Short seller Muddy Waters takes short position in renewable energy company Hannon Armstrong – report

Carson Block, chief investment officer, Muddy Waters Capital LLC., speaks at the Sohn Investment Conference in New York, U.S., May 4, 2016. REUTERS/Brendan McDermid

NEW YORK, July 12 (Reuters) – U.S. short-selling firm Muddy Waters disclosed a short position in energy company Hannon Armstrong Sustainable Infrastructure Capital (HASI.N) on Tuesday.

Currently, seven brokerages are rating the Maryland-based energy company “buy” or higher, three have it on hold and one on a sell rating, with an average target price of $55, according to Refinitiv.

The short seller, founded by investor Carson Block, questioned Hannon Armstrong’s accounting in a research note, saying the company was inflating its earnings and cash flow. Hannon Armstrong, who invests in wind and solar projects, did not immediately respond to a Reuters request for comment.

The move comes as Muddy Waters founder Carson Block is being questioned by the Justice Department in a sweeping probe into short sellers and hedge funds focused on suspicion of manipulative coordinated trading. Read more

Hannon Armstrong shares were down about 8% in morning trading.

“Hannon Armstrong is a prime example of how public market incentives can cause a company to relentlessly pursue value-destroying investments in order to fuel a growth narrative on Wall Street,” Muddy Waters wrote.

The short seller said the Maryland-based energy company had changed its business model since its initial public offering in 2014 to a non-significant project investment company from a fee-paying company.

Hannon Armstrong should have posted a net loss of $235.4 million last year, not a net profit of $127.3 million, according to Muddy Waters.

The short-selling firm wrote that Hannon Armstrong earmarked tax benefits she was not entitled to, inflated gains on securitization and refinanced loans to her projects without proper disclosure to investors.

He also estimates that most of the dividends paid by Hannon Armstrong over the past eight years have been funded by debt or equity issuance – only 9% of the dividends came from its cash flow.

Currently, seven brokerages rate the stock “buy” or higher, three advise on hold and one on sell, with an average target price of $55.

Reporting by Carolina Mandl Editing by Marguerita Choy

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