10-Q 1 s111656_10q.htm FORM 10Q

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

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

 

For the quarterly period ended June 30, 2018

 

OR

 

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

 

Commission file number: 000-55610 

 

 

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   80-0872648
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)

 

11 East 44th Street, 12th Floor
New York, NY 10017 
Tel (646) 237-7884 
(Address, including zip code and telephone number, including area code, of registrants Principal Executive Office)
 

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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  (Do not check if a smaller reporting company) 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

 

As of August 6, 2018, the registrant had 31,642,653 shares of common stock, $0.001 par value, outstanding.

 

 

 

TABLE OF CONTENTS

 

      PAGE
       
PART I. FINANCIAL INFORMATION   2
       
Item 1. Consolidated Financial Statements   2
       
  Consolidated Statements of Assets and Liabilities as of June 30, 2018 (unaudited) and December 31, 2017   2
       
  Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited)   3
       
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2018 and 2017 (unaudited)   4
       
  Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)   6
       
  Consolidated Schedules of Investments as of June 30, 2018 (unaudited) and December 31, 2017   7
       
  Notes to Consolidated Financial Statements (unaudited)   9
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   34
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   66
       
Item 4. Controls and Procedures   67
       
PART II. OTHER INFORMATION   67
     
Item 1. Legal Proceedings   67
       
Item 1A. Risk Factors   67
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   67
       
Item 3. Defaults Upon Senior Securities   68
       
Item 4. Mine Safety Disclosures   68
       
Item 5. Other Information   68
       
Item 6. Exhibits   68
       
Signatures     69

  

 

 

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

 

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

 

   June 30, 2018   December 31, 2017 
   (unaudited)     
ASSETS    
Investments, at fair value (cost of $263,034,466 and $212,361,027, respectively)  $272,879,786   $218,386,174 
Swap contracts, at fair value   1,167,993    156,068 
Cash and cash equivalents   15,507,936    10,144,014 
Shareholder receivable   380,439    225,509 
Dividend receivable   776,000     
Deferred tax assets, net of allowance   4,669,334    4,524,038 
Other assets   163,271    74,242 
Total assets  $295,544,759   $233,510,045 
           
LIABILITIES          
Swap contracts, at fair value  $37,925   $ 
Payable for investments purchased       15,414,205 
Term note payable, net of financing costs   29,432,632    12,910,364 
Management fee payable   320,343    57,291 
Accounts payable and accrued expenses   544,554    400,144 
Shareholder distributions payable   927,642    711,306 
Interest payable   369,061    112,245 
Due to advisor   26,857    10,417 
Payable for repurchases of common stock   883,354    969,448 
Deferred sales commission payable   227,416    249,858 
Total liabilities  $32,769,784   $30,835,278 
           
Commitments and contingencies (See Note 2, Note 5 and Note 9)          
           
MEMBERS’ EQUITY (NET ASSETS)          
Preferred stock, par value, $.001 per share, 50,000,000 authorized; none issued and outstanding  $   $ 
Common stock, par value, $.001 per share, 350,000,000 authorized; 29,774,932 and 23,189,229 shares issued and outstanding, respectively   29,775    23,189 
Paid-in capital in excess of par value   258,103,941    200,510,790 
Accumulated deficit   (11,344,107)   (10,216,279)
Accumulated net realized gain on investments   698,460    698,460 
Accumulated unrealized appreciation (depreciation) on:          
Investments, net of deferred taxes   12,116,703    10,356,379 
Foreign currency translation   (154,942)   (90,083)
Swap contracts   1,130,068    156,068 
Total common stockholders’ equity   260,579,898    201,438,524 
Special unitholder’s equity   2,195,077    1,236,243 
Total members’ equity (net assets)   262,774,975    202,674,767 
Total liabilities and equity (net assets)  $295,544,759   $233,510,045 
           
           
           
Net assets, Class A (shares outstanding of 15,439,761 and 13,857,830, respectively)  $134,682,318   $120,344,517 
Net assets, Class C (shares outstanding of 1,823,693 and 1,431,999, respectively)   15,497,098    12,053,349 
Net assets, Class I (shares outstanding of 5,361,369 and 4,511,832, respectively)   46,767,667    39,181,769 
Net assets, Class P-I (shares outstanding of 7,150,109 and 3,387,568, respectively)   63,632,815    29,858,889 
Total common stockholders’ equity  $260,579,898   $201,438,524 

 

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

 

2

 

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 

   For the three months
ended June 30, 2018
   For the three months
ended June 30, 2017
   For the six months
ended June 30, 2018
   For the six months
ended June 30, 2017
 
Investment income:                    
Dividend income  $4,862,748   $2,881,446   $9,588,296   $5,204,176 
Interest income   122,126    55,024    315,371    99,193 
Total investment income  $4,984,874   $2,936,470   $9,903,667   $5,303,369 
                     
Operating expenses:                    
Management fee expense   1,353,001    759,492    2,518,729    1,456,638 
Audit and tax expense   152,700    85,675    332,105    280,995 
Interest and financing expenses   547,033    185,748    1,199,020    319,718 
General and administration expenses   85,119    68,003    167,688    243,855 
Legal expenses   53,127    44,877    102,442    125,717 
Directors fees and expenses   24,984    25,316    49,694    50,868 
Insurance expense   15,170    20,456    30,336    22,885 
Transfer Agent Expense   89,753        178,520     
Other expenses   23,859    20,283    68,209    82,556 
Total expenses   2,344,746    1,209,850    4,646,743    2,583,232 
Net investment income before taxes   2,640,128    1,726,620    5,256,924    2,720,137 
Deferred tax benefit   656,594    283,856    1,311,168    773,928 
Franchise tax expense   (37,297)   (23,577)   (37,297)   (65,827)
Net investment income   3,259,425    1,986,899    6,530,795    3,428,238 
                     
Net change in realized and unrealized gain                    
(loss) on investments, foreign currency translation and deferred tax assets:                    
Net change in unrealized appreciation (depreciation) on:                    
Investments   1,891,377    1,606,324    3,885,032    1,485,146 
Foreign currency translation   (25,868)   38,991    (64,859)   51,924 
Swap contracts   476,262    (69,043)   974,000    (60,004)
Change in benefit from deferred taxes on unrealized appreciation (depreciation) on investments   73,354    (653,366)   (1,165,874)   (915,435)
Net increase in net assets resulting from operations   5,674,550    2,909,805    10,159,094    3,989,869 
Net decrease in net assets attributed to special unitholder   (468,354)   (308,000)   (958,834)   (307,414)
Net increase in net assets attributed to common stockholders  $5,206,196   $2,601,805   $9,200,260   $3,682,455 
                     
                     
Common stock per share information —basic and diluted:                    
Net investment income  $0.12   $0.11   $0.25   $0.20 
Net increase in net assets attributed to common stockholders  $0.19   $0.15   $0.36   $0.22 
Weighted average common shares outstanding   27,522,492    17,835,922    25,866,495    16,849,686 

 

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

 

3

 

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS

 

For the six months ended June 30, 2018
(Unaudited)

 

   Common Stockholders         
   Shares   Par Value   Paid-in capital in excess of par value   Accumulated deficit   Accumulated net realized gain on investments   Accumulated unrealized appreciation (depreciation) on investments, net of deferred taxes   Accumulated unrealized appreciation (depreciation) on foreign currency translation   Accumulated unrealized appreciation (depreciation) on swap contracts   Common stockholders’
equity
   Special unitholder   Total members’ equity (net assets) 
Balances December 31, 2017   23,189,229   $23,189   $200,510,790   $(10,216,279)  $698,460   $10,356,379   $(90,083)  $156,068   $201,438,524   $1,236,243   $202,674,767 
                                                        
Proceeds from issuance of common stock, net   6,441,773    6,442    56,707,337                        56,713,779         56,713,779 
                                                        
Issuance of common stock under distribution reinvestment plan   324,008    324    2,853,113                        2,853,437         2,853,437 
                                                        
Repurchases of common stock   (180,078)   (180)   (1,589,856)                       (1,590,036)        (1,590,036)
                                                        
Offering costs           (377,443)                       (377,443)        (377,443)
                                                        
Shareholder distributions               (7,658,623)                   (7,658,623)        (7,658,623)
                                                        
Net investment income               6,530,795                    6,530,795         6,530,795 
                                                        
Net change in unrealized appreciation on investments                       2,926,198            2,926,198    958,834    3,885,032 
                                                        
Net change in unrealized depreciation on foreign currency translation                           (64,859)       (64,859)        (64,859)
                                                        
Net change in unrealized appreciation on swap contracts                               974,000    974,000         974,000 
                                                        
Change in benefit from deferred taxes on unrealized depreciation on investments                       (1,165,874)           (1,165,874)        (1,165,874)
                                                        
Balances at June 30, 2018   29,774,932   $29,775   $258,103,941   $(11,344,107)  $698,460   $12,116,703   $(154,942)  $1,130,068   $260,579,898   $2,195,077   $262,774,975 
                                                        

  

4

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS

 

For the six months ended June 30, 2017
(Unaudited)

 

 

   Common Stockholders         
   Shares   Par Value   Paid-in capital in excess of par value   Accumulated deficit   Accumulated net realized gain on investments   Accumulated unrealized appreciation (depreciation) on investments, net of deferred taxes   Accumulated unrealized appreciation (depreciation) on foreign currency translation   Accumulated unrealized appreciation on swap contracts   Common stockholders’ equity   Special unitholder   Total members’ equity (net assets) 
Balances December 31, 2016   14,921,922   $14,922   $128,425,800   $(3,629,220)  $4,578   $4,699,283   $(187,846)  $90,697   $129,418,214   $586   $129,418,800 
                                                        
Proceeds from issuance of common stock, net   3,902,422    3,902    34,923,949                        34,927,851        34,927,851 
                                                        
Issuance of common stock under distribution reinvestment plan   241,929    242    2,190,655                        2,190,897        2,190,897 
                                                        
Repurchases of common stock   (220,689)   (221)   (1,988,824)                       (1,989,045)       (1,989,045)
                                                        
Offering costs           (528,036)                            (528,036)       (528,036)
                                                        
Shareholder distributions               (5,063,899)                   (5,063,899)       (5,063,899)
                                                        
Net investment income               3,428,238                    3,428,238        3,428,238 
                                                        
Net change in unrealized depreciation on investments                       1,177,732            1,177,732    307,414    1,485,146 
                                                        
Net change in unrealized appreciation on foreign currency translation                           51,924        51,924        51,924 
                                                        
Net change in unrealized depreciation on swap contracts                               (60,004)   (60,004)       (60,004)
                                                      
Change in benefit from deferred taxes on unrealized depreciation on investments                       (915,435)           (915,435)       (915,435)
                                                        
Balances at June 30, 2017   18,845,584   $18,845   $163,023,544   $(5,264,881)  $4,578   $4,961,580   $(135,922)  $30,693   $162,638,437   $308,000   $162,946,437 

 

 

5

 

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 

   For the six months ended June 30, 2018   For the six months ended June 30, 2017 
         
Operating activities:          
Net increase (decrease) in net assets from operations  $10,159,094   $3,989,869 
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:          
Amortization of deferred financing costs   108,210    99,660 
Purchase of investments   (55,233,939)   (40,111,512)
Proceeds from principal payments and sales of investments   4,560,500    35,000 
Net change in unrealized (appreciation) on investments   (3,885,032)   (1,485,146)
Net change in unrealized (appreciation) depreciation on foreign currency translation   64,859    (51,924)
Net change in unrealized (appreciation) depreciation on swap contracts   (974,000)   60,004 
(Increase) decrease in other assets:          
Deferred tax assets, net of allowance   (145,296)   141,505 
Dividend receivable   (776,000)    
Other assets   (89,029)   (72,954)
Increase (decrease) in other liabilities:          
Payable for investments purchased   (15,414,205)   4,743,908 
Due to advisor, net   16,440    (47,877)
Management fee payable   263,052    21,626 
Accounts payable and accrued expenses   144,410    24,703 
Interest payable   256,816     
Net cash used in operating activities   (60,944,120)   (32,653,138)
           
Financing activities:          
Borrowings on Credit facility and term note   30,665,460    5,800,000 
Paydowns on Credit facility and term note   (13,655,794)   (5,943,333)
Payments of financing costs   (595,608)    
Proceeds from issuance of shares of common stock, net   56,536,407    35,132,413 
Distributions paid   (4,588,850)   (2,742,825)
Offering costs   (377,443)   (528,036)
Repurchases of common stock   (1,676,130)   (1,993,349)
Due to dealer manager re: Offering costs       (36,694)
Net cash provided by financing activities   66,308,042    29,688,176 
Net increase (decrease) in cash and cash equivalents   5,363,922    (2,964,962)
Cash and cash equivalents, beginning of period   10,144,014    13,055,090 
Cash and cash equivalents, end of period  $15,507,936   $10,090,128 
           
Supplemental disclosure of cash flow information:          
Shareholder distributions payable  $927,642   $534,165 
Shareholder distributions reinvested in common stock  $2,853,437   $2,190,897 
Payable for repurchases of common stock  $883,354   $941,466 
Cash interest paid during the period  $570,457   $147,700 
           
Non cash financing activities          
Shareholder receivable from sale of common stock  $380,439   $291,065 

  

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

 

6

 

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC AND SUBSIDIARY
CONSOLIDATED SCHEDULES OF INVESTMENTS
June 30, 2018
(unaudited)

                        
Investments  Industry  Interest  Maturity Shares or
Principal Amount
  Cost  Fair Value  Percentage of
Net Assets (a)
 
United States:                           
Limited Liability Company Member Interests - Not readily marketable                           
                            
Alternative Energy - Solar                           
                            
Colorado CSG Solar Portfolio  Alternative Energy - Solar           100% Ownership  $2,640,000  $2,612,586   1.0%
                            
East to West Solar Portfolio  Alternative Energy - Solar           100% Ownership   36,649,875   34,848,730   13.3%
                            
Enfinity Colorado DHA Portfolio  Alternative Energy - Solar           100% Ownership   1,400,000   1,799,127   0.7%
                            
Foresight Solar Portfolio  Alternative Energy - Solar          Managing Member, Majority Equity Owner   13,650,000   13,977,757   5.3%
                            
Golden Horizons Solar Portfolio  Alternative Energy - Solar           100% Ownership   9,200,000   15,010,021   5.7%
                            
Greenbacker Residential Solar Portfolio  Alternative Energy - Solar          100% Ownership or Managing Member, Majority Equity Owner   28,100,000   27,639,442   10.5%
                            
Greenbacker Residential Solar Portfolio II  Alternative Energy - Solar           Managing Member, Majority Equity Owner   6,400,000   11,396,565   4.4%
                            
Green Maple Portfolio  Alternative Energy - Solar           100% Ownership   17,582,823   15,833,354   6.0%
                            
Magnolia Sun Portfolio  Alternative Energy - Solar           100% Ownership   10,775,000   9,076,739   3.5%
                            
Midway III Solar Portfolio  Alternative Energy - Solar           100% Ownership   37,271,519   37,223,134   14.2%
                            
Raleigh Portfolio  Alternative Energy - Solar          Managing Member, Majority Equity Owner   20,672,006   20,862,042   7.9%
                            
Six States Solar Portfolio  Alternative Energy - Solar           100% Ownership   12,470,306   12,733,000   4.8%
                            
Sunny Mountain Portfolio  Alternative Energy - Solar           100% Ownership   884,578   1,143,853   0.4%
                            
Tar Heel Solar II Portfolio  Alternative Energy - Solar           100% Ownership   35,000   35,000   0.0%(c)
                            
Total Alternative Energy - Solar - 77.7%                $197,731,107  $204,191,350   77.7%
                            
Alternative Energy - Wind                           
                            
Greenbacker Wind Portfolio - California  Alternative Energy - Wind          100% Ownership or Managing Member, Equity Owner  $9,500,000  $8,562,358   3.3%
                            
Greenbacker Wind Portfolio - Idaho  Alternative Energy - Wind          100% Ownership or Managing Member, Equity Owner   7,320,000   6,728,769   2.5%
                            
Greenbacker Wind Portfolio - Montana  Alternative Energy - Wind          100% Ownership or Managing Member, Equity Owner   21,389,487   21,191,685   8.1%
                            
Greenbacker Wind Portfolio - Vermont  Alternative Energy - Wind          100% Ownership or Managing Member, Equity Owner   24,417,193   28,887,572   11.0%
                            
Total Alternative Energy - Wind - 24.9%                $62,626,680  $65,370,384   24.9%
                            
Energy Efficiency - Lighting Replacement                           
                            
GREC Energy Efficiency Portfolio  Energy Efficiency - Lighting Replacement           100% Ownership  $461,172  $497,926   0.2%
                            
Total Energy Efficiency - Lighting Replacement - 0.2%                $461,172  $497,926   0.2%
                            
Total Limited Liability Company Member Interests - Not readily marketable: 102.8%                $260,818,959  $270,059,660   102.8%
                            
Energy Efficiency Secured Loans - Not readily marketable                           
                            
Renew AEC One, LLC  Energy Efficiency - Lighting Replacement   10.25%(b) 2/24/2025 $ 612,371  $612,371  $612,371   0.2%
                            
Total Energy Efficiency Secured Loans - Not readily marketable: 0.2%                $612,371  $612,371   0.2%
                            
Total United States Investments: 103.0%                $261,431,330  $270,672,031   103.0%
                            
Canada:                           
Capital Stock - Not readily marketable                           
                            
Canadian Northern Lights Portfolio  Alternative Energy - Solar           100% Ownership  $1,603,136  $2,207,755   0.8%
Total Canadian Investments: 0.8%                $1,603,136  $2,207,755   0.8%
                            
INVESTMENTS: 103.8%                $263,034,466  $272,879,786   103.8%
                            
LIABILITIES IN EXCESS OF OTHER ASSETS: (3.8)%                     (10,104,811)  (3.8)%
                            
TOTAL NET ASSETS: 100.0%                    $262,774,975   100.0%

 

(a)Percentages are based on net assets of $262,774,975 as of June 30, 2018.
(b)Per the loan agreement, interest commenced on January 24, 2016.
(c)Amount less than 0.005%

 

Interest Rate Swaps

 

Counterparty  Pay / Receive Floating Rate  Floating Rate Index  Fixed Pay
Rate
  Payment Frequency  Maturity Date  Notional Amount  Value  Upfront Premiums Paid (Received) 
                          
Fifth Third Financial Risk Solutions  Receive  1-MO-USD-LIBOR  1.110% Monthly  7/9/2021   3,822,222  $149,315  $ 
Fifth Third Financial Risk Solutions  Receive  1-MO-USD-LIBOR  2.261% Monthly  2/29/2032   20,900,650   653,908    
Fifth Third Financial Risk Solutions  Receive  1-MO-USD-LIBOR  2.648% Monthly  12/31/2038   29,624,945   364,770    
Fifth Third Financial Risk Solutions  Receive  1-MO-USD-LIBOR  2.965% Monthly  12/31/2038   4,180,063   (37,925)   
                      $1,130,068  $ 

 

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

 

7

 

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC AND SUBSIDIARY
CONSOLIDATED SCHEDULES OF INVESTMENTS
December 31, 2017

                         
Investments  Industry  Interest  Maturity  Shares or
Principal Amount
  Cost  Fair Value  Percentage of
Net Assets (a)
 
United States:                            
Limited Liability Company Member Interests - Not readily marketable                            
                             
Alternative Energy - Solar                            
                             
East to West Solar Portfolio  Alternative Energy - Solar            100% Ownership  $27,934,875  $27,200,000   13.4%
                             
Enfinity Colorado DHA Portfolio  Alternative Energy - Solar            100% Ownership   1,400,000   1,671,317   0.8%
                             
Foresight Solar Portfolio  Alternative Energy - Solar           Managing Member, Majority Equity Owner   13,200,071   13,200,071   6.5%
                             
Golden Horizons Solar Portfolio  Alternative Energy - Solar            100% Ownership   9,450,000   9,482,075   4.7%
                             
Greenbacker Residential Solar Portfolio  Alternative Energy - Solar           100% Ownership or Managing Member, Majority Equity Owner   28,100,000   28,373,526   14.0%
                             
Greenbacker Residential Solar Portfolio II  Alternative Energy - Solar            Managing Member, Majority Equity Owner   6,400,000   7,986,014   3.9%
                             
Green Maple Portfolio  Alternative Energy - Solar            100% Ownership   13,075,000   11,956,821   5.9%
                             
Magnolia Sun Portfolio  Alternative Energy - Solar            100% Ownership   10,775,000   9,635,508   4.8%
                             
Midway III Solar Portfolio  Alternative Energy - Solar            100% Ownership   10,093,861   10,093,861   5.0%
                             
Raleigh Portfolio  Alternative Energy - Solar           Managing Member, Majority Equity Owner   20,672,198   22,850,465   11.3%
                             
Six States Solar Portfolio  Alternative Energy - Solar            100% Ownership   4,770,306   4,756,893   2.3%
                             
Sunny Mountain Portfolio  Alternative Energy - Solar            100% Ownership   884,578   1,205,439   0.6%
                             
Total Alternative Energy - Solar - 73.2%                 $146,755,889  $148,411,990   73.2%
                             
Alternative Energy - Wind                            
                             
Greenbacker Wind Portfolio - California  Alternative Energy - Wind           100% Ownership  $9,500,000  $9,506,752   4.7%
                             
Greenbacker Wind Portfolio - Idaho  Alternative Energy - Wind           100% Ownership   7,320,000   6,799,153   3.4%
                             
Greenbacker Wind Portfolio - Montana  Alternative Energy - Wind           100% Ownership or Managing Member, Equity Owner   21,609,488   23,228,136   11.5%
                             
Greenbacker Wind Portfolio - Vermont  Alternative Energy - Wind           100% Ownership   24,417,193   27,168,808   13.4%
                             
Total Alternative Energy - Wind - 33.0%                 $62,846,681  $66,702,849   33.0%
                             
Energy Efficiency - Lighting Replacement                            
                             
GREC Energy Efficiency Portfolio  Energy Efficiency - Lighting Replacement            100% Ownership  $482,450  $504,637   0.2%
                             
Total Energy Efficiency - Lighting Replacement - 0.2%                 $482,450  $504,637   0.2%
                             
Total Limited Liability Company Member Interests - Not readily marketable: 106.4%                 $210,085,020  $215,619,476   106.4%
                             
Energy Efficiency Secured Loans - Not readily marketable                            
                             
Renew AEC One, LLC  Energy Efficiency - Lighting Replacement   10.25%(b) 2/24/2025    $672,871  $672,871  $672,871   0.3%
                             
Total Energy Efficiency Secured Loans - Not readily marketable: 0.3%                 $672,871  $672,871   0.3%
                             
Total United States Investments: 106.7%                 $210,757,891  $216,292,347   106.7%
                             
Canada:                            
Capital Stock - Not readily marketable                            
                             
Canadian Northern Lights Portfolio  Alternative Energy - Solar            100% Ownership  $1,603,136  $2,093,827   1.1%
Total Canadian Investments: 1.1%                 $1,603,136  $2,093,827   1.1%
                             
INVESTMENTS: 107.8%                 $212,361,027  $218,386,174   107.8%
                             
LIABILITIES IN EXCESS OF OTHER ASSETS: (7.8)%                      (15,711,407)  (7.8)%
                             
TOTAL NET ASSETS: 100.0%                     $202,674,767   100.0%

 

(a)Percentages are based on net assets of $202,674,767 as of December 31, 2017.
(b)Per the loan agreement, interest commenced on January 24, 2016.

 

Interest Rate Swaps

 

Counterparty  Pay / Receive Floating Rate  Floating Rate Index  Fixed Pay Rate  Payment Frequency  Maturity Date  Notional Amount   Value   Upfront Premiums Paid (Received) 
                            
Fifth Third Financial Risk Solutions  Receive  1-MO-USD-LIBOR  1.110% Monthly  7/9/2021   3,893,889   $108,518   $ 
Fifth Third Financial Risk Solutions  Receive  1-MO-USD-LIBOR  2.261% Monthly  2/29/2032   20,900,650    47,550     
                       $156,068   $ 

 

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

 

8

 

 

GREENBACKER RENEWABLE ENERGY COMPANY LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018 (unaudited)

 

Note 1. Organization and Operations of the Company

 

Greenbacker Renewable Energy Company LLC (the “LLC”), a Delaware limited liability company, formed in December 2012, is an externally managed energy company that acquires and manages income-generating renewable energy and energy efficiency projects, and other energy-related businesses, as well as finances the construction and/or operation of these and sustainable development projects and businesses. The LLC conducts substantially all of its operations through its wholly-owned subsidiary, Greenbacker Renewable Energy Corporation (“GREC”). GREC is a Maryland corporation formed in November 2011 and the LLC currently holds all of the outstanding shares of capital stock of GREC. GREC Entity Holdco LLC, a wholly owned subsidiary of GREC, was formed in Delaware, in June 2016 (“GREC Holdco”). The LLC, GREC and GREC Holdco (collectively “we”, “us”, “our”, and the “company”) are externally managed and advised by Greenbacker Capital Management LLC (the “advisor” or “GCM”), a renewable energy, energy efficiency and sustainability related project acquisition, consulting and development company. The LLC’s fiscal year end is December 31.

 

Pursuant to an initial Registration Statement on Form S-1 (File No. 333-178786-01), the company offered up to $1,500,000,000 in shares of limited liability company interests, or the shares, including up to $250,000,000 pursuant to a distribution reinvestment plan (“DRP”), through SC Distributors, LLC, the dealer manager. The offering pursuant to that initial Registration Statement terminated on February 7, 2017. Pursuant to a Registration Statement on Form S-1 (File No. 333-211571), the company is offering on a continuous basis up to $1,000,000,000 in shares of limited liability company interests, or the shares, including up to $200,000,000 of shares pursuant to the DRP, on a “best efforts” basis through the dealer manager, meaning it is not required to sell any specific number or dollar amount of shares. The company is publicly offering three classes of shares: Class A, C and I shares in any combination with a dollar value up to the maximum offering amount. In addition, the company is privately offering Class P-A and P-I shares. The share classes have different selling commissions, dealer manager fees and there is an ongoing distribution fee with respect to Class C shares. The company has adopted a DRP pursuant to which a shareholder owning publicly offered share classes may elect to have the full amount of cash distributions reinvested in additional shares. The company reserves the right to reallocate the offered shares within each offering between each and any share class and between its public offering and the DRP.

 

Each quarter, our advisor, utilizing the services of an independent valuation firm when necessary, reviews and approves the net asset value for each class of shares, subject to the oversight of the company’s board of directors. The company expects such determination will ordinarily be made within 30 days after each such completed fiscal quarter. To the extent that the net asset value per share on the most recent valuation date increases above or decreases below the net proceeds per share, the company will adjust the offering prices of all classes of shares. The adjustments to the per share offering prices, which will become effective five business days after such determination is published, will ensure that after the effective date of the new offering prices, the offering prices per share, after deduction of selling commissions, dealer manager fees and organization and offering expenses, are not above or below net asset value per share as of the most recent valuation date. The purchase price per share to be paid by each investor will be equal to the price that is in effect on the date such investor submits his or her completed subscription agreement. The company’s shares are offered in the primary offering at a price based on the most recent valuation, plus related selling commissions, dealer manager fees and organization and offering expenses. Five days after the completion of each quarter end valuation, shares will be offered pursuant to the DRP at a price equal to the current offering price per each class of shares, less the sales selling commissions and dealer manager fees associated with that class of shares in the primary offering.   

 

 As of June 30, 2018, the company has made solar, wind and energy efficiency investments in 20 portfolios, 19 domiciled in the United States and one in Canada, as well as one energy efficiency secured loan (See Note 3). As of December 31, 2017, the company has made solar, wind and energy efficiency investments in 18 portfolios, 17 domiciled in the United States and one in Canada, as well as one energy efficiency secured loan in the United States.

 

9

 

 

Note 2. Significant Accounting Policies

 

Basis of Presentation

 

The company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires the use of estimates, assumptions and the exercise of subjective judgment as to future uncertainties. Actual results could differ from those estimates, assumptions, and judgments. Significant items subject to such estimates will include determining the fair value of investments, revenue recognition, income tax uncertainties, and other contingencies. The consolidated financial statements of the company include the accounts of the LLC and its consolidated subsidiaries, GREC and GREC Holdco. All intercompany accounts and transactions have been eliminated.

 

The company’s consolidated financial statements are prepared using the specialized accounting principles of Accounting Standards Codification Topic 946, Financial Services—Investment Companies (“ASC 946”). In accordance with this specialized accounting guidance, the company recognizes and carries all of its investments at fair value with changes in fair value recognized in earnings. Additionally, the company will not apply the consolidation or equity method of accounting to its investments. The company carries its liabilities at amounts payable, net of unamortized premiums or discounts. The company does not currently plan to elect to carry its non-investment liabilities at fair value. Net assets are calculated as the carrying amounts of assets, including the fair value of investments, less the carrying amounts of its liabilities.

 

The financial information associated with the June 30, 2018 consolidated financial statements has been prepared by management and, in the opinion of management, contains all adjustments and eliminations, consisting of only normal recurring adjustments, necessary for a fair presentation in accordance with GAAP. The June 30, 2018 financial information has not been audited by the independent registered public accounting firm and they do not express an opinion thereon.

 

Cash and Cash Equivalents 

 

Cash consists of demand deposits at a financial institution. Such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limits. The company has not experienced any losses in any such accounts.

 

The company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Short-term investments that are cash equivalents, which are considered level 1 investments, are stated at cost, which approximates fair value. There are no restrictions on the use of the company’s cash as of June 30, 2018 and December 31, 2017. 

 

Foreign Currency Translation

 

The accounting records of the company are maintained in U.S. Dollars. The fair value of investments and other assets and liabilities denominated in non-U.S. currencies are translated into U.S. Dollars using the exchange rate at the end of each reporting period. Amounts related to the purchases and sales of investments, investment income and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions.

 

Net unrealized currency gains and losses arising from valuing foreign currency denominated assets and liabilities at the current exchange rate are reflected as part of net change in unrealized appreciation (depreciation) on translation of assets and liabilities denominated in foreign currencies in the consolidated statements of operations.

 

Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

10

 

 

Valuation of Investments at Fair Value

 

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value. The company recognizes and accounts for its investments at fair value. The fair value of the investments does not reflect transaction costs that may be incurred upon disposition of the investments.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is an exchange price notion under which fair value is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the market in which the reporting entity would transact for the asset or liability.

 

The advisor has established procedures to estimate the fair value of its investments which the company’s board of directors has reviewed and approved. The company will use observable market data to estimate the fair value of investments to the extent that market data is available. In the absence of quoted market prices in active markets, or quoted market prices for similar assets in markets that are not active, the company will use the valuation methodologies described below with unobservable data based on the best available information in the circumstances, which incorporates the company’s assumptions about the factors that a market participant would use to value the asset.

 

For investments for which quoted market prices are not available, which will comprise most of our investment portfolio, fair value will be estimated by using the income or market approach. The income approach is based on the assumption that value is created by the expectation of future benefits discounted to a current value and the fair value estimate is the amount an investor would be willing to pay to receive those future benefits. The market approach compares recent comparable transactions to the investment. Adjustments are made for any dissimilarity between the comparable transactions and the investments. These valuation methodologies involve a significant degree of judgment on the part of our advisor.

 

In determining the appropriate fair value of an investment using these approaches, the most significant information and assumptions may include, as applicable: available current market data, including relevant and applicable comparable market transactions, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the investment’s ability to make payments, its earnings and discounted cash flows, the markets in which the project does business, comparisons of financial ratios of peer companies that are public, comparable merger and acquisition, the principal market and enterprise values, environmental factors, among other factors.

 

The estimated fair values will not necessarily represent the amounts that may be ultimately realized due to the occurrence or nonoccurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of the valuation of the investments, the estimate of fair values may differ significantly from the value that would have been used had a broader market for the investments existed.

 

The authoritative accounting guidance prioritizes the use of market-based inputs over entity-specific inputs and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation. The three levels of valuation hierarchy are defined as follows:

 

  Level 1: Unadjusted quoted prices for identical assets or liabilities in active markets.

 

  Level 2: Other significant observable inputs that are sourced either directly or indirectly from publications or pricing services, including dealer or broker markets, for identical or comparable assets or liabilities. Generally, these inputs should be widely accepted and public, non-proprietary and sourced from an independent third party.

   

  Level 3: Inputs derived from a significant amount of unobservable market data and derived primarily through the use of internal valuation methodologies. GREC utilizes primarily proprietary discounted cash flow pricing models which include the use of significant assumptions, projections and professional judgment.

 

11

 

 

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls will be determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of an input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

 

Calculation of Net Asset Value

 

Net asset value by share class is calculated by subtracting total liabilities for each class from the total carrying amount of all assets for that class, which includes the fair value of investments. Net asset value per share is calculated by dividing net asset value for each class by the total number of outstanding common shares for that class on the reporting date.

 

Earnings (Loss) per Share

 

In accordance with the provisions of ASC Topic 260 — Earnings per Share (“ASC 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

 

The following information sets forth the computation of the weighted average basic and diluted net increase in net assets attributed to common stockholders per share for the three and six months ended June 30, 2018 and June 30, 2017. 

 

   For the three
months ended
June 30, 2018
   For the three
months ended
June 30, 2017
   For the six
months ended
June 30, 2018
   For the six
months ended
June 30, 2017
 
Basic and diluted                    
Net increase in net assets attributed to common stockholders  $5,206,196   $2,601,805   $9,200,260   $3,682,455 
Weighted average common shares outstanding   27,522,492    17,835,922    25,866,495    16,849,686 
   $0.19   $0.15   $0.36   $0.22 

 

Revenue Recognition

 

Interest income is recorded on an accrual basis to the extent the company expects to collect such amounts. Interest receivable on loans and debt securities is not accrued for accounting purposes if there is reason to doubt an ability to collect such interest. Original issue discounts, market discounts or market premiums are accreted or amortized using the effective interest method as interest income. Prepayment premiums on loans and debt securities are recorded as interest income when received. Any application, origination or other fees earned by the company in arranging or issuing debt are amortized over the expected term of the loan.

 

Loans are placed on non-accrual status when principal and interest are past due 90 days or more or when there is a reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are generally restored to accrual status when past due and principal and interest is paid and, in management’s judgment, is likely to remain current.

 

Dividend income is recorded (1) on the ex-dividend date for publicly issued securities and (2) when received from private investments. Dividends received from the company’s private investments, which generally reflect net cash flow from operations, are declared, accrued, and paid on a quarterly basis at a minimum. 

 

12

 

 

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation on Investments

 

Realized gains or losses will be measured as the difference between the net proceeds from the sale, repayment, or disposal of an asset and the adjusted cost basis of the asset, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

 

Payment-in-Kind Interest

 

For loans and debt securities with contractual payment-in-kind interest, any interest will be added to the principal balance of such investments and be recorded as income, if the valuation indicates that such interest is collectible.

 

Distribution Policy

 

Distributions to members, if any, will be authorized and declared by our board of directors quarterly in advance and paid monthly. From time to time, we may also pay interim special distributions in the form of cash or shares, with the approval of our board of directors. Distributions will be made on all classes of shares at the same time. The cash distributions with respect to the Class C shares will be lower than the cash distributions with respect to the company’s other share classes because of the distribution fee associated with the Class C shares, which is allocated specifically to Class C net assets. Amounts distributed to each class are allocated amongst the holders of the shares in such class in proportion to their shares. Distributions declared by our board of directors are recognized as distribution liabilities on the ex-dividend date.

 

Organization and Offering Costs

 

Organization and offering costs (“O&O costs”), other than sales commissions and the dealer manager fee, are initially being paid by our advisor and/or dealer manager on behalf of the company. These O&O costs include all costs previously paid or to be paid by the company in connection with its formation and the offering of its shares pursuant to now terminated Registration Statement on Form S-1 (File No. 333-178786-01), the current Registration Statement on Form S-1 (File No. 333-211571) and a private placement memorandum, including legal, accounting, printing, mailing and filing fees, charges of the company’s escrow holder, transfer agent fees, due diligence expense reimbursements to participating broker-dealers included in detailed and itemized invoices and costs in connection with administrative oversight of the offering and marketing process, and preparing supplemental sales materials, holding educational conferences, and attending retail seminars conducted by broker-dealers. While the total O&O costs for each public offering shall be reasonable and shall in no event exceed an amount equal to 15% of the gross proceeds of such offering and the DRP, the company is targeting no more than 4.0% of the gross proceeds for O&O costs other than sales commissions and dealer manager fees in the current Registration Statement. The company is obligated to reimburse our advisor for O&O costs that it incurs on behalf of the company, in accordance with the advisory agreement, but only to the extent that the reimbursement would not cause the selling commissions, the dealer manager fee and the other organization and offering expenses borne by the company to exceed 15% of gross offering proceeds as of the date of reimbursement. Total O&O costs related to the terminated Registration Statement amounted to approximately $7,556,000 or 4.8% of gross offering proceeds raised pursuant to such Registration Statement. 

 

The costs incurred by our advisor and/or dealer manager are recognized as a liability of the company to the extent that the company is obligated to reimburse our advisor and/or dealer manager, subject to the 15% of gross offering proceeds limitation described above. When recognized by the company, organizational costs are expensed and offering costs, excluding selling commissions and dealer manager fees, are recognized as a reduction of the proceeds from the offering.

 

13

 

 

The following table provides information in regard to the status of O&O costs (in 000’s) as of June 30, 2018 and December 31, 2017:

 

   June 30,
2018
   December 31,
2017
 
Total O&O Costs Incurred by the Advisor and Dealer Manager  $9,136   $8,671 
Amounts previously reimbursed to the Advisor/Dealer Manager by the company   8,742    8,381 
Amounts payable to Advisor/Dealer Manager by the company   27    10 
Amounts of the contingent liability subject to payment by the company only upon adequate gross offering proceeds being raised   367    280 

 

Financing Costs

 

Financing costs related to debt liabilities incurred by the company, GREC or any wholly-owned holding company formed specifically to be a credit agreement counterparty are presented on the consolidated statements of assets and liabilities as a direct deduction from the carrying amount of that debt liability. Financing costs are deferred and amortized using the straight-line method over the life of the debt liability.

 

Capital Gains Incentive Allocation and Distribution

 

Pursuant to the terms of the LLC’s amended and restated limited liability company agreement, a capital gains incentive fee will be earned by an affiliate of our advisor on realized gains (net of realized and unrealized losses) since inception from the sale of investments from the company’s portfolio during operations prior to a liquidation of the company. While the terms of the advisory agreement neither include nor contemplate the inclusion of unrealized gains in the calculation of the capital gains incentive fee, the company will include unrealized gains in the calculation of the capital gains incentive distribution pursuant to an interpretation of an American Institute for Certified Public Accountants Technical Practice Aid for investment companies. This amount reflects the incentive distribution that would be payable if the company’s entire portfolio was liquidated at its fair value as of the consolidated statements of assets and liabilities date even though the advisor is not entitled to an incentive distribution with respect to unrealized gains unless and until such gains are realized. Thus, on each date that net asset value is calculated, the company calculates for the capital gains incentive distribution by calculating such distribution as if it were due and payable as of the end of such period and reflected as an allocation of equity between common stockholders and special unitholder. As of June 30, 2018, and December 31, 2017, a capital gains incentive distribution allocation in the amounts of $2,195,077 and $1,236,243, respectively, was recorded in the consolidated statements of assets and liabilities as special unitholder’s equity.

 

Deferred Sales Commissions

 

The company defers certain costs, principally sales commissions and related compensation, which are paid to the dealer manager and may be reallowed to financial advisors and broker/dealers in the future in connection with the sale of Class C shares sold with a reduced front-end load sales charge. The costs expected to be incurred at the time of the sale of Class C shares are recorded as a liability on the date of sale and are amortized on a straight-line basis over the period beginning at the time of sale and ending on the date which approximates an expected liquidity event for the company. As of June 30, 2018, and December 31, 2017, the company recorded a liability for deferred sales commissions in the amount of $227,416 and $249,858, respectively.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform with current year presentation.

  

Derivative Instruments

 

The company may utilize interest rate swaps to modify interest rate characteristics of existing debt obligations to manage interest rate exposure. These are recorded at fair value either as assets or liabilities in the accompanying consolidated statements of assets and liabilities with changes in the fair value of interest rate swaps during the period are recognized in the accompanying consolidated statements of operations.

 

14

 

 

The fair value of interest rate swap contracts open as of June 30, 2018 is included on the schedules of investments by contract. For the six months ended June 30, 2018, the company’s notional exposure to interest rate swap contracts was $58,527,880.

 

Consolidated Statement of Assets and Liabilities - Values of Derivatives at June 30, 2018  

 

    Asset Derivatives         Liability Derivatives      
                     
Risk Exposure   Consolidated Statement of Assets and Liabilities Location     Fair Value     Consolidated Statement of Assets and Liabilities Location     Fair Value  
Swaps                        
Interest Rate Risk   Swap contracts, at fair value   $ 1,167,993     Swap contracts, at fair value   $ 37,925  
        $ 1,167,993         $ 37,925  

 

The effect of derivative instruments on the Consolidated Statement of Operations

 

Risk Exposure   Change in net unrealized depreciation on derivative transactions for the three months ended June 30, 2018     Change in net unrealized depreciation on derivative transactions for the six months ended June 30, 2018  
Swaps            
Interest Rate Risk   $ 476,262     $ 974,000  
    $ 476,262     $ 974,000  

 

By using derivative instruments, the company is exposed to the counterparty’s credit risk — the risk that derivative counterparties may not perform in accordance with the contractual provisions offset by the value of any collateral received. The company’s exposure to credit risk associated with counterparty non-performance is limited to collateral posted and the unrealized gains that are recognized in the consolidated statement of assets and liabilities. The company minimizes counterparty credit risk through credit monitoring procedures and managing margin and collateral requirements, as appropriate.

 

In regard to our investment in the Canadian Northern Lights Portfolio, we have foreign currency exposure related to our revenue and operating expenses which are denominated in the Canadian Dollars. While we are currently of the opinion that the currency fluctuation between the Canadian and U.S. Dollar will not have a material impact on our operating results, we may in the future hedge this risk through the use of foreign exchange swap transactions or other financial instruments if the impact on our results of operations becomes material. 

 

Income Taxes

 

The LLC intends to operate so that it will qualify to be treated as a partnership for U.S. federal income tax purposes under the Internal Revenue Code. As such, it will not be subject to any U.S. federal and state income taxes. In any year, it is possible that the LLC will not meet the qualifying income exception and will not qualify to be treated as a partnership. If the LLC does not meet the qualifying income exception, the members would then be treated as stockholders in a corporation and the company would become taxable as a corporation for U.S. federal income tax purposes under the Internal Revenue Code. The LLC would be required to pay income tax at corporate rates on its net taxable income. Distributions to members from the LLC would constitute dividend income taxable to such members, to the extent of the company’s earnings and profits and the payment of the distributions would not be deductible by the LLC.

 

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The LLC plans to conduct substantially all its operations through its wholly-owned subsidiary, GREC, which is a corporation that is subject to U.S. federal, state and local income taxes. Accordingly, most of its operations will be subject to U.S. federal, state and local income taxes.

 

Income taxes are accounted for under the assets and liabilities method. Deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to differences between items that are recognized in the consolidated financial statements and tax returns in different years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. For income tax benefits to be recognized including uncertain tax benefits, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of the benefit that is more likely than not to be realized upon ultimate settlement. A valuation allowance is established against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties associated with income taxes, if any, will be recognized in general and administrative expense.

 

The company does not consolidate its investments for financial statements, rather it accounts for its investments at fair value under ASC 946. The tax attributes of the individual investments will be considered and incorporated in the company’s fair value estimates for those investments. The amounts recognized in the consolidated financial statements for unrealized appreciation and depreciation will result in a difference between the consolidated financial statements and the cost basis of the assets for tax purposes. These differences will be recognized as deferred tax assets and liabilities. Generally, the entities that hold the company’s investments will be included in the consolidated tax return of GREC and the differences between the amounts recognized for financial statement purposes and the tax return will be recognized as additional deferred tax assets and liabilities.

 

The company follows the authoritative guidance on accounting for uncertainty in income taxes and concluded it has no material uncertain tax positions to be recognized at this time.

 

The company assessed its tax positions for all open tax years as of June 30, 2018 for all U.S. federal and state tax jurisdictions for the years 2014 through 2017. The results of this assessment are included in the company’s tax provision and deferred tax assets as of June 30, 2018. 

 

Tax Reform

 

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted on December 22, 2017. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018.

 

Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

 

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Act.

 

16

 

 

The major provisions under the Act are discussed below:

 

Corporate Tax Rate

 

The law reduces the corporate tax rate to 21% effective January 1, 2018. A company must remeasure its deferred tax assets and liabilities to reflect the effects of enacted changes in tax laws or rates at the date of enactment, i.e., the date the President signed the law, even though the changes may not be effective until future periods. The effect of the remeasurement is reflected entirely in the interim period that includes the enactment date and allocated directly to income tax expense (benefit) from continuing operations.

 

Repatriation of existing earnings and profits

 

Under the Act, a company’s foreign earnings and profits (E&P) accumulated in controlled foreign corporations (CFCs) under legacy tax laws are deemed repatriated for the last taxable year of a CFC that begins before January 1, 2018. E&P are determined as the higher of the balance at November 2 or December 31, 2017. The tax on those deemed repatriated earnings is no longer indefinitely deferred but may be paid over eight years with no interest charged:

 

  8% in each of Years 1 to 5;

 

  15% in Year 6;

 

  20% in Year 7; and

 

  25% in Year 8.

 

The Company has one Canadian CFC. This CFC has negative E&P at the end of December 31, 2017. As such, no mandatory repatriation is required.

 

Cost Recovery

 

Under the Act, a company can expense 100% of investments in depreciable property other than real property or certain utility property and certain businesses with floor plan indebtedness. The new rules apply to original or used property. The new rules apply to investments made after September 27, 2017 and before January 1, 2023. The phase-out period begins on January 1, 2023 and ends on December 31, 2026.

 

The Company expects to opt out of the 100% deduction on its eligible assets acquired in 2017 and 2018.

 

Interest Expense Limitation

 

Under the Act, effective January 1, 2018, a company can only deduct interest expense up to 30% of “adjusted taxable income”. For taxable years beginning after December 31, 2017 and before January 1, 2022, the definition of adjusted taxable income is computed without regard to the deduction for depreciation, amortization, or depletion. Beginning in 2022, depreciation, amortization, and depletion must be considered when calculating adjusted taxable income. The disallowed interest expense can be carried forward indefinitely. Certain businesses with average gross receipts of $25 million or less are exempt from the rule.

 

Net Operating Losses (NOL)

 

Under the Act, NOL generated after December 31, 2017 can only offset up to 80% of taxable income. The unused NOL can be carried forward indefinitely. The NOL generated before January 1, 2018 remains subject to the old rules (i.e., 100% utilization and 20-year expiration). When scheduling out future NOL utilization for the valuation reserve analysis, the Company applied the NOL limitation rules.

 

17

 

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02, as amended by ASU 2017-13, is effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; for all other entities, the final lease standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented.  At this time, management is evaluating the impact of ASU No. 2016-02 on its consolidated financial statements and disclosures. 

 

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606-Revenue from Contracts with Customers (ASU 2014-09). The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. The ASU will replace most of the existing revenue recognition guidance under US GAAP. The amendments in ASU 2014-09 are effective for public companies for interim and annual periods in fiscal years beginning after December 15, 2017, with early adoption permitted for interim and annual periods in fiscal years beginning after December 15, 2016. The Company adopted the standard on January 1, 2018 utilizing the cumulative effective transition method. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements and disclosures. See Revenue Recognition section for additional information on the Company’s revenue recognition accounting policies.

 

 Note 3. Investments

 

The composition of the company’s investments as of June 30, 2018 by geographic region, at fair value, were as follows:

 

    Investments at
Cost
    Investments at
Fair Value
    Fair Value
Percentage
of Total Portfolio
 
United States:                        
East Region   $ 64,701,962       67,805,865       24.9 %
Mid-West Region     1,885,720       1,822,985       0.7  
Mountain Region     44,735,041       44,312,329       16.2  
South Region     69,140,109       66,876,524       24.5  
West Region     80,968,498       89,854,328       32.9  
Total United States   $ 261,431,330       270,672,031       99.2 %
Canada:     1,603,136       2,207,755       0.8  
Total   $ 263,034,466       272,879,786       100.0 %

 

The composition of the company’s investments as of December 31, 2017 by geographic region, at fair value, were as follows:

 

    Investments at
Cost
    Investments at
Fair Value
    Fair Value
Percentage
of Total Portfolio
 
United States:                        
East Region   $ 59,828,924       61,876,000       28.3 %
Mid-West Region     1,022,813       1,010,292       0.5  
Mountain Region     40,588,577       42,220,262       19.3  
South Region     57,033,202       57,716,376       26.4  
West Region     52,284,375       53,469,417       24.5  
Total United States   $ 210,757,891       216,292,347       99.0 %
Canada:     1,603,136       2,093,827       1.0  
Total   $ 212,361,027       218,386,174       100.0 %

 

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The composition of the company’s investments as of June 30, 2018 by industry, at fair value, were as follows:

 

    Investments at Cost     Investments at Fair
Value
    Fair Value
Percentage
of Total Portfolio
 
Alternative Energy – Commercial Solar   $ 161,831,107     $ 163,356,216       59.9 %
Alternative Energy – Residential Solar     37,503,136       43,042,889       15.8  
Alternative Energy – Wind     62,626,680       65,370,384       23.9  
Energy Efficiency – Lighting Replacement     1,073,543       1,110,297       0.4  
Total   $ 263,034,466     $ 272,879,786       100.0 %

 

The composition of the company’s investments as of December 31, 2017 by industry, at fair value, were as follows:

 

    Investments at Cost     Investments at Fair
Value
    Fair Value
Percentage
of Total Portfolio
 
Alternative Energy – Commercial Solar   $ 110,855,889     $ 110,381,133       50.5 %
Alternative Energy – Residential Solar     37,503,136       40,124,684       18.5  
Alternative Energy – Wind     62,846,681       66,702,849       30.5  
Energy Efficiency – Lighting Replacement     1,155,321       1,177,508       0.5  
Total   $ 212,361,027     $ 218,386,174       100.0 %

 

Investments held as of June 30, 2018 and December 31, 2017 are considered Control Investments, which are defined as investments in companies in which the company owns 25% or more of the voting securities of such company or have greater than 50% representation on such company’s board of directors or investments in limited liability companies for which the company serves as managing member.

 

Note 4. Fair Value Measurements - Investment

 

The following table presents fair value measurements of investments, by major class, as of June 30, 2018, according to the fair value hierarchy:

 

    Valuation Inputs  
    Level 1     Level 2     Level 3     Fair Value  
Limited Liability Company Member Interests   $     $     $ 270,059,660     $ 270,059,660  
Capital Stock                 2,207,755       2,207,755  
Energy Efficiency Secured Loans                 612,371       612,371  
Total   $     $     $ 272,879,786     $ 272,879,786  
Other Financial Instruments*                                
Unrealized appreciation on open swap contracts   $     $ 1,167,993     $     $ 1,167,993  
Unrealized depreciation on open swap contracts           (37,925 )           (37,925 )
Total   $     $ 1,130,068     $     $ 1,130,068  

 

*Other financial instruments are derivatives, such as futures, forwards and swaps.  These instruments are reflected at the unrealized appreciation (depreciation) on the instrument.  

 

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The following table presents fair value measurements of investments, by major class, as of December 31, 2017, according to the fair value hierarchy:

 

    Valuation Inputs  
    Level 1     Level 2     Level 3     Fair Value  
Limited Liability Company Member Interests   $     $     $ 215,619,476     $ 215,619,476  
Capital Stock                 2,093,827       2,093,827  
Energy Efficiency Secured Loans                 672,871       672,871  
Total   $     $     $ 218,386,174     $ 218,386,174  
                         
Other Financial Instruments*                        
Unrealized appreciation on open swap contracts   $     $ 156,068     $     $ 156,068  
Total   $     $ 156,068     $     $ 156,068  

 

*Other financial instruments are derivatives, such as futures, forward currency contracts and swaps. These instruments are reflected at the unrealized appreciation (depreciation) on the instrument. 

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended June 30, 2018:

 

    Balance as of
December 31, 2017
    Net change in unrealized
appreciation on
investments
    Translation of assets
and liabilities
denominated in foreign
currencies
    Purchases
and other
adjustments
to cost (1)
    Sales and Repayments
of investments (2)
    Balance as of
June 30, 2018
 
Limited Liability Company Member Interests   $ 215,619,476     $ 3,706,245     $     $ 55,233,939     $ (4,500,000   $ 270,059,660  
Capital Stock     2,093,827       178,787       (64,859 )                 2,207,755  
Energy Efficiency - Secured Loans     672,871                         (60,500 )     612,371  
Total   $ 218,386,174     $ 3,885,032     $ (64,859 )   $ 55,233,939     $ (4,560,500 )   $ 272,879,786  
                                                 

(1) Includes purchases of new investments, capitalized deal costs, effects of purchase price adjustments, paid-in-kind interest, return of capital and additional investments in existing investments, if any.
(2) Includes principal repayments on loans.

 

The total change in unrealized appreciation included in the consolidated statements of operations within net change in unrealized appreciation on investments for the three and six months ended June 30, 2018 attributable to Level 3 investments still held at June 30, 2018 was $1,891,377 and $3,885,032, respectively. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 as of the beginning of the period which the reclassifications occur. There were no reclassifications attributable to Level 3 investments during the three months ended June 30, 2018.

 

Net change in unrealized appreciation on investments at fair value for the three months and six months ended June 30, 2018 was $1,891,377 and $3,885,032, respectively, included within net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations. There were no net realized gains or losses on investments at fair value for the three and six months ended June 30, 2018. For the three and six months ended June 30, 2018, net unrealized currency losses arising from valuing foreign currency-denominated assets and liabilities at the current exchange rate were $25,868 and $64,859, respectively, and included within net change in unrealized appreciation (depreciation) on foreign currency translation in the consolidated statements (depreciation) of operations.

 

 

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The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended June 30, 2017:

 

    Balance as of
December 31, 2016
    Net change in unrealized
appreciation
(depreciation) on
investments
    Translation of assets
and liabilities
denominated in foreign
currencies
    Purchases and other
adjustments to cost (1)
    Sales and Repayments
of investments (2)
    Balance as of
June 30, 2017
 
Limited Liability Company Member Interests   $ 112,536,561     $ 1,361,258     $     $ 40,111,512     $     $ 154,009,331  
Capital Stock     1,815,169       123,888       51,924                   1,990,981  
Energy Efficiency - Secured Loans     771,371                         (35,000 )     736,371  
Total   $ 115,123,101     $ 1,485,146     $ 51,924     $ 40,111,512     $ (35,000 )   $ 156,736,683  
                                                 
(1) Includes purchases of new investments, capitalized deal costs, effects of purchase price adjustments, paid-in-kind interest, return of capital and additional investments in existing investments, if any.
(2) Includes principal repayments on loans.

 

The total change in unrealized appreciation included in the consolidated statements of operations within net change in unrealized appreciation on investments for the three and six months ended June 30, 2017 attributable to Level 3 investments still held at June 30, 2017 was $1,606,324 and $1,485,146, respectively. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 as of the beginning of the period which the reclassifications occur. There were no reclassifications attributable to Level 3 investments during the six months ended June 30, 2017.

 

Net change in unrealized appreciation on investments at fair value for the three and six months ended June 30, 2017 was $1,606,324 and $1,485,146, respectively, included within net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations. There were no net realized gains or losses on investments at fair value for the three and six months ended June 30, 2017. For the three and six months ended June 30, 2017, net unrealized currency gains arising from valuing foreign currency-denominated assets and liabilities at the current exchange rate were $38,991 and $51,924, respectively, and included within net change in unrealized appreciation on foreign currency translation in the consolidated statements of operations.

 

As of June 30, 2018, certain company investments utilized Level 3 inputs. The following table presents the quantitative information about Level 3 fair value measurements of the company’s investments as of June 30, 2018:

 

    Fair Value     Valuation
Techniques
  Unobservable
Inputs
  Rates/Assumptions
Alternative Energy – Commercial Solar   $ 114,312,019     Income approach   Discount rate, future kWh Production, potential leverage and estimated remaining useful life   7.25% - 8.50%, 0.50% annual degradation in production, 12.8 – 33.5 years
Alternative Energy – Commercial Solar     $ 49,044,196      Transaction cost   N/A   N/A
Alternative Energy – Residential Solar   $ 43,042,889     Income approach   Discount rate, future kWh Production, potential leverage and estimated remaining useful life   8.75% - 11.00%, 0.50% annual degradation in production, 12.8 – 33.5 years
Alternative Energy – Wind   $ 65,370,385     Income approach   Discount rate, future kWh Production, potential leverage and estimated remaining useful life   8.50%, no annual degradation in production, 24.5 – 28.3 years
Energy Efficiency- Secured Loans and Leases– Lighting Replacement   $ 1,110,297     Income and collateral based approach   Market yields and value of collateral   10.25% - 20.40%

 

 

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As of December 31, 2017, all of the company’s portfolio investments utilized Level 3 inputs. The following table presents the quantitative information about Level 3 fair value measurements of the company’s investments as of December 31, 2017:

 

    Fair Value     Valuation
Techniques
  Unobservable
Inputs
  Rates/Assumptions
Alternative Energy – Commercial Solar   $ 87,087,201     Income approach   Discount rate, future kWh Production, potential leverage and estimated remaining useful life   7.0% - 9.25%, 0.50% annual degradation in production, 13.5 – 34.3 years
Alternative Energy – Commercial Solar   $ 23,293,932     Transaction cost   N/A   N/A
Alternative Energy – Residential Solar   $ 40,124,684     Income approach   Discount rate, future kWh Production, potential leverage and estimated remaining useful life   7.0% - 9.25%, 0.50% annual degradation in production, 13.5 – 34.3 years
Alternative Energy – Wind   $ 66,702,849     Income approach   Discount rate, future kWh Production, potential leverage and estimated remaining useful life   8.50%, no annual degradation in production, 27.9 – 29.0 years
Energy Efficiency- Secured Loans and Leases – Lighting Replacement   $ 1,177,508     Income and collateral based approach   Market yields and value of collateral   10.25% - 20.40%

 

The significant unobservable inputs used in the fair value measurement of the company’s limited liability company member interests are discount rates and estimates related to the future production of electricity. Significant increases in the discount rate used or actual kilowatt hour (“kWh”) production meaningfully less than projected production would result in a significantly lower fair value measurement.

 

22

 

 

Note 5. Related Party Agreements and Transactions Agreements

 

The company has executed advisory and administration agreements with the advisor and Greenbacker Administration, LLC, our administrator, respectively, as well as a dealer manager agreement with the dealer manager, which entitles the advisor, certain affiliates of the advisor, and the dealer manager to specified fees upon the provision of certain services with regard to the offering of the company’s shares and the ongoing management of the company as well as reimbursement of O&O costs incurred by the advisor and the dealer manager on behalf of the company (as discussed in Note 2) and certain other operating costs incurred by the advisor on behalf of the company. The term “Special Unitholder” refers to GREC Advisors, LLC, a Delaware limited liability company, which is a subsidiary of our advisor and “special unit”, refers to the special unit of limited liability company interest in GREC entitling the Special Unitholder to an incentive allocation and distribution. In addition, the company and the advisor entered into an expense reimbursement agreement whereby the advisor agreed to reimburse the company for certain expenses above certain limits and be repaid when the company’s expenses are reduced below that threshold. The expense reimbursement agreement expired and was not renewed as of December 31, 2016. The fees and reimbursement obligations are as follows:

 

Type of Compensation and Recipient   Determination of Amount
Selling Commissions — Dealer Manager   Up to 7% of gross offering proceeds from the sale of Class A shares, up to 3% of gross offering proceeds from the sale of Class C shares and up to 6% of gross offering proceeds for the sale of Class P-A shares. No selling commission will be paid with respect to Class I and Class P-I shares or for sales pursuant to the dividend reinvestment plan. All of its selling commissions are expected to be re-allowed to participating broker-dealers.

 

Dealer Manager Fee — Dealer Manager   Up to 2.75% of gross offering proceeds from the sale of Class A and C shares, up to 1.75% of gross offering proceeds from the sale of Class I shares and up to 2.50% of gross offering proceeds from the sale of Class P-A shares. No dealer manager fee will be paid for sales pursuant to the dividend reinvestment plan. The dealer manager may re-allow a portion of its dealer manager fee to selected broker-dealers.
     
Distribution Fee — Dealer Manager   With respect to Class C shares only, the company will pay the dealer manager a distribution fee that accrues daily in an amount equal to 1/365th of 0.80% of the amount of the net asset value for the Class C shares for such day on a continuous basis from year to year. The company will stop paying distribution fees at the earlier of a listing of the Class C shares on a national securities exchange, following the completion of this offering, total underwriting compensation in this offering equals 10% of the gross proceeds from the primary offering or Class C shares are no longer outstanding. The dealer manager may  re-allow all or a portion of the distribution fee to participating broker-dealers and servicing broker dealers Commencing as of June 30, 2016, the company estimates the amount of distribution fees expected to be paid and records that liability at the time of sale.
     
O&O costs — Advisor   The company reimburses the advisor for the O&O costs (other than selling commissions and dealer manager fees) it has incurred on the company’s behalf only to the extent that the reimbursement would not cause the selling commissions, dealer manager fee and the other O&O costs borne by the company to exceed 15.0% of the gross offering proceeds as the amount of proceeds increases. While the company has targeted an offering expense ratio of 4.0% for O&O costs over the term of the current offering, 4.8% was charged on the offering that terminated as of February 7, 2017.
     
Base Management Fees — Advisor   The base management fee payable to GCM will be calculated at a monthly rate of 0.167% (2.00% annually) of our gross assets (including amounts borrowed). For services rendered under the advisory agreement, the base management fee will be payable monthly in arrears. The base management fee will be calculated based on the average of the values of our gross assets for each day of the prior month. Base management fees for any partial period will be appropriately pro-rated. The base management fee may be deferred or waived, in whole or part, at the election of the advisor. All or any part of the deferred base management fee not taken as to any period shall be deferred without interest and may be taken in any period prior to the occurrence of a liquidity event as the advisor shall determine in its sole discretion.

 

23

 

 

Incentive Allocation and Distribution — Special Unitholder   The incentive distribution to which the Special Unitholder is be entitled to will be calculated and payable quarterly in arrears based on the pre-incentive distribution net investment income for the immediately preceding fiscal quarter. For this purpose, pre-incentive distribution net investment income means interest income, dividend and distribution income from equity investments (excluding that portion of distributions that are treated as return of capital) and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive, but excluding any fees for providing managerial assistance) accrued during the fiscal quarter, minus the operating expenses for the fiscal quarter (including the base management fee, expenses payable under the administration agreement with the company’s Administrator, and any interest expense and distributions paid on any issued and outstanding indebtedness and preferred units of limited liability company interest, but excluding the incentive distribution). Pre-incentive distribution net investment income does not include any realized capital gains, realized capital losses, unrealized capital appreciation or depreciation or any accrued income taxes and other taxes including, but not limited to, franchise, property, and sales taxes. 
     
    Pre-incentive distribution net investment income, expressed as a rate of return on the value of the company’s average adjusted capital at the end of the immediately preceding fiscal quarter, will be compared to a “hurdle rate” of 1.75% per fiscal quarter (7.00% annualized). Adjusted capital shall mean: cumulative gross proceeds before sales and commission and dealer fees, generated from sales of the company’s shares and preferred units of limited liability company interests (including the DRP) reduced for distributions to members of proceeds from non-liquidation dispositions of asset and amount paid for share repurchases pursuant to the Share Repurchase Program. Average adjusted capital shall mean: the average value of the adjusted capital for the two most recently completed fiscal quarters. The Special Unitholder shall receive an incentive distribution with respect to the pre-incentive distribution net investment income in each fiscal quarter as follows:
     
    ●      no incentive distribution in any fiscal quarter in which the pre-incentive distribution net investment income does not exceed the “hurdle rate” of 1.75%;
     
   

●      100% of the pre-incentive distribution net investment income with respect to that portion of such pre-incentive distribution net investment income, if any, that exceeds the hurdle but is less than 2.1875% in any fiscal quarter (8.75% annualized with a 7% annualized hurdle rate). The company refers to this portion of the pre-incentive distribution net investment income (which exceeds the hurdle but is less than 2.1875%) as the “catch-up.” The “catch-up” is meant to provide the advisor with 20% of the pre-incentive distribution net investment income as if a hurdle did not apply if the net investment income exceeds 2.1875% in any fiscal quarter; and

 

●      20% of the amount of the pre-incentive distribution net investment income, if any, that exceeds 2.1875% in any fiscal quarter (8.75% annualized with a 7% annualized hurdle rate) is payable to the Special Unitholder (once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive distribution investment income thereafter is allocated to the Special Unitholder).

 

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Capital Gains Incentive Distribution — Special Unitholder   The capital gains incentive distribution will be determined and payable to the Special Unitholder in arrears as of the end of each fiscal quarter (or upon termination of the advisory agreement, as of the termination date) to the Special Unitholder, and will equal 20.0% of the company’s realized capital gains, if any, on a cumulative basis from inception through the end of each fiscal quarter, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any capital gain incentive distributions.
     
Liquidation Incentive Distribution — Special Unitholder   The liquidation incentive distribution payable to the Special Unitholder will equal 20.0% of the net proceeds from a liquidation of the company (other than in connection with a listing, as described below) in excess of adjusted capital, as measured immediately prior to liquidation. Adjusted capital shall mean: cumulative gross proceeds generated from sales of shares (including the DRP) reduced for distributions to members of proceeds from non-liquidation dispositions of our assets and amounts paid for share repurchases pursuant to the Share Repurchase Program. In the event of any liquidity event that involves a listing of the company’s shares, or a transaction in which the company’s members receive shares of a company that is listed, on a national securities exchange, the liquidation incentive distribution will equal 20% of the amount, if any, by which the company’s listing value following such liquidity event exceeds the adjusted capital, as calculated immediately prior to such listing (the “listing premium”). Any such listing premium and related liquidation incentive distribution will be determined and payable in arrears 30 days after the commencement of trading following such liquidity event.
     
Operating Expense and Expense Assumption and Reimbursement Agreement   The company will reimburse the advisor’s cost of providing administrative services, legal, accounting and printing. The company will not reimburse the advisor for the salaries and benefits to be paid to the named executive officers. For the year ended December 31, 2015, the advisor assumed operating expenses for the company in an amount sufficient to keep total annual operating expenses (exclusive of interest, taxes dividend expense, borrowing costs, organizational and extraordinary expenses) of the company (“Expenses”) at percentages of average net assets of such class for any calculation period no higher than 5.0% (the “Maximum Rates”). During the year ended December 31, 2016, Expenses as a percentage of net assets were less than the Maximum Rates allowing the advisor to be fully reimbursed for past assumed operating expenses. The expense reimbursement agreement expired and was not renewed as of December 31, 2016 as Expenses are expected to continue in an amount less than the Maximum Rates.

 

25

 

 

For the three and six months ended June 30, 2018, the company incurred $2,344,746 and $4,646,743, respectively, in operating expenses, including the management fees earned by the advisor. For the three and six months ended June 30, 2017, the company incurred $1,209,850 and $2,583,232, respectively, in operating expenses, including the management fees earned by the advisor. Since January 1, 2015, the advisor has elected to limit the company’s Expenses to no higher than 5% annually of the company’s average net assets.

 

For the three and six months ended June 30, 2018, the advisor earned $1,353,001 and $2,518,729 respectively, in management fees. For the three and six months ended June 30, 2017, the advisor earned $759,492 and $1,456,638, respectively, in management fees. For the three and six months ended June 30, 2018, a $468,354 and $958,834 decrease in net assets attributed to the special unitholder, respectively, was recorded based primarily upon unrealized appreciation on investments. For the three and six months ended June 30, 2017, a $308,000 and $307,414 decrease in net assets attributed to the special unitholder, respectively, was recorded based primarily upon unrealized appreciation on investments.

 

As of June 30, 2018, due to advisor on the consolidated statements of assets and liabilities in the amount of $26,857 is solely comprised of a payable to the advisor for reimbursable Organization and Offering Costs. As of December 31, 2017, due to advisor on the consolidated statements of assets and liabilities in the amount of $10,417 is solely comprised of a payable to the advisor for reimbursable Organization and Offering Costs.

 

For the three and six months ended June 30, 2018, the company paid $243,559 and $424,929, respectively, in dealer manager fees and $776,271 and $1,270,145, respectively, in selling commissions to the dealer manager. For the three and six months ended June 30, 2017, the company paid $162,449 and $381,053, respectively, in dealer manager fees and $456,792 and $1,194,925, respectively, in selling commissions to the dealer manager. These fees and commissions were paid in connection with the sales of the company’s shares to investors and, as such, were recorded against the proceeds from the issuance of shares and are not reflected in the company’s consolidated statements of operations.

 

For the three months ended March 31, 2017, Greenbacker Administration, LLC invoiced the company $115,983 for expenses, at cost, for services related to asset management and accounting services related to the company’s investments. Effective on April 1, 2017, these expenses were invoiced directly to the company’s investments.

 

As of June 30, 2018, and December 31, 2017, the advisor owned 23,601 Class A shares.

 

The company entered into secured loans to finance the purchase and installation of energy efficient lighting with LED Funding LLC and Renew AEC One LLC (“AEC Companies”). All loans with LED Funding LLC, an AEC Company, converted to operating leases on the day the energy efficiency upgrades became operational. AEC Companies are considered related parties as the members of these entities own an indirect, non-controlling ownership interest in the company’s advisor. The loans outstanding between the AEC Companies and the company, and the subsequent operating leases, were negotiated at an arm’s length and contain standard terms and conditions that would be included in third party lending agreements including required security and collateral, interest rates based upon risk of the specific loan, and term of the loan. As of June 30, 2018, all loans and operating losses are considered current per their terms. 

 

Note 6. Borrowings

 

On January 5, 2018, the company, through GREC HoldCo, entered into a credit agreement by and among the Company, the Company’s wholly owned subsidiary, GREC, the lenders party thereto and Fifth Third Bank, as administrative agent, as sole lead arranger and sole lead bookrunner, as well as swap counterparty. The new credit facility (the “Credit Facility”) consists of a loan of up to the lesser of $60,000,000 or a borrowing base amount based on various solar projects that act as collateral for the credit facility, of which approximately $25.7 million was drawn down at closing. The Credit Facility allows for additional drawdowns through December 31, 2018, at which point the outstanding balance converts to a term loan that matures on January 5, 2024. With additional drawdowns through June 30, 2018, the outstanding balance is approximately $30.7 million. Financing costs of $1,341,038 related to the Credit Facility, and the previous Facility 1 and Facility 2 Term Loans, have been capitalized and are being amortized over the current term of the Credit Facility.

 

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Interest on the Credit Facility, which bears interest at one-month LIBOR plus 2.125%, is payable on the last day of each month commencing January 31, 2018. Commitment fees on the average daily unused portion of the Credit Facility are payable at a rate per annum of 0.50% through December 31, 2018.

 

Principal on the Credit Facility is payable, commencing on January 31, 2019, at a fixed amount on the last day of each month based upon an amortization period equal to the weighted average power purchase agreement (“PPA”) term less one year. Borrowings under the Credit Facility are secured by the assets, cash, agreements and equity interests in the Borrower and its subsidiaries. The company is a guarantor of the Borrower’s obligations under the Credit Facility. 

 

In regard to the Credit Facility, the company has entered into four separate interest rate swap agreements. The first swap (“Swap 1”), effective July 29, 2016, has an initial notional amount of $4,300,000 to swap the floating rate interest payments on the original Facility 1 Term Loan for a corresponding fixed payment. The fixed swap rate is 1.11%. The second swap (“Swap 2”), with a trade date of June 15, 2017 and an effective date of June 18, 2018 and an initial notional amount of $20,920,650, was used to swap the floating rate interest payments on an additional principal amount of the Credit Facility, for a corresponding fixed payment. The fixed swap rate is 2.261%. The third swap (“Swap 3”), with a trade date of January 11, 2018 and an effective date of December 31, 2018 and an initial notional amount of $29,624,945 was used to swap the floating rate interest payments on the remaining unhedged portion of the Credit Facility, as well as the estimated additional drawdowns, for a corresponding fixed payment. The fixed swap rate is 2.65%. The fourth swap (“Swap 4”), with a trade date of February 7, 2018 and an effective date of December 31, 2018 and an initial notional amount of $4,180,063 was used to swap the floating rate interest payments on the remaining unhedged portion of the Credit Facility, as well as the estimated additional drawdowns, for a corresponding fixed payment. The fixed swap rate is 2.97%. 

 

If an event of default shall occur and be continuing under the Credit Facility, the commitments under the Credit Facility may be terminated and the principal amount outstanding under the Credit Facility, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable. 

 

On July 11, 2016, the company, through a wholly owned subsidiary, GREC HoldCo (the “Borrower”), entered into a Credit Agreement by and among the Borrower, the lenders party thereto and Fifth Third Bank, as administrative agent, as well as swap counterparty. The credit facility consisted of an initial term loan of $4,300,000 (the “Facility 1 Term Loan”) as well as a revolving credit facility in the aggregate principal amount of up to $33,250,000 (the “Revolver”). The amount outstanding on the Revolver, based upon the modified conversion date of September 9, 2017, was converted to an additional term loan facility in the amount of $10,000,000 (the “Facility 2 Term Loan”). The Facility 1 Term Loan and Facility 2 Term Loan in the amount of approximately $14,100,000 were repaid as part of the Credit Facility closing.

 

The company’s outstanding debt as of June 30, 2018 and December 31, 2017 was as follows: 

 

    June 30, 2018     December 31, 2017  
    Aggregate Principal Amount Available     Principal Amount Outstanding     Carrying Value     Deferred Financing Costs     Term Note Payable, Net of Financing Costs     Aggregate Principal Amount Available     Principal Amount Outstanding     Carrying Value     Deferred Financing Costs     Term Note Payable, Net of Financing Costs  
Credit Facility   $ 60,000,000      $ 30,665,460      $ 30,665,460      $ 1,232,828      $ 29,432,632                                
Facility 1 Term Loan                                 $     $ 3,893,889     $ 3,893,889     $ 745,430     $ 3,148,459  
Facility 2 Term Loan                                         9,761,905       9,761,905             9,761,905  
Total   $ 60,000,000     $ 30,665,460     $ 30,665,460     $ 1,232,828     $ 29,432,632     $     $ 13,655,794     $ 13,655,794     $ 745,430     $ 12,910,364  

 

27

 

 

The following table shows the components of interest expense, commitment fees related to the Revolving Facility, amortized deferred financing costs, weighted average stated interest rate and weighted average outstanding debt balance for the credit facility for the three and six months ended June 30, 2018:

 

    For the three months
Ended June 30, 2018
    For the six months
Ended June 30, 2018
 
Credit Facility commitment fee   $ 218,978     $ 520,353  
Credit Facility Loan interest     272,423       570,457  
Amortization of deferred financing costs     55,632       108,210  
Total     547,033       1,199,020  
Weighted average interest rate on credit facility     4.13 %     4.03 %
Weighted average outstanding balance of credit facility   $ 30,665,460     $ 29,291,568  

 

The following table shows the components of interest expense, commitment fees related to the Revolving Facility, amortized deferred financing costs, weighted average stated interest rate and weighted average outstanding debt balance for the credit facility for the year ended December 31, 2017:

 

   

For the year Ended December 31, 2017

 
Revolver interest   $ 444,303  
Revolver commitment fee     81,109  
Credit Facility Loan Interest     157,811  
Amortization of deferred financing costs     164,725  
Total     847,948  
Weighted average interest rate on credit facility     4.87 %
Weighted average outstanding balance of credit facility   $ 8,481,848  

 

The principal payments due on borrowings for each of the next five years ending December 31 and thereafter, are as follows:

 

Year ending December 31:     Principal Payments  
2018     $  
2019       2,519,220  
2020       2,610,193  
2021       2,570,228  
2022       2,198,372  
Thereafter       20,767,446  
      $ 30,665,459  

 

Note 7. Members’ Equity

 

General

 

Pursuant to the terms of the LLC Agreement, the LLC may issue up to 400,000,000 shares, of which 350,000,000 shares are designated as Class A, C, I, P-A and P-I shares (collectively, common shares), and 50,000,000 are designated as preferred shares and one special unit. Each class of common shares will have the same voting rights.

 

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The following are the current commissions and fees for each common share class in connection with the company’s continuous public offering pursuant to a Registration Statement on Form S-1 (File No. 333-211571) as well as the private offering of certain share classes.

 

Class A: Each Class A share is subject to a selling commission of up to 7.00% per share and a dealer manager fee of up to 2.75% per share. No selling commissions or dealer manager fees are paid for sales pursuant to the dividend reinvestment plan.

 

Class C: Each Class C share issued in the primary offering is subject to a selling commission of up to 3.00% per share and a dealer manager fee of up to 2.75% per share. In addition, with respect to Class C shares, the company pays the dealer manager a monthly distribution fee, or “distribution fee”, that accrues daily equal to 1/365th of 0.80% of the amount of the daily net asset value for the Class C shares on a continuous basis from year to year. No selling commissions or dealer manager fees are paid for sales pursuant to the DRP.

 

Class P-A : While Class P-A shares were converted into Class P-I shares during the quarter ended June 30, 2017 and were not offered for sale for the period through April 15, 2018, effective April 16, 2018 Class P-A shares are again offered with a selling commission of up to 6% and a dealer manager fee of up to 2.50%. As of June 30, 2018, no shares have been issued.

 

Class I and Class P-I: No selling commission or distribution fee will be paid for sales of any Class I and Class P-I shares. Each Class I share is subject to a dealer manager fee of up to 1.75% per share. 

 

The following table is a summary of the shares issued and repurchased during the period and outstanding as of June 30, 2018:

 

    Shares Outstanding
as of December 31, 2017
    Shares Issued
 During the
Period
    Shares Repurchased
During the Period
    Shares Outstanding as
of June 30, 2018
 
Class A shares     13,857,830       1,721,968       (140,037 )     15,439,761  
Class C shares     1,431,999       395,921       (4,227 )     1,823,693  
Class I shares     4,511,832       875,608       (26,071 )     5,361,369  
Class P-I Shares     3,387,568       3,772,284       (9,743 )     7,150,109  
Total     23,189,229       6,765,781       (180,078 )     29,774,932  

 

The following table is a summary of the shares issued during the period and outstanding as of December 31, 2017:

 

    Shares Outstanding as
of December 31, 2016
    Shares Issued
 During the Period
    Shares Converted During the Period     Shares Repurchased
During the Period
    Shares Outstanding as
of December 31, 2017
 
Class A shares     10,878,502       3,348,253             (368,925 )     13,857,830  
Class C shares     1,041,836       396,204             (6,041 )     1,431,999  
Class I shares     2,754,491       1,838,656             (81,315 )     4,511,832  
Class P-A shares     47,774       3,092       (50,866 )            
Class P-I Shares     199,319       3,147,692       50,866       (10,309 )     3,387,568  
Total     14,921,922       8,733,897             (466,590 )     23,189,229  

 

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The proceeds from shares sold and the value of shares issued through the reinvestment of distributions for each class of shares for the six months ended June 30, 2018 and June 30, 2017 were as follows:

 

    Class A
Shares
    Class C
Shares
    Class I
Shares
    Class P-A
Shares
    Class P-I
Shares
    Total  
For the six months ended June 30, 2018:                                                
Proceeds from Shares Sold   $ 13,399,227     $ 3,171,421     $ 6,868,262     $     $ 33,274,869     $ 56,713,779  
Proceeds from Shares Issued through Reinvestment of Distributions   $ 1,802,611     $ 224,249     $ 826,577     $     $     $ 2,853,437  
For the six months ended June 30, 2017:                                                
Proceeds from Shares Sold   $ 13,145,303     $ 1,037,822     $ 6,014,894     $ 27,075     $ 14,702,757     $ 34,927,851  
Proceeds  from Shares  Issued through Reinvestment of Distributions   $ 1,482,673     $ 174,540     $ 533,679     $     $     $ 2,190,892  
Capital transfers from the conversion of Shares   $     $     $     $ (441,005)     $ 441,005     $  

 

As of June 30, 2018, and December 31, 2017, none of the LLC’s preferred shares were issued and outstanding.

 

The LLC Agreement authorizes the board of directors, without approval of any of the members, to increase the number of shares the company is authorized to issue and to classify and reclassify any authorized but unissued class or series of shares into any other class or series of shares having such designations, preferences, right, power and duties as may be specified by the board of directors. The LLC Agreement also authorizes the board of directors, without approval of any of the members, to issue additional shares of any class or series for the consideration and on the terms and conditions established by the board of directors. In addition, the company may also issue additional limited liability company interests that have designations, preferences, right, powers and duties that are different from, and may be senior to, those applicable to the common shares. The Special Unitholder will hold the special unit in the company. Refer to Note 5 for the terms of the special unit. The proceeds related to the shareholder receivable amount of $380,439 presented on the consolidated statements of assets and liabilities as of June 30, 2018 were subsequently collected on July 2, 2018.

 

Distribution Reinvestment Plan

 

The company adopted a distribution reinvestment plan (“DRP”) through which the company’s Class A, C and I shareholders may elect to purchase additional shares with distributions from the company rather than receiving the cash distributions. The board of directors may reallocate the shares between the public offering and the DRP. Shares issued pursuant to the DRP will have the same voting rights as shares offered pursuant to the public offering. As of June 30, 2018, and December 31, 2017, $50,000,000 in shares were allocated for use in the DRP. During this offering, the purchase price of shares purchased through the DRP will be at a price equal to the then current net offering price per share. No dealer manager fees, selling commissions or other sales charges will be paid with respect to shares purchased pursuant to the DRP except for distribution fees on Class C shares issued under the DRP. At its discretion, the board of directors may amend, suspend, or terminate the DRP. A participant may terminate participation in the DRP by written notice to the plan administrator, received by the plan administrator at least 10 days prior to the distribution payment date.

 

30

 

 

As of June 30, 2018, and December 31, 2017, 1,332,956 and 1,008,948 shares, respectively, were issued under the DRP.

 

Share Repurchase Program

 

During the quarter ended September 30, 2015, the company commenced a share repurchase program, or “share repurchase program”, pursuant to which quarterly share repurchases will be conducted, on up to approximately 5% of the weighted average number of outstanding shares in any 12-month period, to allow members who hold Class A, C, I, P-A (commencing as of April 16, 2018) or P-I shares (commencing as of October 1, 2017) to sell shares back to the company at a price equal to the then current offering price less the selling commissions and dealer manager fees associated with that class of shares. The company is not obligated to repurchase shares and the board of directors may terminate the share repurchase program at its sole discretion. The share repurchase program includes numerous restrictions that will limit a shareholder’s ability to sell shares. Unless the board of directors determines otherwise, the company limits the number of shares to be repurchased during any calendar year to the number of shares the company can repurchase with the proceeds received from the sale of shares under the DRP. At the sole discretion of the board of directors, the company may also use cash on hand, cash available from borrowings and cash from liquidation of investments to repurchase shares. In addition, the company plans to limit repurchases in each fiscal quarter to 1.25% of the weighted average number of shares outstanding in the prior four fiscal quarters. For the six months ended June 30, 2018, the company repurchased 140,037 Class A shares, 4,227 Class C shares, 26,071 Class I shares and 9,743 Class P-I shares at a total purchase price of $1,237,852, $36,240, $230,106 and $85,838, respectively, pursuant to the company’s share repurchase program. For the six months ended June 30, 2017, the company repurchased 177,670 Class A shares and 43,020 Class I shares at a total purchase of $1,601,265 and $387,780, respectively, pursuant to the company’s share repurchase program, including 93,192 shares from an affiliate of the advisor.

 

We have received an order for our repurchase program from the SEC under Rule 102(a) of Regulation M under the Exchange Act. In addition, our repurchase program is substantially similar to repurchase programs for which the SEC has stated it will not recommend enforcement action under Rule 13e-4 and Regulation 14E under the Exchange Act.

 

Note 8. Distributions

 

On the last business day of each month, with the authorization of the company’s board of directors, the company declares distributions on each outstanding Class A, C, I, P-A and P-I share. These distributions are calculated based on shareholders of record for each day in amounts equal to that exhibited in the table below based upon distribution period and class of share.

 

Distribution Period   A     C     I     P-A   P-I  
1-Jan-15     31-Oct-15   $ 0.0016438     $ 0.0016438     $ 0.0016438            
1-Nov-15     31-Jan-16   $ 0.0016478     $ 0.0016478     $ 0.0016478            
1-Feb-16     30-Apr-16   $ 0.0016551     $ 0.0016551     $ 0.0016551            
1-May-16     31-Jul-16   $ 0.0016617     $ 0.0016617     $ 0.0016617     $ 0.0015826   $ 0.0015826  
1-Aug-16     31-Oct-16   $ 0.0016766     $ 0.0016766     $ 0.0016766     $ 0.0015968   $ 0.0015968  
1-Nov-16     31-Jan-17   $ 0.0016856     $ 0.0016402     $ 0.0016856     $ 0.0016036   $ 0.0016036  
1-Feb-17     31-Apr-17   $ 0.0016807     $ 0.0016350     $ 0.0016807     $ 0.0015952   $ 0.0015952  
1-May-17     31-Jul-17   $ 0.0016710     $ 0.0016273     $ 0.0016710     $ 0.0015952   $ 0.0015828  
1-Aug-17     31-Oct-17   $ 0.0016690     $ 0.0016265     $ 0.0016690         $ 0.0015901  
1-Nov-17     31-Jan-18   $ 0.0016690     $ 0.0016265     $ 0.0016690         $ 0.0015828  
1-Feb-18     31-Apr-18   $ 0.0016690     $ 0.0016265     $ 0.0016690         $ 0.0015828  
1-May-18     30-Jun-18   $ 0.0016690     $ 0.0016265     $ 0.0016690     $   $ 0.0015828  

 

The following table reflects the distributions declared during the six months ended June 30, 2018:

 

Pay Date   Paid in Cash     Value of Shares
Issued under DRP
    Total  
February 1, 2018   $ 728,738     $ 464,821     $ 1,193,559  
March 1, 2018     682,038       428,310       1,110,348  
April 2, 2018     790,925       474,370       1,265,295  
May 1, 2018     792,185       475,874       1,268,059  
June 1, 2018     883,662       507,728       1,391,390  
July 2, 2018     927,638       502,334       1,429,972  
Total   $ 4,805,186     $ 2,853,437     $ 7,658,623  

 

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The following table reflects the distributions declared during the six months ended June 30, 2017:

 

Pay Date   Paid in Cash     Value of Shares
Issued under DRP
    Total  
February 1, 2017   $ 431,686     $ 349,842     $ 781,528  
March 1, 2017     413,270       332,761       746,031  
April 3, 2017     482,113       371,902       854,015  
May 1, 2017     486,864       370,463       857,327  
June 1, 2017     524,909       383,585       908,494  
July 3, 2017     534,165       382,339       916,504  
Total   $ 2,873,007     $ 2,190,892     $ 5,063,899  

 

Cash distributions paid during the periods presented were funded from the following sources noted below:

 

   

For the six
months ended

June 30, 2018

   

For the six

months ended

June 30, 2017

 
Cash from operations   $ 4,588,850     $ 2,654,310  
Offering proceeds           88,515  
Total Cash Distributions   $ 4,588,850     $ 2,742,825  

   

All distributions paid for the six months ended June 30, 2018 are expected to be reported as a return of capital to stockholders for tax reporting purposes and all distributions paid for the six months ended June 30, 2017 were reported as a return of capital to stockholders for tax purposes.

 

The company expects to continue to fund distributions from a combination of cash from operations as well as offering proceeds until a minimum of $250,000,000 in net assets is reached, the portfolio is leveraged by at least 33% as well as being fully invested in operating assets.

 

Note 9. Commitments and Contingencies

 

Legal proceedings: The company may become involved in legal proceedings, administrative proceedings, claims and other litigation that arise in the ordinary course of business. Individuals and interest groups may sue to challenge the issuance of a permit for a renewable energy project or seek to enjoin construction of a wind energy project. In addition, we may be subject to legal proceedings or claims contesting the construction or operation of our renewable energy projects. In defending ourselves in these proceedings, we may incur significant expenses in legal fees and other related expenses, regardless of the outcome of such proceedings. Unfavorable outcomes or developments relating to these proceedings, such as judgments for monetary damages, injunctions or denial or revocation of permits, could have a material adverse effect on our business, financial condition and results of operations. In addition, settlement of claims could adversely affect our financial condition and results of operations. As of June 30, 2018, management is not aware of any legal proceedings that might have a significant adverse impact on the company.

 

Investment in to be constructed assets: Pursuant to various engineering, procurement and construction contracts to which three operating entities of the company are individually a party, the operating entities, and indirectly the company, has committed and outstanding balance of approximately $48.3 million to complete construction of the facilities. Based upon current construction schedules, the expectation is these commitments will be fulfilled early in 2019.

 

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Pledge of collateral and unsecured guarantee of loans to subsidiaries: Pursuant to various project loan agreements between the operating entities of the company, subsidiary holding companies and various lenders, the operating entities and the subsidiary holding companies have pledged all solar operating assets as well as the membership interests in various operating subsidiaries as collateral for the term loans with maturity dates ranging from March 2021 through March 2032. Pursuant to a credit agreement between GREC Holdco and a financial institution, Holdco has pledged all solar operating assets as well as all membership interests in operating subsidiaries owned by GREC Holdco as collateral for the loan. GREC and the company have provided an unsecured guaranty (“Guarantors”) on the outstanding principal of certain subsidiary loans, which is approximately $64,965,000, as of June 30, 2018. The Guarantors would only have to perform under the guarantee if the cash flow or the liquidation of collateral at the operating entities or subsidiary holding companies was inadequate to fully liquidate the remaining loan balance.

 

Unsecured guarantee of subsidiary renewable energy credit (“REC”) forward contracts: For the majority of the forward REC contracts currently effective as of June 30, 2018 where a subsidiary of the company is the principal, the company has provided an unsecured guarantee related to the delivery obligations. The amount of the unsecured guaranty related to REC delivery performance obligations is approximately $728,531 as of June 30, 2018.

 

See Note 1 — Organization and Operations of the Company and Note 5 — Related Party Agreements and Transactions Agreements for an additional discussion of the company’s commitments and contingencies.  

 

Note 10. Financial Highlights

 

   For the six months ended June 30, 2018 
   Class A Shares   Class C Shares   Class I Shares   Class P-I Shares 
Per share data attributed to common shares (1):                    
Net Asset Value at beginning of period  $8.68   $8.42   $8.68   $8.81 
Net investment income (3)   0.25    0.25 &nbs