Stonebridge Infrastructure Debt Fund II L.P.

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1 Financial statements of Stonebridge Infrastructure Debt Fund II L.P.

2 Table of contents Independent Auditor s Report Statement of operations... 3 Balance sheet... 4 Statement of partners equity... 5 Statement of cash flows... 6 Notes to the financial statements

3 Deloitte LLP Bay Adelaide East 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Canada Tel: Fax: Independent Auditor s Report To the Partners of Stonebridge Infrastructure Debt Fund II L.P. We have audited the accompanying financial statements of Stonebridge Infrastructure Debt Fund II L.P., which comprise the balance sheet as at, and the statements of operations, partners equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for private enterprises, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Stonebridge Infrastructure Debt Fund II L.P.

4 Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Stonebridge Infrastructure Debt Fund II L.P. as at September , and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for private enterprises. Chartered Professional Accountants Licensed Public Accountants November 10, 2017 Page 2

5 Statement of operations for the year ended $ $ Revenue Interest income Class A 9,644,539 6,339,376 Class B 343, ,290 Investment income 14,420 11,903 10,002,154 6,578,569 Expenses Management fees (Note 5) 521, ,125 Legal fees 64,492 7,714 Audit fees 77,382 86,196 Administration and other , ,057 Unrealized gain (loss) on investments (10,532,793) 6,752,548 Net income (loss) from operations (1,193,655) 12,892,060 The accompanying notes form an integral part of the financial statements. Page 3

6 Balance sheet as at $ $ Assets Cash 798,595 1,301,955 Interest receivable 1,654, ,201 Investments (Note 3) 237,701, ,147, ,154, ,761,767 Liabilities Accounts payable and accrued liabilities 777,926 1,363, ,926 1,363,257 Partners' equity 239,376, ,398, ,154, ,761,767 The accompanying notes form an integral part of the financial statements. Page 4

7 Statement of partners' equity for the year ended General Partner Class A Class B Total Partners equity, October 1, ,162,046 6, ,168,780 Capital contributions - 51,661,000-51,661,000 Net income from operations 1 12,664, ,290 12,892,060 Distributions (1) (7,099,602) (223,727) (7,323,330) Partners' equity, September 30, ,388,213 10, ,398,510 Partners equity, October 1, ,388,213 10, ,398,510 Capital contributions - 69,366,811-69,366,811 Net income (loss) from operations 1 (1,536,851) 343,195 (1,193,655) Distributions (1) (11,898,104) (297,225) (12,195,330) Partners' equity, 1 239,320,069 56, ,376,336 The accompanying notes form an integral part of the financial statements. Page 5

8 Statement of cash flows for the year ended $ $ Operating activities Net income (loss) from operations (1,193,655) 12,892,060 Unrealized loss (gain) on investments 10,532,793 (6,752,548) Changes in non-cash operating items: Interest receivable (1,342,179) (104,075) Accounts payable and accrued liabilities (585,331) 905,400 Net cash provided by operating activities 7,411,628 6,940,837 Investing activities Funding of investments (69,178,129) (51,661,000) Receipt of principal on investments 4,091,660 1,276,575 Net cash provided by (used in) investing activities (65,086,469) (50,384,425) Financing activities Capital contributions from partners 69,366,811 51,661,000 Distributions to partners (12,195,330) (7,323,330) Net cash (used in) provided by financing activities 57,171,481 44,337,670 Increase in cash (503,360) 894,082 Cash, beginning of year 1,301, ,873 Cash, end of year 798,595 1,301,955 Supplemental disclosures of cash flow information Interest income received 8,645,555 6,462,592 The accompanying notes form an integral part of the financial statements. Page 6

9 Notes to the financial statements 1. Organization These financial statements represent the combined investment activities of the general partner ( Stonebridge Infrastructure GP II Inc. or the General Partner ) and the initial Limited Partner under the Limited Partnership Agreement ( Initial LP Agreement ) dated September 19, 2014 and as amended under the Amended and Restated Limited Partnership Agreement ( Amended LP Agreement ) dated as of November 21, 2014 (date of inception) for the purposes of admitting additional Limited Partners, whose activities constitute the Stonebridge Infrastructure Debt Fund II L.P. (the Fund or Partnership ). The Fund is an open end fund established for the purpose of investing in Canadian social infrastructure and energy projects. Investment in the Fund is limited to accredited investors with investments comprising investment-grade, fixed rate, senior debt financing in connection with the construction, operation, ownership, or maintenance of social infrastructure and energy projects. The Fund s General Partner, a wholly owned subsidiary of Stonebridge Financial Corporation ( Stonebridge or the Manager ) appointed Stonebridge as fund manager under a management agreement (the Management Agreement ) between the Fund, the General Partner and Stonebridge dated November 21, Stonebridge has discretion over investment decisions while a Partnership Advisory Committee, comprised of members with Capital Commitments of at least $35,000,000, oversees the Manager s activities, including compliance and consistency with investment objectives and the approval or waiver of any changes to the Fund s investment policy. Capitalized terms are as defined in the Amended LP Agreement and Management Agreement unless otherwise defined. 2. Significant accounting policies Statement of compliance The financial statements are prepared in accordance with Canadian Accounting Standards for Private Enterprises ( ASPE ). Basis of presentation These financial statements only include the assets and liabilities of the Fund and do not include other assets and liabilities, including income and related taxes of the Limited Partners or the General Partner. The financial statements have been prepared on the historical cost basis except for investments that are measured at fair value. Use of estimates The preparation of financial statements in accordance with ASPE requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The most significant estimates relate to the valuation of investments. Actual results could differ from these estimates. Estimates and underlying assumptions are reviewed on a regular basis. Cash Cash is comprised of deposits with financial institutions which are measured at fair value. Page 7

10 Notes to the financial statements 2. Significant accounting policies (continued) Investments The Fund is an investment company as defined in the Chartered Professional Accountants of Canada Handbook Accounting Guideline 18 - Investment Companies. Eligible Investments consist of investments within the scope of the Investment Objectives of the Fund in fixed rate, senior debt financing (on a private placement basis), with a minimum external or internal credit rating of BBB, incurred and applied for the purpose of the construction, operation, ownership or maintenance of social infrastructure and energy projects. Due to the long term nature of the underlying investments, the Units in the Fund are highly illiquid, with limited and restricted transfer of unit provisions as described in the Amended LP Agreement. Investments are measured at fair value using Government of Canada bond ( GOC ) benchmark yields and indicative credit spreads. The fair value of investments is the present value of the remaining cash flows discounted at the relevant GOC benchmark yield plus the indicative credit spread. Income recognition Interest income, is accrued and recorded as earned. Investment income is recorded when earned. Expense recognition Partnership expenses are recorded as incurred and include, but are not limited to, management fees, legal and accounting expenses and other expenses associated with the operation of the Fund. Taxation The Fund is not subject to income taxes. Page 8

11 Notes to the financial statements 3. Investments The Fund s investments as at are as follows: Pricing Maturity Outstanding Fair date date Principal value Solutions Globales Centre de Données Drummond Inc. January 21, 2015 July 31, ,550,102 10,977,896 Firelight Solar L.P. (Tranche I) February 17, 2015 December 31, ,972,203 15,251,555 EM Wind L.P. March 13, 2015 June 30, ,146,510 10,000,846 Affinity Wind L.P. March 18, 2015 August 31, ,374,101 14,037,844 Société Hydro-Canyon Saint Joachim Inc. May 01, 2015 November 30, ,726,279 9,507,503 Crosslinx Transit Solutions GP ( Series A) July 22, 2015 September 30, ,500,000 22,653,768 Crosslinx Transit Solutions GP (Series B) July 22, 2015 June 30, ,500,000 2,353,105 Canoe Creek Hydro L.P. September 15, 2015 December 31, ,000,000 10,772,316 Namewaminikan Hydro Inc. September 18, 2015 December 31, ,000,000 24,961,878 Affinity Wind L.P. (Tranche B) March 15, 2016 August 31, ,091,811 12,804,453 MOM Solar L.P. June 01, 2016 September 30, ,500,000 16,744,205 Mi'kmaq - Wind4all Communities L.P. July 6, 2016 September 30, ,361,868 9,990,580 Maryban Holdings Ltd. et al July 26, 2016 July 28, ,804,843 9,350,665 Creekstone Care Centre L.P. November 28, 2016 January 31, ,846,000 7,441,869 Hamilton Village Care Centre L.P. December 6, 2016 February 08, ,320,000 6,083,586 Haa-ak-Suuk Creek Hydro LP (TR 6) January 24, 2017 August 14, ,996,742 2,171,507 CHSLD Age3 Inc. March 10, 2017 February 28, ,685,643 31,406,536 Potentia Solar 14 L.P. March 17, 2017 June 15, ,412,579 12,392,523 Reliant First Nation L.P. April 13, 2017 June 15, ,747,807 5,614,990 Reliant First Nation L.P. (Tranche B) July 24, 2017 December 15, ,182,952 3,183,662 Total 240,719, ,701,287 The Fund determines the fair value of the investments by applying the valuation methodology as discussed in Note 2, Significant Accounting Policies, Investments. 4. Distributions Under the terms of the Amended LP Agreement, the General Partner shall from time to time determine Distributions to be made to the Limited Partners. Subject to the payment or reimbursement of partnership expenses, the payment of management fees, the payment of work fees and other types of fees the General Partner will, using commercially reasonable efforts, distribute all payments of principal and interest on investments or any other amounts received including early prepayment of investments, including make-whole and prepayment penalties, if any, to the Limited Partners on the first business day of each month, for all sums received from investments during the preceding month. Any amount distributed by the Fund shall be distributed to the Partners as follows: 1. first, to the holders of Class B Units and Class C Units in proportion to their ownership of Class B Units and Class C Units, until such time as the holders of Class B Units and Class C Units have received all due and unpaid Priority Distributions; 2. as to the balance: 0.001% to the General Partner and % to the Limited Partners in proportion to their ownership of Class A Units. Fund distributions are recorded in the period incurred. Page 9

12 Notes to the financial statements 5. Related party transactions The Fund appointed Stonebridge, a financial services company incorporated in Ontario, to implement and administer the investment objectives of the Fund as specified in the Amended LP Agreement. Under the Management Agreement and the Amended LP Agreement, the Manager, in consideration for the services rendered by the Manager or the General Partner, is entitled to fees as follows: a) On the same debt payment frequency basis and at the same time as the respective underlying Eligible Investments, a flat fee equal to 0.215% per annum of the principal balance outstanding of such Eligible Investment; b) Work fees and all other types of fees earned by the Partnership, except for prepayment fees, as a result of amendments or other administrative changes at any time after the financial closing of an Eligible Investment shall be split in the ratio of 50/50 between the Manager or, in the event no Manager is appointed, the General Partner, and the Partnership; The total amount of management fees including taxes charged during the period was $521,120 ( $345,125). As at the period ended, an amount of $85,285 ( $15,482), representing accrued management fees, is due to the Manager as noted on the Balance sheet. The accrued management fees is payable at receipt by the Manager of the scheduled debt repayment on the underlying Eligible Investment. Under the terms of the Amended LP Agreement holders of Class B units are entitled to distributions equal to 0.16% per annum of the principal balance outstanding of such Eligible Investments. Class B units are held by an investment company owned by key senior management of the Manager. 6. Expenses Expenses including Partnership expenses are payable or reimbursable to the Fund at the discretion of the General Partner by either i) a Drawdown by each of the Limited Partners to the Fund up to the amount of its Undrawn Capital Commitment, or ii) the retention of other amounts received by the Fund, including Temporary Investments, Eligible Investments, and working fees. These transactions were made in the normal course of business and have been recorded at the amounts agreed between the Fund and the Manager. 7. Risk management The Fund is exposed to the following risks as a result of holding financial instruments: Market risk Market risk is defined as the risk that the fair value of future cash flows of a financial instrument held by the Fund will fluctuate because of changes in interest rates, and credit spreads. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk. The Fund s strategy for the management of market risk is founded in the Fund s investment objectives of investing in Eligible Investments. a) Interest rate risk The Fund is exposed to risk associated with the effect of fluctuations in the prevailing market interest rates and changes in the indicative credit spread for similar types of investments. The observable impact on the fair value of the Eligible Investments that is attributed to interest rate and credit spread risk is a change in value of the Eligible Investments given the fixed nature of the related future cash flows. The unrealized gain or loss due to a change in the market interest rates and the indicative credit spread has a related impact on the Fund s net income. For the period ending based on the prevailing market interest rates, the indicative credit spread for similar types of investments, and the fair value valuation methodology applied by the Manager, the Fund had an unrealized loss of $10,532,793 (2016 an unrealized gain of $6,752,548). Page 10

13 Notes to the financial statements 7. Risk management (continued) a) Interest rate risk The Fund considers interest rate risk to be inherent to investing in the fixed income market and will continue to be governed by its Investment Objectives of investing in long-term fixed rate debt with fixed determined future cash flows comprised of principal and interest repayment over the term of the investment. b) Credit risk Credit risk is the risk of loss due to the failure of a borrower to fulfill its contractual obligations. The Fund s exposure to credit risk in respect of Eligible Investments relates to a default, more specifically a payment default of a Borrower. i) Eligible Investments Credit risk is mitigated by the Fund by applying a strict credit assessment process. For each investment the Fund prepares a comprehensive report ( Investment Memorandum ) that includes a narrative description of the project, involved parties, contractual and transactional structure, financial analysis, risk assessment and investment recommendation. Each investment is assigned an Internal Risk Rating ( IRR ) by applying the Fund s internal credit analysis methodology that considers numerous key drivers and financial parameters in determining a transactions risk rating level as well as factoring in any rating analysis conducted by external rating agencies, if applicable. Eligible Investments must conform to the Investment Objectives and Investment Policy outlined in the Amended LP Agreement that includes a minimum internal or external credit rating of BBB. Each Eligible Investment is presented for approval to an investment credit committee comprised of the Manager and independent committee representatives. Quorum requires at least three credit committee representatives including a minimum of two from the Manager. A written credit recommendation must be submitted to the investment authorities, comprised of the Vice President & Managing Director and the Ultimate Designated Person ( UDP ) and advising representative, before final credit approval can be obtained. Eligible Investments are supported by appropriate credit and security documentation to reflect the IRR including but not limited to a debenture, an assignment of material contracts and insurance, performance enhancements, step-in cure rights and redeployment costs on prepaid principal. Ongoing financial and performance analysis is conducted by the Manager in accordance with the terms and conditions of the credit documentation. No investments held by the Fund are past due or impaired as of. ii) Cash The Fund s cash is held with the Bank of Nova Scotia which is rated A+ based on Standard and Poor s rating and A1 by Moody s Investors Services. The Manager monitors cash balances on a regular basis and funds are held in an interest bearing business account. c) Liquidity risk Liquidity risk is the risk that the Fund cannot meet a demand for cash or fund an obligation as it comes due. Short term financial liabilities that are due within one year are limited to Partnership Expenses and are payable or reimbursable to the Fund at the discretion of the General Partner by either: i) a Drawdown by each of the Limited Partners to the Fund up to the amount of its Undrawn Capital Commitment or; ii) retaining other amounts received by the Fund, including from Temporary Investments, Eligible Investments, working fees or other fees. Page 11

14 Notes to the financial statements 7. Risk management (continued) c) Liquidity risk The financial instruments the Fund invests in are long-term, fixed rate and highly illiquid in nature and are not available to meet short term obligations. Liquidity risk related to a redemption is mitigated as the Initial LP Agreement and Amended LP Agreement offer limited and restricted redemption provisions to Limited Partners other than those provided for with the dissolution of the partnership. Furthermore, each Limited Partner acknowledges in the Subscription Agreement that the Fund invests in long-term, fixed rate investments that are illiquid in nature. i) Financial assets The carrying amounts of the financial assets of the Fund by measurement basis used are summarized as follows: Amortized cost Fair value Carrying amount $ $ $ Cash - 798, ,595 Interest receivable 1,654,380-1,654,380 Investments - 237,701, ,701,287 Total 1,654, ,499, ,154,262 Page 12

LINCLUDEN SHORT TERM INVESTMENT FUND

Financial Statements of LINCLUDEN SHORT TERM INVESTMENT FUND KPMG LLP Bay Adelaide Centre 333 Bay Street, Suite 4600 Toronto ON M5H 2S5 Canada Tel 416-777-8500 Fax 416-777-8818 INDEPENDENT AUDITORS' REPORT