By Sam Boughedda
Investment research firm Muddy Waters released a short report on Hannon Armstrong (NYSE:HASI) on Tuesday, claiming the company's "accounting is so complex and misleading that its financial statements are effectively meaningless."
In the research note, Muddy Waters state that most of HASI’s income is both non-cash and unrealizable, while it "misleadingly inflates GAAP earnings in three ways."
"HASI is a prime example of how public market incentives can warp a company into relentlessly destroying value to feed a Wall Street growth narrative," wrote Muddy Waters. "It has little relationship with cash to be received in the future."
Explaining the ways they claim the company inflates earnings, Muddy Waters wrote: "1) Through a loophole in the arcana of accounting for renewables subsidies, HASI books non-cash unrealizable income relating to third parties’ tax credits that will be reversed; 2) HASI produces non-cash income by manipulating the discount rate it applies to residual assets to implausibly low levels, thereby inflating its gains on securitizations; and, 3) HASI books interest income from non-cash 'Paid in Kind' ('PIK') interest payments, which are essentially IOUs from stressed borrowers."
"We believe that HASI’s operating cash flow is misleadingly high – we conservatively adjust it downward by approximately 39.3%."
HASI shares have fallen 9% following the report.