UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2019

OR

For the transition period from __________________ to __________________

Commission File Number 001‑11981

MMA CAPITAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No ☑

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

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

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

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 ☑

The aggregate market value of our common shares held by non-affiliates was $163,426,211 based on the closing sale price as reported on the Nasdaq Capital Market on June 30, 2019.

There were 5,700,091 shares of common shares outstanding at March 5, 2020.

Portions of the registrant’s Proxy Statement to be filed on or about April 9, 2020 have been incorporated by reference into Part III of this report.

MMA Capital Holdings, Inc.

Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10‑K for the year ended December 31, 2019 (this “Report”) contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements often include words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “see,” “seek,” “should,” “will,” “would,” and similar words or expressions and are made in connection with discussions of future events and future operating or financial performance.

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results.  They are not guarantees of future performance.  By their nature, forward-looking statements are subject to risks and uncertainties.  Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements.  There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report.  For a discussion of certain of those risks and uncertainties, see Part I, Item 1A. “Risk Factors.”

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

MMA Capital Holdings, Inc.

Consolidated Financial Highlights

(Unaudited)

PART I

ITEM 1.  BUSINESS

Overview

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

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

In addition to renewable energy investments, we continue to own a limited number of bond investments, loan receivables and real estate-related investments, as well as have subordinated debt with beneficial economic terms. Further, we have significant net operating loss carryforwards (“NOLs”) that may be used to offset future federal income tax obligations, a portion of which were reported as deferred tax assets (“DTAs”) in our Consolidated Balance Sheets at December 31, 2019. We do not anticipate growing investments that are unrelated to renewable energy given current market conditions and, effective December 31, 2019, we no longer organize our assets and liabilities into discrete portfolios (at December 31, 2018 and in each Quarterly Report on Form 10-Q that was filed in 2019, assets and liabilities of the Company were allocated to one of two portfolios, “Energy Capital” and “Other Assets and Liabilities”). 

We operate as a single reporting segment.

Renewable Energy Investments

We invest in loans that finance renewable energy projects to enable developers, design and build contractors and system owners to develop, build and operate renewable energy systems throughout the U.S. Renewable energy debt in which we invest is primarily structured as senior secured fixed rate loans that are made through joint ventures or directly on our balance sheet. These loans, which are generally short term in nature, are typically made to project company borrowers when they are in the late stages of development or construction of their commercial, utility and community solar scale photovoltaic (“PV”) facilities that are located across different states and benefit from various state and federal regulatory programs. The short duration of loans in which we invest also helps us to efficiently manage interest rate risk, mitigate long-term risks such as credit exposure to off-take counterparties and provide us flexibility to target investments.

We generally invest in renewable energy investments through the following joint ventures: Solar Construction Lending, LLC (“SCL”); Solar Permanent Lending, LLC (“SPL”); Solar Development Lending, LLC (“SDL”); these  joint ventures together with our wholly owned subsidiary, Renewable Energy Lending, LLC (“REL”), are hereinafter referred to as the “Solar Ventures.” We are a 50% investor member in the renewable energy joint ventures in which we invest though, on occasion, we may become a minority investor through the execution of non-pro rata funding agreements in which our capital partner contributes a disproportionate amount of a  capital call. At December 31, 2019, we were a minority investor in SDL and SCL.

Lending Activities of the Solar Ventures

The Solar Ventures typically lend on a senior secured basis collateralized by solar projects, but may also invest in subordinated loans and, revolving loans and may finance non-solar renewable technologies such as wind and battery storage, or provide equipment financing and other customized debt solutions for borrowers. The Solar Ventures target loans that are underwritten to generate internal rates of return (“IRR”) ranging from 10% to 15%, before expenses, with 

origination fees that range from 1.0% to 3.0% on committed capital and fixed-rate coupons that range from 7.0% to 14.0%. These loans generally range in size from $2 million to over $50 million. 

Since their inception in 2015, the Solar Ventures have invested in more than 160 project-based loans that total $2.3 billion of debt commitments for the development and construction of over 660 renewable energy project sites. When completed, these projects will contribute to the generation of over 6.2 gigawatts of renewable energy, thereby eliminating approximately 177 million metric tons of carbon emissions over their project lives. The Solar Ventures closed $999.0 million of commitments across 62 loans during 2019 as compared to $401.9 million and 35 loans during 2018.

Through December 31, 2019,  $1.3 billion of commitments across 111 project-based loans had been repaid with no loss of principal, resulting in a weighted-average IRR (“WAIRR”) of 17.2% that was on average higher than originally underwritten loan IRRs.  Additionally, for the year ended December 31, 2019, 31 loans totaling $348.7 million of commitments had been repaid, resulting in a WAIRR of 20.8%. WAIRR is measured as the total return in dollars of all repaid loans divided by the total commitment amount associated with such loans, where (i) the total return for each repaid loan was calculated as the product of each loan’s IRR and its commitment amount and (ii) IRR for each repaid loan was established by solving for a discount rate that made the net present value of all loan cash flows equal zero. WAIRR has been higher than the net return on the Company's investments in the Solar Ventures because it is a measure of gross returns earned by the Solar Ventures on repaid loans and does not include the effects of: (i) operating expenses of the Solar Ventures; (ii) the preferred return earned by the Company’s former investment partner in REL through the second quarter of 2018; (iii) the amortization of the purchase premium paid by the Company to buyout our former investment partner’s interest in REL and (iv) the opportunity cost of idle capital. 

At December 31, 2019, loans funded through the Solar Ventures had an aggregate unpaid principal balance (“UPB”) and total fair value (“FV”) of $654.4 million, a weighted-average remaining maturity of 10 months and a weighted-average coupon of 10.8%. At December 31, 2018, loans funded through the Solar Ventures had an aggregate UPB of $250.8 million, a weighted-average maturity of seven months and a weighted-average coupon of 9.2%. 

Table 1 provides financial information about the composition of the Solar Ventures’ loan portfolio at December 31, 2019 and December 31, 2018.

Table 1: Composition of the Solar Venture’s Loan Portfolio

The Solar Ventures had $312.5 million of unfunded loan commitments to borrowers, of which $157.1 million was attributable to the Company based upon our interest in these ventures at December 31, 2019. The unfunded loan commitments are anticipated to be funded primarily by capital within the Solar Ventures through a combination of idle capital and existing loan redemptions. To the extent capital within the Solar Ventures is not sufficient to meet their funding obligations additional capital contributions by the members of the Solar Ventures would be required.

Investment Interests and Related Carrying Values

The carrying value and income-related information related to investments that we have made in, or related to, the Solar Ventures are further discussed below. In December 2019, the Company and our capital partner in SDL and SCL executed various non-pro rata funding agreements pursuant to which our capital partner contributed $73.0 million of $91.0 million SDL capital calls and $58.0 million of $59.0 million SCL capital calls, while the Company contributed the balance. As a consequence of these capital contributions, at  December  31, 2019, through MMA Energy Holdings, LLC, the Company held ownership interests of 42.0%, 50.0%, 41.5% and 100% in SCL, SPL, SDL and REL, respectively. 

In addition to investments in the Solar Ventures, in the fourth quarter of 2019, the Company invested in a loan originated by our External Manager with a $2.1 million commitment made to a special purpose entity that is secured by land, which is subject to a 25-year ground lease to a community solar project, and by the equity interests in the borrower. The UPB of the funded portion of this loan, which bears interest at a fixed rate of 8.0% and matures in December 2022, was $0.5 million at December 31, 2019.

Table 2 provides financial information about the carrying value of the Company’s renewable energy investments at December  31, 2019 and December 31, 2018.

Table 2:  Carrying Values of the Company’s Renewable Energy Investments

The carrying value of the Company’s equity investments in the Solar Ventures increased $162.8 million during 2019 as a result of $142.0 million of net capital contributions made that were primarily sourced from draws on our revolving credit facility and equity recycled out of nonrenewable energy investments. Such increase was also driven in part by $20.8 million of equity in income in the Solar Ventures that was recognized during 2019.

Investment Income and Return on Investment

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

Table 3 summarizes income recognized by the Company in connection with our renewable energy investments for the periods presented.

Table 3:  Income Recognized from Renewable Energy Investments

The Company generated an unleveraged net return, on investment from our renewable energy investments of 11.4% and 6.6% for the years ended December 31, 2019 and 2018, respectively. These returns were measured by dividing total annual investment income from renewable energy investments by the average carrying value of renewable energy investments on a trailing four quarter basis.

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

Leveraging our Renewable Energy Investments

On September 19, 2019, MMA Energy Holdings, LLC (“MEH” or “Borrower”), a wholly owned subsidiary of the Company, entered into a $125.0 million (the “Facility Amount”) credit agreement with various lenders that initially provided for a $70.0 million revolving credit facility, which was subsequently increased to $100.0 million during the fourth quarter of 2019. On February 28, 2020, the participating lenders of the revolving credit facility consented to increase the maximum Facility Amount to  $175.0 million. On March 4, 2020, the committed amount of the revolving credit facility increased to $110.0 million upon the joinder of an additional lender. 

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

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

At December  31, 2019, the UPB and carrying value of amounts borrowed under the revolving credit facility was $94.5 million and the Company recognized $1.2 million of related interest expense in the Consolidated Statements of Operations during 2019.

The liquidity accessed by the Company through the revolving credit facility has increased the amount of capital invested in the Solar Ventures and reduced the amount of idle capital.

Hunt Note

At December 31, 2019, the Company had a secured loan receivable from Hunt (the “Hunt Note”) that had a carrying value of $53.6 million and bore interest at a rate of 5.0% per annum. On January 3, 2020, the Hunt Note was fully repaid. 

Deferred Tax Assets

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

At December 31, 2019, the Company had pretax federal NOLs of $374.9 million that were available to reduce future federal income taxes. These NOLs will begin to expire in 2028. As of December 31, 2019, the Company concluded that, based on the weight of available evidence, it was more likely than not that the Company would utilize $210.2 million of these NOLs. Accordingly, during the fourth quarter of 2019, the Company recognized a  $57.7 million net DTA. However, a $65.4 million valuation allowance remains in place at December 31, 2019 against the portion of our DTAs that, based on projection assumptions that are generally objectively verifiable, correspond to federal and state NOL carryforwards that we expect will expire prior to utilization based on our forecast of pretax book income at such reporting date. Refer to Notes to Consolidated Financial Statements – Note 14, “Income Taxes,” for additional information about DTAs.

Investments in Bonds

The Company also has one unencumbered tax-exempt municipal bond that finances the development of infrastructure for a mixed-use town center development in Spanish Fort, Alabama and is secured by incremental tax revenues generated from the development (this investment is hereinafter referred to as our “Infrastructure Bond”). At December 31, 2019,

the Infrastructure Bond had a stated fixed interest rate of 6.3% and had a UPB and fair value of $26.9 million and $25.3 million, respectively.

At December 31, 2019, we held one subordinate unencumbered tax-exempt multifamily bond investment with a UPB and fair value of $4.0 million and $6.0 million, respectively.

Real Estate-Related Investments

At December  31, 2019, we were an equity partner in a real estate-related investment with an 80% ownership interest in a joint venture that owns a mixed-use town center development and undeveloped land parcels and whose incremental tax revenues secure our Infrastructure Bond (hereinafter, the “Infrastructure Venture”). The carrying value of this investment was $19.8 million at December 31, 2019.

At December  31, 2019, the Company maintained an 11.85% ownership interest in the South Africa Workforce Housing Fund (“SAWHF”).  SAWHF is a multi-investor fund that will mature in April 2020 and is currently in the process of exiting its investments.  The carrying value of the Company’s investment in SAWHF was $7.7 million at December  31, 2019.

At December  31, 2019, we also owned one direct investment in real estate consisting of a parcel of land that is currently in the process of development. This real estate is located just outside the city of Winchester in Frederick County, Virginia.  As of December 31, 2019, the carrying value of this investment was $8.4 million. On January 15, 2020, the Company invested $5.9 million in additional land improvements that were capitalized increasing the carrying value of our investment.

Debt Obligations

At December  31, 2019, the Company’s nonrenewable energy debt obligations included the subordinated debt, notes payable and other debt used to finance the Company’s 11.85% ownership interest in SAWHF and debt obligations to the Morrison Grove Management, LLC (“MGM”) principals.

The carrying value and weighted-average yield of the Company’s nonrenewable energy debt obligations was $107.3 million and 4.0%, respectively, at December  31, 2019. Refer to Table 10, “Debt,” for more information.

Competition

We face competition from banks, private equity, infrastructure funds and other renewable energy investors related to new investments. Also, the properties that collateralize our bonds and real estate related investments compete against other companies and properties that seek similar tenants and offer similar services.

While we have historically been able to compete effectively as a result of our service, reputation, access to capital and longstanding relationships, many of our competitors benefit from substantial economies of scale in their business, have greater access to capital and other resources than we do and may have other competitive advantages over us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we are able to.    

Employees

We have no employees. The Company engaged our External Manager to manage the Company’s continuing operations on January 8, 2018, and all former employees of the Company were at that time hired by the External Manager.

Other Information Concerning Our Business

At December 31, 2019, our principal office was located at 3600 O’Donnell Street, Suite 600, Baltimore, MD 21224. Our telephone number at this office was (443) 263-2900. Our corporate website is www.mmacapitalholdings.com, and our filings under the Exchange Act are available through that site, as well as on the Securities and Exchange Commission (“SEC”) website at www.sec.gov. The information contained on our corporate website is not a part of this Report.

ITEM 1A.  RISK FACTORS

Investing in our common shares involves various risks and uncertainties. The risks described in this section are among those of which we are currently aware that, as of the filing date of this Report, could directly or indirectly have a material adverse effect on our business, financial condition, results of operations and value of our common shares. The risk factors below should not be considered a complete list of potential risks that we may face.

Risks Related to Our Business Operations

We are exposed to various risks associated with our renewable energy investments.

Our renewable energy investments consist primarily of indirect investments in loans made by the Solar Ventures that finance renewable energy projects. The Solar Ventures generally invest in loans that have a duration of less than one year and need to reinvest their redemption proceeds in new investments with comparable returns in order to maintain their existing revenues. Repayment of previously funded loans is typically dependent upon the availability of permanent loans, tax credit equity and other monetization events whose funding is outside the Solar Ventures’ control. Furthermore, lenders of permanent loans and syndicators of tax credit equity may require access to the credit markets, which could impact their ability to finance the take-out of the Solar Ventures’ loans.  

The Solar Ventures regularly have unfunded loan commitments to borrowers and, as of December 31, 2019, these unfunded loan commitments totaled $312.5 million. The unfunded loan commitments are anticipated to be funded primarily by capital within the Solar Ventures through a combination of idle capital and existing loan redemptions. To the extent capital within the Solar Ventures is not sufficient to meet their funding obligations additional capital contributions by the members of the Solar Ventures would be required. The ability of the Company to fund its share of additional capital is currently, and may become increasingly, dependent upon our access to the debt and equity capital markets and the willingness and ability of our capital partner to continue to contribute its share of additional capital or capital in excess of its pro rata ownership of the Solar Ventures. If we are unable to meet our funding obligations, the Solar Ventures could default on their lending commitments to their borrowers, which would adversely affect our business, cash flows and financial condition and result in damage to our and our External Manager’s reputation.  

Our renewable energy investments are subject to various other risks that could adversely impact the demand or financial performance of these investments. We have project related risk including construction risk, permanent financing risk, repayment risk, collateral risks (such as value and ability to foreclose) and concentration risk. Our concentration risk at any point in time may relate to: (i) developer partners and sponsors; (ii) constructors and EPC contractions; (iii) program and regulatory regimes; (iv) offtake counterparties such as commercial entities and municipalities; (v) take-out counterparties such as tax-equity providers, permanent debt providers and third-party project asset buyers; (vi) single projects size and (vii) module and equipment suppliers. We also have market risk, including the following: (i) increased competition in renewable energy lending;  (ii) if the cost of energy generated by other than renewable energy sources declines, the demand for projects that the Solar Ventures finance may consequently be reduced, which could harm new business opportunities;  (iii) changes in various policies and regulations related to the functioning of the electricity market may adversely impact the use of renewable energy or encourage the use of fossil fuel energy over renewable energy; (iv) renewable energy projects generally rely on supply chains for equipment and transmission from third parties to distribute their output, which may make them susceptible to increased costs or access barriers; (v) development of new electric generating technologies that may be beyond the External Manager’s expertise; (vi) significant reliance on existing relationships to generate investment opportunities and (vii) disruptions in the credit markets. Further, federal and state governments have established various incentives and financial mechanisms to accelerate the adoption of renewable energy. These incentives include tax credits, tax abatements and rebates among others. These incentives help catalyze private sector investments in solar and other renewable energy. Changes in government incentives, whether at the federal or local level, or changes in federal law, such as tariffs on solar panels or change in policies or regulations related to the functioning

of the electric markets could result in a significant reduction in the potential demand for renewable energy, which could adversely affect our renewable energy finance business.

Moreover, we do not control the Solar Ventures. In this regard, our investment partner may not consent to decisions that may be in our best interest or they may at any time have economic or other business interests different than ours. Additionally, in December 2019, the Company and our capital partner in SDL and SCL executed various non-pro rata funding agreements pursuant to which our capital partner contributed $73.0 million of $91.0 million in SDL capital calls and $58.0 million of $59.0 million in SCL capital calls, while the Company contributed the balance. In this regard, the Company ceded decision-making control over the workout of troubled loans, to the extent there are any, to its capital partner until such time that the amount of equity invested by the Company and its capital partner have come back into equal balance.

Lastly, the sale or transfer of our interests in the Solar Ventures is also restricted and subject to buy-sell provisions that could be triggered at a time when we may not desire, thus inhibiting our ability to sell our interests or realize the expected returns that may be generated by the Solar Ventures.

We operate in an increasingly competitive market.

We compete against a number of parties who may provide financing alternatives to the investments in which we invest, including specialty finance companies, banks, private equity, institutional investors, independent power producers, pension funds, developers and others who provide capital solutions to renewable energy developers, Engineering Procurement Construction (“EPC”) contractors and system owners. The continued low interest rate environment and increasing investor appetite in the renewable energy market have increased the level of competition that we face.

Many of our competitors are significantly larger than we are, have access to greater capital and other resources than we do, have a lower cost of borrowing or more favorable access to credit, and may have other advantages over us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we are able to. We may lose business opportunities if we do not match our competitor’s pricing, terms and structure.

We face risks associated with the revolving credit facility.

Our ability to borrow from the revolving credit facility is dependent upon our remaining in compliance with a borrowing base, which is comprised of eligible renewable energy loans made either through the Solar Ventures in which we are an investor or that we have invested in directly. Compliance with the borrowing base depends on a sufficient percentage of the underlying loans remaining performing and eligible. A loan having an event of default or not adhering to pre-set underwriting criteria would cause a loan not to be borrowing base eligible. If the amount drawn from the revolving credit facility exceeds the available capacity under the borrowing base and this variance is not cured in a timely manner, the lender could declare an event of default that could have a variety of negative outcomes that include, but are not limited to, the lender foreclosing on our equity interests in MEH, which holds our interest in the Solar Ventures, and which we have pledged in connection with this financing.

The revolving credit facility contains certain financial covenants and collateral performance thresholds. An adverse change in the Company’s financial position could cause a financial covenant breach and lead to an event of default. An adverse change in the composition of the underlying loans, an increase in loan tenors or repeated loans extensions, an increase in defaults, principal loss, and or a material reduction in the interest rates being charged could cause us to breach a collateral performance or financial covenant test and lead to an event of default on the revolving credit facility.

We may have an UPB associated with amounts drawn from the revolving credit facility when it matures. If we are unable to repay or refinance the remaining balance of this debt, or if the terms of any available refinancing are not favorable, we may be forced to liquidate assets or incur higher costs which may significantly harm our business and financial condition.

Our ability to maintain and grow our shareholder value over the long term would be adversely affected if we are unable to make new investments, our lenders fail to meet their funding commitments to us or if we are unable to raise capital.

We need to identify, attract and obtain new capital in order to increase the number and size of the investments that we

make. Our ability to raise capital depends on a number of factors, including certain factors that are outside our control. There can be no assurances that we can find or secure commitments for new capital or that new or existing lenders will meet their funding commitments to us. The failure to obtain or maintain capital in sufficient amounts, or to realize sufficient returns on the Company’s current investments, as well as the failure to reinvest investment or capital proceeds into new higher yielding investments could result in a decrease in the number and dollar value of our investments, or a decline in the rate of growth of these investments, any of which could adversely impact our revenues, cash flows and financial condition.

Additionally, there is a risk that we will not be able to deploy our cash or the cash held by the Solar Ventures or expand our leverage to make investments that generate risk-adjusted returns that grow shareholder value. Furthermore, because there are no restrictions as to the nature of our investments, our investments in the future may result in additional or new risks that we do not face today.

LIBOR may not be available after 2021, which creates uncertainty around the future value of, and costs associated with, our interest rate derivative instruments and debt obligations that are indexed to LIBOR.

The payment terms of our subordinated debt, revolving credit facility and certain interest rate derivative instruments that we use to hedge our exposure to interest rate risk are indexed to LIBOR. It is widely expected that LIBOR will not be quoted or available after 2021.

The Alternative Reference Rates Committee has designated the Secured Overnight Financing Rate (“SOFR”) as a recommended alternative rate for U.S. dollar-based LIBOR. SOFR is published by the Federal Reserve Bank of New York and is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury Securities.  However, there are significant differences between LIBOR and SOFR and there can be no assurance that the alternative rate or index will be uniformly adopted or that we and our counterparty to our debt and interest rate derivative contracts will be in agreement on a new rate. In any event, it is unlikely that the new rate will be exactly equal to what LIBOR would have been, so the amount of our borrowing costs may increase or the amount paid to us under our interest rate cap and swap agreements might be less than it would have been had LIBOR continued.

Our subordinated debt documents contain alternative reference bank quotation mechanisms in the event LIBOR is discontinued, but there can be no assurance that banks will quote an alternate rate. If they do not, and we do not otherwise reach agreement with the servicers or the lenders of these obligations, the debt will convert to a fixed rate equal to the last quoted LIBOR plus our existing spread, which could have a material impact on us should LIBOR experience yield volatility or disruption before it is last quoted.  

Our revolving credit facility agreement contains fallback language in the event LIBOR is discontinued, whereby the administrative agent determines the replacement index in its reasonable judgment, including any adjustment to the replacement rate to reflect a different credit spread.

Accordingly, it is impossible at this time to predict what our interest cost for our LIBOR indexed debt or the benefits of our LIBOR-based derivatives will be after 2021. The cost could be greater than it would have been had LIBOR continued and the difference could be material to our business, results of operations and financial condition.

Increases in interest rates and credit spreads may adversely affect the fair value of our assets and increase our costs of borrowing.

Our fixed rate financial instruments, which include investments in debt securities, loans for which we have elected the fair value option (“FVO”), loans classified as held-for-sale (“HFS”) and derivative financial instruments are or, in the case of HFS loans, may be reported at fair value in our financial statements based upon, in part, estimated market yields and credit spreads for comparable investments. Consequently, the fair value of these instruments exposes us to changes in interest rates and credit spreads.

Interest rates can fluctuate for a number of reasons, including as a result of changes in the fiscal and monetary policies of the federal government and its agencies. Interest rates can also fluctuate as a result of geopolitical events or changes in general economic conditions, including events or conditions that alter investor demand for Treasury or other fixed-income securities.

Changes in market conditions, including changes in interest rates, liquidity, prepayment and/or default expectations, and the level of uncertainty in the market for a particular asset class, may cause fluctuations in credit spreads.

If interest rates increase or credit spreads widen, the fair value of our investments in bonds and other fixed rate financial instruments (whose fair value measurements are based upon contractual cash flows) will generally decline and, therefore, have a negative effect on our financial results and our shareholders’ equity. Declines in the fair value of these instruments could be significant in these circumstances.

If short-term interest rates rise, our borrowing costs would increase and our net income would decline as interest payments associated with a significant portion of our debt obligations are indexed to short-term interest rates and, therefore, would increase. However, the Company may, from time to time, enter into agreements with third parties that are designed to manage a portion of this risk.

Real estate-related investments and bond investments are exposed to various risks associated with real estate.

Because a substantial portion of our real estate-related investments and bond investments are secured by real estate, consist of real estate or investments in entities that own real estate, or are dependent upon incremental tax revenues generated from real estate, the value of these investments is exposed to various real estate-related risks. The value of these investments may be adversely affected by changes in macroeconomic conditions or other developments in real estate markets. These factors include but are not limited to: (i) overall development risk; (ii) changes in interest rates that affect the value of the real estate we own or in which we have an interest; and (iii)  increasing levels of unemployment and other, adverse regional or national economic conditions.

Real estate may also decline in value because of adverse changes in market conditions, environmental problems, casualty losses for which insurance proceeds are not sufficient to cover the loss, or condemnation proceedings. The value of our real estate-related investments and our ability to conduct business also may be adversely affected by changes in local or national laws or regulatory conditions that affect significant segments of the real estate market. In such circumstances, cash flows from properties or developments that support our bond investments may not be sufficient to pay interest on our bonds, which would cause the value of our investments to decline.

We are exposed to various risks associated with agreements that we use to manage interest rate risk.

From time to time, we may execute agreements that are designed to reduce our interest rate risk. For example, we may enter into interest rate swaps whereby we agree to pay a fixed rate of interest and the counterparty agrees to pay us a floating rate of interest in order to synthetically fix our variable rate debt to better match assets that pay on a fixed rate basis. We also may enter into interest rate caps whereby we pay the counterparty an upfront premium and the counterparty pays us if the benchmark rate on the cap reaches a certain level. As further discussed above, derivative instruments are exposed to changes in fair value as a result of changes in interest rates. Additionally, interest rate swaps and caps expose the Company to the risk of counterparty default (including counterparty failure to meet its payment obligations). Further, there is a risk that these contracts do not perform as expected and may cost more than the benefits we receive. Moreover, in the case of interest rate swaps, we are exposed to the risk of collateral calls if the fair value of these instruments declines.

Virtually all of our non-cash assets are illiquid and may be difficult to sell at their reported carrying values.

Our renewable energy investments, bonds and other real estate-related investments are illiquid and difficult to value. Illiquid assets typically experience greater price volatility in volatile market conditions as validating pricing for illiquid assets is more subjective than more liquid assets. To the extent that we utilize leverage to finance our investments that are illiquid, the negative impact on us related to trying to sell assets in a short period of time for cash could be greatly exacerbated. If we need to liquidate all or a portion of our investments the price that we are able to realize may be significantly less than their carrying value in our financial statements, which could adversely impact our business, results of operations and financial condition.

Risks Related to Legislations, Regulations and Compliance

We could lose the tax benefit of our NOLs.

As of December 31, 2019, we had an estimated $374.9 million of federal NOLs that were subject to a partial valuation allowance. Our federal NOLs can be used to offset federal taxable income through 2035 at which time most of our NOLs will have expired if not used. However, there are events that could cause us to lose, or to otherwise limit, the amount of NOLs available to us before that time. For example, our NOLs could be lost if we suffer a change of control event as defined by the Internal Revenue Code. A change of control event may occur when a shareholder, or a collection of shareholders, owning at least five percent of our shares, acquire more than 50% of our outstanding shares within a three-year period. The Company adopted a Tax Benefits Rights Agreement on May 5, 2015 (the “Rights Plan”) in an attempt to avoid a change of control event as defined by the Internal Revenue Code, although the Company cannot guarantee the effectiveness of the Rights Plan. Changes in tax laws could also cause us to lose, or could otherwise limit, the amount of NOLs available to us. On March 11, 2020, the Board of Directors (the “Board”) approved an extension of the Rights Plan whereby the terms of the Rights Plan will continue until May 5, 2023. The Board will ask shareholders to ratify its decision to extend the Rights Plan at the Company’s 2020 annual meeting of shareholders.

Most of our NOLs are also subject to a 20-year carryforward limitation that limits the time that we have to generate the income necessary to fully utilize our NOLs. In this regard, it is possible that some of our NOLs will not be utilized if the Company is unable to generate a sufficient amount of pretax book income before their expiration period begins in 2028. In this regard, should the Company assess that it is not more likely than not that it will utilize federal NOLs for which DTAs were recognized in its Consolidated Balance Sheets, an allowance would be established against the DTAs and a loss would be recognized in the reporting period in which the provision was made. At December 31, 2019, the Company had recognized $57.7 million of net DTAs and maintained a valuation allowance against $65.4 million of such assets.

Our accounting policies and methods require management to make judgments and estimates about matters that are inherently uncertain.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. We are often required to apply accounting principles to complex transactions or fact patterns and apply judgment when interpreting such rules. In other cases, the application of these policies and methods involve the use of financial models to measure the fair value of certain assets and liabilities or produce other estimates that are reflected in our financial statements Projections that are produced by such models are often based on assumptions and estimates that involve significant judgment and are inherently uncertain. In this regard, we have established procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently. However, due to uncertainty surrounding management’s judgments, assumptions and estimates pertaining to these matters, we cannot guarantee that we will not be required to adjust accounting policies or restate prior period financial statements.

See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies” for a description of our significant accounting policies and estimates.

Comprehensive tax reform and other legislation could adversely affect our business and financial condition.

The Tax Cut and Jobs Act of 2017 provides, among other things, for a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, which could adversely affect the market for tax credit investors to invest in solar tax credits that support our renewable energy investments. In addition, the government could make further changes in tax or other laws, such as the elimination of renewable energy tax credit incentive programs, that while not directly affecting our portfolio, could make renewable energy investments less valuable to investors. For example, if tariffs on solar panels or other renewable energy components were increased, or if federal or state incentives were reduced or eliminated, our renewable energy business could be adversely affected. Congress could also pass laws or make changes in tax rates that make competing investments more attractive than our solar projects, which could also make our investments less valuable.

If we become subject to the Investment Company Act of 1940 (the “Investment Company Act”), we could be required to sell substantial portions of our assets at a time when we might not otherwise want to do so, and we could incur significant losses as a result.

We continuously monitor our business activities to ensure that we do not become subject to regulation as an investment company under the Investment Company Act. We currently rely on exemptions from the Investment Company Act for companies that are engaged primarily in the business of certain types of financing, including sales financing, based on our primary investments in loans related to the purchase and installation of renewable energy infrastructure. If we were to become regulated as an investment company under the Investment Company Act, either due to a change in the SEC’s interpretation of that Act or due to a significant change in the value and composition of our assets, we would be subject to extensive regulation and restrictions. Among other restrictions, we would not be able to incur borrowings, which would limit our ability to fund certain investments. Accordingly, either we would have to restructure our assets so that we would not be subject to the Investment Company Act or we would have to materially change the way we do business. Either course of action could require that we sell substantial portions of our assets at a time when we might not otherwise want to do so, and we could incur significant losses as a result. Any of these consequences could have a material adverse effect on our business, financial condition or results of operations.

Risks Associated with Our Relationship with Our External Manager

We no longer have any employees and we are therefore dependent upon the External Manager to provide all of the services we need, including finding and underwriting suitable investments, conducting our operations and maintaining regulatory compliance.

Because we have no employees, we are dependent on the External Manager to find, underwrite and close suitable investments on our behalf and to conduct all of our operations. Although our former employees became employees of the External Manager, the External Manager is not obligated to require these, or any other, employees to devote their time exclusively to us. As a result, the employees may not devote sufficient time to the management of our business operations, and in particular to sourcing and placing investments with us. Further, the Management Agreement does not require the External Manager to dedicate specific personnel to our operations and none of our former employees’ continued service is guaranteed. If these individuals leave the External Manager or an affiliate thereof or are reallocated to other activities of the External Manager or its affiliates, the External Manager may be unable to replace them with persons with appropriate experience, or at all, and we may not be able to execute our business plan or maintain compliance with applicable regulatory requirements.

Various termination provisions in the Management Agreement, including termination by us without cause, require us to pay the External Manager a substantial termination fee, which could deter termination or adversely affect our results of operations.

The initial term of our Management Agreement extends to December 31, 2022 and, unless terminated, the Management Agreement automatically renews thereafter for successive two-year terms. Either party may elect not to renew the Management Agreement effective upon the expiration of the initial term or any automatic renewal term, both upon 12 months’ prior written notice. However, if we elect not to renew the Management Agreement on this basis, we are required to pay the External Manager a termination fee equal to three times the average annual management fee and incentive compensation earned by, plus one times the average annual amount of certain reimbursements received by, the External Manager during the 24-month period immediately preceding the effective date of termination, which could cause the termination fee to be substantial. These provisions may make it costly and difficult for us not to renew the Management Agreement. If we are required to pay the termination fee as a result of a termination, our results of operations and our shareholders’ equity will be adversely affected.

If we terminate the Management Agreement without cause, we cannot hire the External Manager’s employees, including our former employees, which could make it difficult for us to conduct our operations following any such termination.

If we terminate the Management Agreement without cause, we may not, for a period of two years, without the consent of the External Manager, employ any employee of the External Manager or any of its affiliates, or any person who was employed by the External Manager or any of its affiliates at any time within the two-year period immediately preceding

the date we hire such person. This restriction applies to all of our former employees except that, if we have paid the termination fee described above, we may hire persons serving in the capacity of Chief Executive Officer, Chief Operating Officer/President and Chief Financial Officer. The inability to hire the External Manager’s employees could make it more difficult for us to terminate the Management Agreement since we will need to find a new external manager or hire all new employees.

The fixed percentage component of the management fee payable to the External Manager is payable regardless of our performance.

The External Manager is entitled to receive a management fee from us that is based on a fixed percentage of our GAAP common shareholders’ equity, regardless of the performance of our investment portfolio. For example, we would owe the External Manager a management fee for a specific period even if we experienced a net loss during that period. The External Manager’s entitlement to a fee based on a fixed percentage of our GAAP common shareholders’ equity excluding the carrying value of DTAs may encourage the External Manager to invest in riskier assets in order to grow the equity base upon which the fee is paid and may reduce its incentive to find investments that provide appropriate risk-adjusted returns for our investment portfolio. Similarly, the incentive compensation payable to the External Manager is based on year-over-year increases in diluted common shareholders’ equity per share, which could also encourage the External Manager to invest in riskier assets.

External Manager’s liability is limited under the Management Agreement and we have agreed to indemnify the External Manager against certain liabilities.

Under the terms of the Management Agreement, the External Manager does not assume any responsibility other than to render the services called for thereunder in good faith and is not responsible for any action of our Board of Directors in following or declining to follow any advice or recommendations of the External Manager, including as set forth in the investment guidelines. Under the terms of the Management Agreement, the External Manager and its affiliates and their respective directors, officers, employees, managers, trustees, control persons, partners, stockholders and equity holders are not liable to us, our directors, stockholders or any subsidiary of ours, or their equity holders or partners for any acts or omissions performed in accordance with and pursuant to the Management Agreement, whether by or through attempted piercing of the corporate veil, by or through a claim, by the enforcement of any judgment or assessment or any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, or otherwise, except by reason of acts or omissions constituting bad faith, actual and intentional fraud, willful misconduct, gross negligence or reckless disregard of their duties under the Management Agreement. We have agreed to indemnify the External Manager and its affiliates and their respective directors, officers, employees, managers, trustees, control persons, partners, stockholders and equity holders with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from their acts or omissions not constituting bad faith, actual and intentional fraud, willful misconduct, gross negligence or reckless disregard of their duties under the Management Agreement. As a result, we could experience poor performance or losses for which the External Manager would not be liable.

Affiliates of the External Manager are engaged, or may engage, in similar businesses to ours and the External Manager may have conflicts of interest which could result in decisions that are not in the best interests of our shareholders.

We are subject to conflicts of interest arising out of our relationship with Hunt, including the External Manager and its affiliates. The External Manager may be presented with investment opportunities that we would find attractive, but which it offers instead to its affiliates, some of which are engaged in businesses similar to ours. There is no guarantee that the policies and procedures adopted by us, the terms and conditions of the Management Agreement or the policies and procedures adopted by the External Manager, will enable us to identify, adequately address or mitigate all potential conflicts of interest. These factors could adversely impact our ability to make investments with attractive risk-adjusted returns.

A breach of the security of our External Manager’s systems or those of other third parties with which we do business, including as a result of cyber-attacks, could damage or disrupt our business or result in the disclosure or misuse of confidential information, which could damage our reputation, increase our costs and cause losses.

Our business is reliant upon the security and efficacy of our External Manager’s information technology (“IT”) environment, as well as those of other third parties with whom we interact or upon whom we rely. Our business relies on

the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in the computer and data management systems and networks of third parties, particularly our External Manager.

Our ability to conduct business may be adversely affected by any significant disruptions to our External Manager’s IT systems or to third parties with whom we interact or upon whom we rely. In addition, our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than if those systems were our own. In the event that backup systems are utilized, they may not process data as quickly as needed and some data might not have been backed up.

As cyber threats continue to evolve, third parties with whom we interact or upon whom we rely, particularly our External Manager, may be subject to computer viruses, malicious codes, phishing attacks, unauthorized access and other cyber-attacks.  Our External Manager may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to protect the integrity of systems and implement controls, processes, policies and other protective measures, third parties with whom we interact or upon whom we rely, particularly our External Manager, may not be able to anticipate all security attacks or to implement appropriate preventive measures against security breaches. Any security breach or unauthorized access could disrupt our operations, result in the loss of assets or harm our reputation. In addition, any of these events could have a material adverse effect on our business, financial condition or results of operations.

Risks Related to Ownership of Our Shares

Our shares are thinly traded and, as a result, the price at which they trade may not reflect their full intrinsic value.

Although our shares are listed for trading on the Nasdaq Capital Market, our shares are thinly traded and we do not have analysts actively tracking and publishing opinions on the Company and our stock. Additionally, when we have repurchased our shares, the number of shares outstanding is reduced, which has the effect over time of further decreasing the trading volume of our shares. Accordingly, the trading price of our shares may not reflect their full intrinsic value. Since our shares are thinly traded, we can give investors no assurance that they will be able to sell their shares at market prices or at any price at all if they desire to liquidate some or all of their shares in the Company.

Our Rights Plan could depress our share price.

Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person. By discouraging acquisitions of greater than a 4.9% stake in the Company, the Rights Plan might limit takeover opportunities and, as a result, could depress our share price. At December 31, 2019, we had two shareholders, including one of our executive officers, Michael L. Falcone, that held greater than a 4.9% stake in the Company. The Board named Mr. Falcone an exempt person in accordance with the Rights Plan. The Board determined that Mr. Falcone’s exercise of his options and the required share purchases did not constitute a triggering event for purposes of our Rights Plan. In accordance with the Master Transaction Agreement dated January 8, 2018, Hunt remains an exempt person for purposes of the Rights Plan and may purchase up to 9.9% of the Company’s shares in any rolling 12-month period, without causing a triggering event.

Provisions of our Certificate of Incorporation may discourage attempts to acquire us.

Our Certificate of Incorporation contains at least three groups of provisions that could have the effect of discouraging people from trying to acquire control of us. Those provisions are:

The above provisions could deprive our shareholders of acquisition opportunities that might be attractive to many of them.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

We do not own any of the real property where we conduct our business. Our corporate headquarters is located in the Baltimore, Maryland office of our External Manager.

ITEM 3.   LEGAL PROCEEDINGS

For a discussion of legal proceedings see Notes to Consolidated Financial Statements – Note 10, “Commitments and Contingencies,” which is incorporated herein by reference.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS

             AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common shares currently trade on the Nasdaq Capital Market under the symbol “MMAC.”

The Company’s Board regularly makes determinations regarding dividends based on our External Manager’s recommendation, which is based on an evaluation of a number of factors, including our financial condition, business prospects, available cash and other factors the Board may deem relevant. The Board has not authorized paying a dividend at the current time.

On March 5, 2020, there were approximately 407 holders of record of our common shares.

Recent Sales of Unregistered Securities

None for the three months ended December 31, 2019.

Use of Proceeds from Registered Securities

None for the three months ended December 31, 2019.

Issuer Purchases of Equity Securities

Table 4 provides information on the Company’s purchases of its common shares during the three months ended December  31, 2019.

Table 4:  Common Shares Repurchases

ITEM 6.  SELECTED FINANCIAL DATA

Information in response to this Item 6 can be found in the “Consolidated Financial Highlights” table that is located on page 2 of this Report. That information is incorporated into this item by reference. 

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SUMMARY OF FINANCIAL PERFORMANCE

Net Worth

Common shareholders’ equity (“Book Value”) increased  $68.2 million in 2019 to $281.1 million at December  31, 2019.  This change was driven by $70.9 million of comprehensive income, which included the recognition of a  $57.7 million net DTA in the fourth quarter of 2019. The change in comprehensive income was partially offset by  $2.7 million of other decreases in Book Value.

Book Value per share increased $12.23, or 33.8%, in 2019 to $48.43 at December  31, 2019. 

Book Value adjusted to exclude the carrying value of our net DTAs (“Adjusted Book Value”) increased $10.5 million in 2019 to $223.4 million at December 31, 2019. This change was driven by $13.2 million of comprehensive income partially offset by $2.7 million of other decreases in Book Value.

Adjusted Book Value per share increased $2.29, or 6.3%, in 2019 to $38.49 at December 31, 2019. 

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

Comprehensive Income

We recognized comprehensive income of $70.9 million during the year ended December 31, 2019, which consisted of $101.0 million of net income and $30.1 million of other comprehensive loss.  In comparison, we recognized $57.5 million of comprehensive income during the year ended December 31, 2018, which consisted of $61.0 million of net income and $3.5 million of other comprehensive loss.

Net income that we recognized during the year ended December 31, 2019 was primarily driven by our income tax benefit from the partial release of our DTA valuation allowance in the fourth quarter of 2019,  equity in income from unconsolidated funds and ventures, net gains on bonds and net interest income. Refer to “Consolidated Results of Operations,” for more information about changes in Book Value that were attributable to net income.

Net income from continuing operations before income taxes for the year ended December 31, 2019 was $40.5 million, or $6.89 per share, as compared to $25.7 million for the year ended December 31, 2018.  

Other comprehensive loss that we reported for the year ended December 31, 2019 was primarily attributable to the reclassification of fair value gains out of accumulated other comprehensive income (“AOCI”) and into our Consolidated Statements of Operations due to the redemption of certain bond investments during the reporting period. The impact of this reclassification was partially offset by net fair value gains that we recognized in AOCI during 2019 in connection with our bond investments.

CONSOLIDATED BALANCE SHEET ANALYSIS

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

Table 5 provides Consolidated Balance Sheets for the periods presented.  

Table 5:  Consolidated Balance Sheets

Cash and cash equivalents decreased primarily due to an increase in net cash used in connection with investments made in the Solar Ventures.  

Investments in debt securities decreased primarily as a result of the sale and redemption of certain bond investments and the termination of all outstanding total return swap (“TRS”) agreements.

Investments in partnerships increased primarily as a result of net capital contributions of $142.0 million to the Solar Ventures, which were primarily sourced from draws on the revolving credit facility and equity recycled out of nonrenewable energy investments, and the recognition of  $20.8 million of equity in income in our investees.

Loans held for investment decreased primarily as a result of a $13.4 million partial prepayment received on the Company’s $67.0 million Hunt Note, the balance of which was prepaid in full on January 3, 2020. 

Deferred tax assets, net increased $57.7 million due to a partial release of the valuation allowance related to these assets in the fourth quarter of 2019 that was driven by an increase in the amount of NOLs that, at December 31, 2019, the Company assessed was more likely than not to be utilized prior to their expiration.

Debt increased primarily as a result of advances from the revolving credit facility. This increase was partially offset by the effect of the aforementioned termination of all outstanding TRS agreements, which prompted the derecognition of all asset related debt that financed certain bond investments of the Company.    

CONSOLIDATED RESULTS OF OPERATIONS

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

Income (loss) that was attributable to certain businesses and assets that the Company conveyed on January 8, 2018 (the “Disposition”) and the disposition of the Company’s interests in MGM were reclassified for all reporting periods and reported separately as “Net (loss) income from discontinued operations, net of tax.”

Net Income

Table 6 summarizes net income for the periods presented.

Table 6:  Net Income

Net Interest Income

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

Net interest income for the year ended December 31, 2019,  declined compared to that reported for the year ended December 31, 2018, primarily due to the disposition and redemption of various bond investments and the termination of all outstanding TRS agreements.  The impact of these transactions was partially offset by: (i) the recognition of $2.3 million of interest income in 2019 associated with a loan receivable that was recognized in connection with the Company’s acquisition of Hunt’s ownership interest in SDL (this loan was recharacterized as an equity investment in SDL as of December 31, 2019, because Hunt’s continuing involvement of the conveyed interest in SDL was eliminated in the fourth quarter of 2019) and (ii) the recognition of additional interest income associated with the Hunt Note, the UPB of which increased $10.0 million during the fourth quarter of 2018. Interest income associated with the Hunt Note will not be recognized beginning in the second quarter of 2020 as this loan was repaid in full on January 3, 2020.

Equity in Income from Unconsolidated Funds and Ventures

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

Table 7 summarizes equity in income from unconsolidated funds and ventures for the periods presented.

Table 7:  Equity in Income from Unconsolidated Funds and Ventures

Equity in income from the Solar Ventures for the year ended December 31, 2019, increased compared to that reported for the year ended December 31, 2018, primarily as a result of (i) a significant year-over-year increase in the volume of loans originated by the Solar Ventures, which drove net income of the Solar Ventures and the Company’s share thereof higher and (ii) the elimination of the preferred return previously earned by a former investment partner prior to the Company’s buyout of the partner’s interest in REL on June 1, 2018. 

Equity in income from U.S. real estate partnerships for the year ended December 31, 2019, decreased compared to that reported for the year ended December 31, 2018, primarily as a result of (i) a reduction in 2019 of nonrecurring gains associated with the sale of investment properties by real estate partnerships in which we maintained an ownership interest and (ii) land license fees incurred by the Infrastructure Venture in connection with its holdings of undeveloped land parcels. 

Equity in income from the Company’s equity investment in SAWHF for the year ended December 31, 2019, increased compared to that reported for the year ended December 31, 2018, primarily as a result of an increase in the fair value gains associated with real estate-related investments held by SAWHF.

Net Gains

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

Net gains for the year ended December 31, 2019,  decreased compared to those reported for the year ended December 31, 2018, primarily due to (i) a  net $8.3 million decrease in fair value gains related to interest rate and foreign currency forward exchange derivatives that was driven by changes in reference interest and foreign exchange rates and (ii) a nonrecurring gain of $1.2 million that was recognized in 2018 associated with the remaining interests from the Company’s 2014 guaranteed Low-Income Housing Tax Credit (“LIHTC”) asset sale to MGM. The impact of these transactions was partially offset by a $6.7 million increase in holding gains that were realized in connection with sale or redemption of bond investments during 2019 as compared to the same period in 2018.

Other Interest Expense

Other interest expense for the year ended December 31, 2019, increased compared to that reported for the year ended December 31, 2018, primarily due to the recognition of $1.2 million of interest expense in 2019 associated with the Company’s revolving credit facility. 

Operating Expenses

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

Table 8 summarizes operating expenses for the periods presented.

Table 8:  Operating Expenses

Operating expenses for the year ended December 31, 2019, declined compared to that reported for the year ended December 31, 2018, primarily due to a decrease in: (i) nonrecurring professional fees that were incurred in 2018 in connection with the Disposition and the sale of our interests in MGM; (ii) salaries and benefits expense recognized in 2018 associated with stock options that were fully exercised as of December 31, 2018; (iii) nonrecurring impairment losses recognized in connection with certain equity investments in the first quarter of 2018; and (iv) losses recognized in 2018 in connection with the remeasurement of foreign currency-denominated assets and liabilities into U.S. dollars for reporting purposes. 

Income Tax Benefit (Expense)

The Company recognized income tax benefit for the year ended December 31, 2019, as compared to income tax expense reported for the year ended December 31, 2018, primarily due to the recognition of a deferred tax benefit of $60.6 million in the fourth quarter of 2019 that was driven by an increase in the amount of NOLs that, at December 31, 2019, the Company assessed were more likely than not to be utilized prior to their expiration. See Notes to Consolidated Financial Statements – Note 14, “Income Taxes,” for more information.

Net (Loss) Income from Discontinued Operations

Net (loss) income from discontinued operations primarily includes income and expenses associated with businesses and assets that were sold by the Company in connection with the Disposition.

Net income from discontinued operations decreased for the year ended December 31, 2019, compared to that reported for the year ended December 31, 2018, primarily due to a decrease in nonrecurring (i) net gains recognized in the first and fourth quarter of 2018 in connection with the Disposition and the Company’s interests in MGM, respectively, and (ii) income recognized relating to businesses and assets conveyed in 2018. See Notes to Consolidated Financial Statements – Note 15, “Discontinued Operations,” for more information.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

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

Summary of Cash Flows

Table 9 provides a consolidated view of the change in cash, cash equivalents and restricted cash of the Company for the periods presented, though 2018 changes in the balances that were attributable to consolidated funds and ventures (“CFVs”) are separately identified in the table.  However, changes in net cash flows that are discussed in the narrative that follows Table 9 are exclusive of changes in cash of the CFVs. The Disposition resulted in the deconsolidation from the Company’s Consolidated Balance Sheets in the first quarter of 2018 of all guaranteed LIHTC funds and derecognition of nearly all other CFVs that were recognized in our Consolidated Balance Sheets at December 31, 2017. 

At  December  31, 2019 and December 31, 2018, $4.3 million and $5.6 million, respectively, of amounts presented below in Table 9 represented restricted cash.

Table 9:  Net Decrease in Cash, Cash Equivalents and Restricted Cash

Operating Activities

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

Net cash flows provided by operating activities decreased by $0.2 million during the year ended December 31, 2019, as compared to the amount provided during the year ended December 31, 2018. This net decrease was primarily driven by: (i) a decline in interest income on bonds and derivative termination payments received as a result of the aforementioned sale and redemption transactions and the related termination of TRS agreements; (ii) a decrease in asset management fees received as a result of the Disposition; and (iii) an increase in net cash flows used to pay external management fees and reimbursable expenses due to a provision in the management agreement with the External Manager specifying that, effective July 1, 2018, the basis for calculating the base management fee converted from a fixed fee to a stated fixed percentage of the Company’s diluted common shareholders’ equity. The effects of these items were partially offset by: (i) a $7.4 million increase in distributions received from the Company’s investment in partnerships that primarily related to the Solar Ventures; (ii) a $1.7 million decrease in bond related interest expense as the amount of the Company’s bond related debt outstanding declined upon the settlement of sale and redemption transactions and termination of TRS agreements; and (iii) a decrease in nonrecurring professional fees, which were higher in 2018 due to professional services that were rendered in connection with the Disposition and the disposition of the Company’s interests in MGM.

Investing Activities

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

Net cash flows used in investing activities during the year ended December 31, 2019, increased by $72.3 million as compared to amounts during the year ended December 31, 2018. This net increase was primarily driven by a $182.7 million increase in capital contributions to the Company’s investments in partnerships during 2019 that almost exclusively related to the Solar Ventures. The effects of this increase was partially offset by: (i) a $69.2 million increase in capital distributions received from the Company’s investment in partnerships that primarily related to the Solar Ventures; (ii) a $16.3 million increase in principal payments and sale and redemption proceeds received on our bond-related investments; (iii) the derecognition of $21.9 million of cash and restricted cash upon settlement of the Disposition during the first quarter of 2018; and (iv) the $13.4 million partial prepayment received on the Company’s $67.0 million Hunt Note in the fourth quarter of 2019.

Financing Activities

Net cash flows provided by financing activities during the year ended December 31, 2019 of $84.7 million represent an increase of $93.2 million as compared to amounts used during the year ended December 31, 2018. This increase was primarily attributable to a $95.8 million increase in proceeds from borrowings from the Company’s revolving credit facility. The impact of this increase was partially offset by (i) $2.9 million of debt issuance costs incurred in connection with the revolving credit facility and (ii) $8.4 million of nonrecurring cash flows provided by the private placement of 250,000 of the Company’s common shares to Hunt during 2018.

Capital Resources

Our debt obligations include liabilities that we recognized in connection with our subordinated debt, revolving credit facility debt obligations and other notes payable.  The major types of debt obligations of the Company are further discussed below. We use the revolving credit facility to finance our investments in the Solar Ventures. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Table 10 summarizes the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at December  31, 2019 and December 31, 2018.

Table 10:  Debt

Subordinated Debt

At December  31, 2019 and December 31, 2018, the Company had subordinated debt obligations that had a total UPB of $88.0 million and $89.8 million, respectively. This debt included four tranches that amortize 2.0% per annum over their contractual lives, are due to mature with balloon payments between March 2035 and July 2035 and require the Company to pay interest based upon three-month LIBOR plus a fixed spread of 2.0%, which at December 31, 2019 the weighted average interest rate on the outstanding debt was 4.0%. 

Revolving Credit Facility  Debt Obligations

At December  31, 2019, the Company had borrowed $94.5 million from the revolving credit facility and had the ability to borrow an additional $5.5 million. This debt obligation, which is guaranteed by the Company and secured by (i) specific assets of the Borrower and (ii) a pledge of all of the Company’s equity interest in the Borrower,  which owns our equity investments in the Solar Ventures, matures on September 19, 2022, and is subject to a 12-month extension solely to allow refinancing or orderly repayment of the debt obligation. This debt obligation bears interest equal to one-month LIBOR (subject to a 1.5% floor) plus a fixed spread of 2.75%, which, at December 31, 2019 was 4.4%. 

Notes Payable and Other Debt

At December  31, 2019 and December 31, 2018, the Company had notes payable and other debt with a UPB of $8.4 million and $7.4 million, respectively.  This debt primarily relates to financing that was obtained to complete the purchase of the Company’s 11.85% ownership interest in SAWHF. This debt, which is denominated in South African rand, amortizes over its contractual life, is due to mature on September 8, 2020, and requires the Company to pay interest based upon the Johannesburg Interbank Agreed Rate (“JIBAR”) plus a fixed spread of 5.15%, which at December 31, 2019 was 6.8%.  

Asset Related Debt

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

Bond Related Debt

During the second quarter of 2019, all bond related debt obligations were fully redeemed. At December 31, 2018, the Company had bond related debt obligations that had a total UPB of $38.8 million. In most cases, interest expense associated with these debt obligations was based upon the Securities Industry and Financial Markets Association seven-day municipal swap rate (“SIFMA”) plus a spread while, in the case of one tranche of this debt, interest expense was measured using the coupon rate associated with a conveyed bond investment that secured such debt.

Non-bond Related Debt

At December  31, 2019 and December 31, 2018, the Company had a debt obligation to MGM principals with a UPB of $3.5 million and $5.0 million, respectively. This debt bears interest at 5.0%, amortizes over its contractual life and is due to mature on January 1, 2026.

Covenant Compliance

At December  31, 2019 and December 31, 2018, the Company was in compliance with all covenants under its debt arrangements.

Off-Balance Sheet Arrangements

At December  31, 2019 and December 31, 2018, the Company had no off-balance sheet arrangements. 

Other Contractual Commitments

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

At December 31, 2019, the Company, through its wholly owned subsidiary of REL had unfunded loan commitments of $1.6 million.  There were no unfunded loan commitments at December 31, 2018.  Refer to Notes to Consolidated Financial Statements - Note 4, “Loans Held for Investment (“HFI”) and Loans Held for Sale (“HFS”),” for more information.

The Company uses derivative instruments to hedge interest rate and foreign currency risks.  Depending upon movements in reference interest and foreign exchange rates, the Company may be required to make payments to the counterparties to these agreements.  Refer to Notes to Consolidated Financial Statements – Note 7, “Derivative Instruments,” for more information about these instruments.

Other Capital Resources

Common Shares

On September 12, 2019, the Board authorized the 2019 Plan for the repurchase of up to 100,000 common shares, at market prices up to the Company’s last reported Book Value per share, which was $36.46 as reported within the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019. The Company then adopted a Rule 10b5-1 plan implementing the Board’s authorization, subject to volume limitations as defined by Rule 10b-18 under the Exchange Act. During 2019, the Company repurchased 87,381 commons shares at an average price of $31.71, although trades executed in 2019 to purchase 1,300 common shares were settled on January 2, 2020. The 2019 Plan expired on December 31, 2019. 

Dividend Policy

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

Tax Benefits Rights Agreement

Effective May 5, 2015, the Company adopted a Rights Plan designed to help preserve the Company’s NOLs.  In connection with adopting the Rights Plan, the Company declared a distribution of one right per common share to shareholders of record as of May 15, 2015.  The rights do not trade apart from the current common shares until the distribution date, as defined in the Rights Plan.  Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person.  The Rights Plan will remain in effect for five years,  until May 5, 2020, or until the Board determines the plan is no longer required, whichever comes first. On March 11, 2020, the Board approved an extension of the Rights Plan whereby the terms of the Rights Plan will continue until May 5, 2023. The Board will ask shareholders to ratify its decision to extend the Rights Plan at the Company’s 2020 annual meeting of shareholders.

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

At December  31, 2019, the Company had two shareholders, including one of its executive officers, Michael L. Falcone, who held greater than  a 4.9% interest in the Company.  In order to facilitate satisfaction of share purchase obligations related to his 2017 bonus award and permitting his stock option awards to be exercised, the Board named Mr. Falcone an exempted person in accordance with the Rights Plan but only to the extent of settling his share purchase obligations and options. Mr. Falcone satisfied his share purchase obligations and exercised all of his share purchase option awards as of December 31, 2018, and, due to the aforementioned action of the Board, there was no triggering event for purposes of the Rights Plan.

On November 6, 2019, the Board named Mr. Falcone an exempted person in accordance with the Rights Plan to the extent of his proposed open-market share purchases of up to an additional 6,000 common shares,  to be completed by December 31, 2019, with the Board reserving all its rights under the Rights Plan for any subsequent purchases.  As a result of the Board’s action, there was no triggering event resulting from Mr. Falcone’s purchase of 2,500 common shares during 2019 for purposes of the Rights Plan. On March 11, 2020, the Board further named Mr. Falcone an exempted person for up to another 7,500 shares to be acquired on the open market during 2020. Any unused authorization will expire at December 31, 2020.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

Income Taxes

All of our business activities, with the exception of our foreign investments, are conducted by entities included in our consolidated corporate federal income tax return. To determine the financial statement impact of accounting for income taxes, including the provision for income tax expense and unrecognized tax benefits, the Company must make assumptions and judgments about how to interpret and apply these complex tax laws to numerous transactions and business events, as well as make judgments regarding the timing of when certain items may affect taxable income in the U.S. and non-U.S. tax jurisdictions.

Our interpretations of tax laws are subject to review and examination by the various taxing authorities in the jurisdictions where we operate, and disputes may occur regarding our view on a tax position. These disputes over interpretations with the various taxing authorities may be settled by audit, administrative appeals or adjudication in the court systems of the tax jurisdictions in which we operate. We regularly review whether additional income taxes may be assessed as a result of the resolution of these matters, and we record additional reserves as appropriate. In addition, we may revise our estimate of income taxes due to changes in income tax laws, legal interpretations, and business strategies. It is possible that revisions in our estimate of income taxes may materially affect our results of operations in any reporting period.

The Company’s provision for income taxes is composed of current and deferred taxes. Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. DTAs are recognized if, in management’s judgment, it is more likely than not that tax benefits, including NOLs and other tax attributes, will be realized prior to their expiration.

We perform regular reviews to ascertain whether our DTAs are realizable. These reviews include management’s estimates and assumptions regarding future taxable income, which also incorporates various tax planning strategies, including strategies that may be available to utilize NOLs before they expire. In connection with these reviews, if it is determined that a DTA is not realizable, a valuation allowance is established. Management’s estimates and assumptions, which generally reflect objectively verifiable expectations, involve significant judgment and are inherently uncertain. Risks to our forward-looking estimates of pretax book income include, but are not limited to, changes in market rates of return, additional competitors entering the marketplace (which would reduce rates of return due to competition for new borrowers), limits on access to investible capital that would limit new investments that could be made by the Company, changes in the law and the Company’s dependence on a small, specialized team of the External Manager for origination and underwriting activities. Given these risks, our forward-looking estimates could materially differ from actual results.

At December 31, 2019, we maintained a valuation allowance against that portion of our DTAs that relate to federal and state NOL carryforwards that we expect will expire prior to utilization based on our forecast of pretax book income. Refer to Notes to Consolidated Financial Statements – Note 14, “Income Taxes,” for more information about the Company’s DTAs and other considerations associated with the Company’s income taxes.

Fair Value Measurement of Financial Instruments

Fair value measurement is a critical accounting estimate because we account, or provide disclosures, for a portion of our assets and liabilities based upon their fair value. The techniques that we use to determine fair value are described in Notes to Consolidated Financial Statements – Note 8, “Fair Value.”

Applicable accounting standards that govern fair value measurements provide a framework for measuring fair value and establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the assumptions a market participant would use at the measurement date. The three levels of the fair value hierarchy are described below:

The measurement of fair value requires management to make judgments and assumptions. The type and level of judgment required is largely dependent on the amount of observable market information available to the Company. For instruments valued using internally developed valuation models and other valuation techniques that use significant unobservable inputs and are therefore classified within level 3 of the valuation hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2. These judgments and assumptions may have a significant effect on our measurements of fair value, and the use of different judgments and assumptions, as well as changes in market conditions, could have a material effect on our Consolidated Statements of Comprehensive Income and Consolidated Balance Sheets.

In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate valuation technique to use. Second, the lack of observability of certain significant inputs requires management to assess all relevant empirical data in deriving valuation inputs including, for example, market yields of thinly-traded investments, capitalization rates and NOI annual growth rates.

For further discussion of the valuation of level 3 instruments, including unobservable inputs used, refer to Notes to Consolidated Financial Statements – Note 8, “Fair Value.”

Imprecision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while we believe that our valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Company’s businesses and portfolios.

Consolidation

We have equity investments in partnerships and other entities to which we apply Accounting Standards Codification (“ASC”) Topic No. 810, “Consolidation” in order to determine if we need to consolidate any of these entities. There is considerable judgment in assessing whether to consolidate an entity under these accounting principles. Some of the criteria we are required to consider include:

As of December 31, 2019, the Company had no entities that were consolidated for reporting purposes under ASC  810.

ACCOUNTING AND REPORTING DEVELOPMENTS

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

USE OF NON-GAAP MEASURES

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

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

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

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

Table 11 provides a reconciliations of GAAP financial measures to non-GAAP financial measures that are included in this Report.

Table 11:  Non-GAAP Reconciliations