Sunnova Energy International Inc. (NYSE: NOVA), a leading solar energy services provider, announced on March 28, 2025, the implementation of a Tax Asset Preservation Plan designed to protect its net operating losses (NOLs) and other tax attributes.

The company’s board of directors declared a dividend of one preferred share purchase right for each outstanding common share, to be distributed to stockholders of record on April 7, 2025.

The Tax Asset Preservation Plan, structured as a Section 382 Rights Agreement between Sunnova and Computershare Trust Company, N.A., aims to deter any person or group from acquiring beneficial ownership of 4.9% or more of Sunnova’s outstanding common shares, which could potentially trigger limitations on the company’s ability to use its NOLs under Section 382 of the Internal Revenue Code.

Each right entitles the holder to purchase one one-thousandth of a share of Series D Preferred Stock at a price of $3.00, subject to adjustment.

The rights will initially trade with the common shares and will separate only if a person or group acquires beneficial ownership of 4.9% or more of Sunnova’s common shares, with certain exceptions for existing large shareholders and employee benefit plans.

“The Tax Asset Preservation Plan is intended to protect Sunnova’s ability to utilize its NOLs and other tax attributes to offset potential future income taxes,” stated the company in its filing. The plan effectively creates a significant disincentive for any shareholder to increase their ownership position beyond the 4.9% threshold.

The rights agreement includes provisions for the board to exempt certain persons or transactions from triggering the plan, provided such determinations are made before any person becomes an “Acquiring Person” as defined in the agreement.

Additionally, shareholders who already own 4.9% or more of Sunnova’s common shares at the time of the announcement are “grandfathered” at their current ownership levels but would trigger the plan if they acquire additional shares.

If the rights become exercisable due to a triggering event, holders will be entitled to purchase common shares having a value equal to twice the exercise price of the right, effectively diluting the ownership of the acquiring person who triggered the plan.

The company’s board maintains flexibility within the plan, including the ability to redeem the rights for $0.0001 per right prior to a triggering event or to exchange the rights for common shares after a person becomes an Acquiring Person.

The Tax Asset Preservation Plan will expire on the earlier of March 27, 2028, or when the board determines that the plan is no longer necessary for preserving the company’s tax attributes or that the NOLs have been fully utilized.

In connection with the plan, Sunnova filed a Certificate of Designations of Series D Preferred Stock with the Secretary of State of Delaware, establishing the terms of the preferred shares that would be issued if the rights are exercised.

The announcement comes as many companies in the renewable energy sector are focusing on strategies to maximize the value of their tax attributes amid changing market conditions and regulatory frameworks.

Opinion

Sunnova’s implementation of a Tax Asset Preservation Plan reveals both strengths and vulnerabilities in the company’s current position. The defensive move to protect its NOLs suggests that management sees significant value in these tax assets, which could be a positive indicator of expected future profitability. However, the timing and urgency of implementing such a plan might raise questions about whether Sunnova perceives an immediate threat of ownership changes or acquisition attempts.

The 4.9% ownership threshold is particularly conservative, even for a tax preservation plan, indicating heightened sensitivity to ownership structure changes. This could potentially limit institutional investment flexibility and might discourage some larger investors who would otherwise increase their positions in the company.

While the plan provides important protection for valuable tax assets, it also introduces complexity to Sunnova’s capital structure and could potentially impact share liquidity. The three-year duration of the plan until 2028 suggests management expects to utilize these NOLs over the medium term, which provides a window into their profitability timeline expectations.

The board’s retained flexibility to exempt certain persons or transactions from the plan is prudent, allowing for strategic partnerships or investments that might benefit shareholders despite exceeding the ownership threshold. However, this discretionary power also places significant responsibility on the board to make consistent and value-maximizing decisions regarding exemptions.

For investors, this development signals that Sunnova’s management is taking proactive steps to preserve long-term value, but it also raises questions about the company’s organic growth prospects and whether this defensive posture indicates concerns about maintaining independence in a consolidating renewable energy market.

News Source: SEC.