since you're talking about…

[Jeff Eckel, Chairman and CEO]

Yeah.

… social aspect of your business is that expanding your opportunities…

[Jeff Eckel, Chairman and CEO]

We do.

[Noah Kaye, Oppenheimer]

…to at all?

[Jeff Eckel, Chairman and CEO]

Noah it’s a great question. I did a webinar for the alliance to save energy on John’s Controls 2020 Survey of Building Energy Managers and have completed in 2019, so pre-COVID and somewhat out of date. But the entire webinar was focused, at least my comments on what is actually changing now in the scope of supply for energy service companies for buildings.

You need a lot more air circulation post-COVID environment than you did before. And you need UV filters in that circulation system. People aren't going – our employees aren't going to come back to work unless they know the building is safe and we fully encourage that.

So we're actually looking into some of those technologies for our own office. Its early days and how to get them done, but absolutely, this increases the scope of supply for the energy service companies and it goes from a, gosh, we get to save money to, good Lord, we got to safe building that is very valuable. So as I think everybody is realizing that virtually everything has changed, that is one area that I think our clients are very quick to off the blocks to seize that opportunity.

[Noah Kaye, Oppenheimer]

Okay. Appreciate that. And maybe just a quick more pragmatic one near-term, you mentioned this potential Russia wind projects in the pipeline. Just -- at this point, does it look to you like there's sufficient tax equity to really fund that Russia projects, if the cost of tax equity increases due to scarcity? How does that position you, give your thought and that would be helpful.

[Jeff Eckel, Chairman and CEO]

Sure. I think in most markets, you see life isn't fair in a crisis in large companies have access to, in this case tax equity that smaller companies don't. To the extent there's scarcity the -- and it's not clear to us that – tax equity has become scarcer. We're seeing commitments get follow through on and transactions closed. But it's going to be our large clients who are getting what available capacity there is.

If there are other projects that need tax equity and can't get it – that's pretty hard for us to bridge in the short-term with actual cash equity. But in terms of the wind opportunity we're talking about we do not see and I think the wind industry association has confirmed is not seeing a notable pickup in tax equity market.

[Noah Kaye, Oppenheimer]

Okay. That's very helpful. Thank you.

[Jeff Eckel, Chairman and CEO]

Thank you, Noah. Stay safe. Hello? I think Chris from Cowen is up next.

[Christopher Souther, Cowen]

Hi, Jeff. I missed the introducer. Thanks for taking the question here. I just wanted to touch on and see if there were any new opportunities that were popping up outside of your traditional scope as projects or companies kind of face liquidity issues in the near-term. Just given your peaked up the war chest here, want to get your thoughts?

[Jeff Eckel, Chairman and CEO]

Yeah. It's a fair question, Chris. The bias we have in picking through projects and investable opportunities is, who can we do repeat business with is programmatic investment that we talk about so often. That's the way our business makes money.

We are less likely to be opportunistic and a one off transaction, even if somebody needs more capital than they thought they did. That's really not kind of our way of working. And fortunately, most of our clients are large companies who have tremendous access to liquidity. So we're not seeing train wrecks that allow us to be more opportunistic.

But I would say that it’s – we've seen an increase in our cost of capital and as the stock price lowered and the unsecured debt priced more expensively than the prior issuance. That is a something that we'll be able to in this market, I think, adjust pricing to make sure that the price and cost of capital moves out in parallel lines.

[Christopher Souther, Cowen]

So just on kind of the price that you're discussing as kind of dislocation in markets, change that with either some of the projects that you're looking at now or potentially the change companies when you go to several different projects?

[Jeff Eckel, Chairman and CEO]

Yeah. I think there was maybe in March and early April some failure to recognize that the world had changed a bit. But now that we're in May, I think, everybody is pretty much got the memo that, the finance markets have changed and capital is getting paid, I think, a more fair price than it was pre-crisis.

[Christopher Souther, Cowen]

That's good to hear. And then just last one, you'd call out wind is – good tide wind is an area of the pipeline that seems to be growing. Can you talk a bit about the -- what is in the sustainable infrastructure side and where the increased opportunities are there?

[Jeff Eckel, Chairman and CEO]

Yeah. So that's -- a lot of that is storm water remediation, we continue to do that business. Those transactions are primarily state level credits. So a very and highest rated states. So very, very good transactions for us to add to the balance sheet and COVID-19 are not, the states are still under mandate to do these projects and they simply have to do them and they're clearly construction projects with a lot of social distancing. They're often out in the woods or along a highway, whether there are people. So we're pretty confident that those will continue.

There are other sustainable infrastructure projects in repairing transmission lines and things like that, but they've always been a bit episodic, but when they come they should be good transactions as well for post-COVID environment.

[Christopher Souther, Cowen]

Got it. And maybe just last one, how can it be origination process change understand with the programmatic relationships, it's a lot easier. But just funded them, it sounds like things seem to be well on track when see if there are any areas where, there are delays or lockdowns within that process?

[Jeff Eckel, Chairman and CEO]

And again, typically, we're -- the projects that may experience those lockdowns or supply chain problems, we probably wouldn't have seen for another six months to 12 months to 18 months anyways. So they may be out there and -- but it's in the future for us. The projects that we're investing in generally are well supplied and able to proceed.

So as so much of this new environment, there's still a lot to learn and a lot to understand. But I'm just super impressed with our clients, believe them to turn on a dime and change the way they're working and fix things these are really capable companies and it's great to have them as clients.

[Christopher Souther, Cowen]

Good to hear. I will hop in the queue. Thanks.

[Operator]

The next question is from Stephen Byrd with Morgan Stanley. Please go ahead.

[Stephen Byrd, Morgan Stanley]

Hey. Good afternoon. Hope you all are doing well.

[Jeff Eckel, Chairman and CEO]

Hi, Stephen.

[Stephen Byrd, Morgan Stanley]

A lot of my questions have been addressed, I just wanted to touch on Hawkeye, pretty sizable investment? And I just wanted to understand in terms of the impacts to guidance for 2020, how to think about the impacts to guidance given size of the investment?

[Jeff Eckel, Chairman and CEO]

I mean, let’s say, I’m looking at Jeff here, how would you answer. I think, we would – we obviously have just reiterate the guidance we expected to put substantial amount of assets into the portfolio. This is one of them that’s been in our pipeline for a while. So I'm not sure it fundamentally changes the 2020 results.

The good thing about infrastructure investments like these as they move glacially up and down. And the things in our pipeline are generally going to happen. So I'm not sure there is a 2020 impact. Anything you would add Jeff?

[Jeff Lipson, Chief Financial Officer]

No. I mean our guidance is based on obviously a certain level of investments and the Iowa transaction was a component of that that we've now checked off. So it certainly help – helps us -- helps facilitate us reaffirming our guts.

[Stephen Byrd, Morgan Stanley]

Yeah. That’s great. What I check, yeah, no, please go ahead.

[Jeff Eckel, Chairman and CEO]

I am glad to close it on March 10th, the same day we were closing the office. So a lot of stuff got closed on March 10th.

[Stephen Byrd, Morgan Stanley]

Very good. That's all I had. Thank you.

[Jeff Eckel, Chairman and CEO]

Thanks, Stephen.

[Operator]

The next question is from Phillip Shen with ROTH Capital Partners. Please go ahead.

[Phillip Shen, ROTH Capital Partners]

Hey, guys. Thanks for the questions.

[Jeff Eckel, Chairman and CEO]

Hi, Phil.

[Phillip Shen, ROTH Capital Partners]

We're navigating as many others are you have any conference calls. So apologies if you've already addressed this. But wanted to see if you could give us a little more color on how the resi solar investments are going. I know you have -- I believe you have three partners. So SunStrong with SunPower the event [ph] and one other one. Can you compare and contrast the performance from each of those different portfolios? And Sunrun gave some interesting data yesterday about how their delinquencies 30 days, 60 days, 90 days, 120 days through March and April are at the lowest level in the past six months. So I was wondering and so perhaps that's some color right there on Sunrun, but can you comment on how your three different portfolios are performing?

[Jeff Eckel, Chairman and CEO]

So, Phil, we would not comment on the portfolios individually. That's just not something that we're able to disclose and they are each of our three partners are public companies. So as you alluded to, there is some data out there that they're providing.

I think what we have said, if you missed it, was that deferrals and delinquencies have not increased significantly as a result of the pandemic so far. But, obviously we're keeping a close eye on it given the macro economic trends we have right now.

And we've underwritten this, our investment thesis here is that this is a priority payment for the consumers, at the top of the consumer waterfall, so to speak. And for reasons that we've outlined most notably that it does save the money and many other things which are on page 13 of this slide deck. So that's how we've sort of thought about it and so far it's holding up, we're watching it closely, I think, would be our message there.

[Phillip Shen, ROTH Capital Partners]

Okay. So -- but as we go through this pandemic and given the performance of that asset class for you guys, and you have lots of other investment options, are you more encouraged or less encouraged. They are going to continue to originate? Do you expect to take on meaningfully more megawatts or investments into your portfolio over time?

[Jeff Lipson, Chief Financial Officer]

Yeah. We would certainly -- we liked what we've invested in. We certainly are open to future, residential solar investments. One thing I think has been fascinating is and I think SunStrong said that Sunrun is what they plan to do in two years they did in 30 days in terms of going to online selling engineering and permitting.

Sunrun has echoed the same, excuse me, Sunpower has echoed the same rapidity of change. That does wonders for sales. But what it really does for those guys is reduced their cost of customer acquisition and selling. And so you could look at this as the impact is going to make them more profitable, which is quite a good fact for us.

[Phillip Shen, ROTH Capital Partners]

Great. One of the ones, if I may, data centers in the growth there is pretty phenomenal and there's a lot of renewables going into there. And industrial guys have not talked about exposure to that market, but do you see on the horizon potential to get some exposure to that data center growth?

[Jeff Eckel, Chairman and CEO]

Well, I do think some of the PPA off takers and portfolios we bought would represent some of those companies. It's absolutely going to be a growing market and they have a big impact. And so, I'm glad they have big sustainability goals. It's certainly a market that we will like and continue to see opportunities.

[Philip Shen]

Great. Thank you both. I'll pass it on.

[Jeff Eckel, Chairman and CEO]

Stay well Phil

[Jeff Lipson, Chief Financial Officer]

Thanks, Phil.

[Operator]

The next question is from David Cater with Baird. Please go ahead.

[David Cater, Baird]

Hey, guys. Thanks for taking the question. And I'm sorry if I'm repeating something I already touched on. But seeing portfolio yields continue to move higher as you look at current portfolio, how high can that go, how much more room do you have to rotate some lower yielding assets of there?

[Jeff Eckel, Chairman and CEO]

The rotation of lower yielding assets is primarily complete. So movements in portfolio yield will likely going forward be much more affected by what the incremental assets are on the balance sheet and when an if any payoff are syndicated.

But we don't sort of forecast publicly our yield, I would say directionally, as Jeff alluded to a few moments ago, the price of risk has increased, and there has been some resetting of cost of capital. And so that may have a positive impact on our yield, but I think it's still too early to tell right now.

[Jeff Lipson, Chief Financial Officer]

Yeah.

[David Cater, Baird]

Understood. And then shifting to kind of capital, you issued some more debt in 2020 as we think of future capital raises, how much debt are you comfortable raising there? What will be the kind of the upper limit?

[Jeff Lipson, Chief Financial Officer]

In other word, an active participant and established name in the high yield market, I don't think there's any meaningful limitation on the amount we could issue given the size of that market. And if we upgraded it certainly we would make the same comment around the high grade market as well.

So the limitation is only what we can do with that money and what kind of leverage profile we want to maintain. And so, it's not it's not a market limitation. So we'll raise debt, consistent with maintaining, roughly the leverage profile we have today and the amount of investment opportunity we have in the pipeline. So it's not a debt target so to speak.

[David Cater, Baird]

Understood. That's helpful and that's all I had, guys. Thanks.

[Jeff Eckel, Chairman and CEO]

Thank you. Stay well.

[Operator]

This concludes our question-and-answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.