6. Our Portfolio

As of December 31, 2016, our Portfolio included approximately $1.6 billion of financing receivables, investments, real estate and equity method investments on our balance sheet. The financing receivables and investments are typically collateralized by contractually committed debt obligations of government entities or private high credit quality obligors and are often supported by additional forms of credit enhancement, including security interests and supplier guaranties. The real estate is typically land and related lease intangibles for long-term leases to wind and solar projects with high credit quality obligors. The equity method investments represent our minority equity investments in renewable energy projects.

The following is an analysis of our Portfolio by type of obligor and credit quality as of December 31, 2016:

 

		Investment Grade
		Government (1)				Commercial Investment Grade (2)				Commercial Non-Investment Grade (3)				Subtotal, Debt and Real Estate				Equity Method Investments (4)				Total
		(dollars in millions)
Financing receivables		$	526			$	494			$	22			$	1,042			$	—			$	1,042
Investments			38				20				—				58				—				58
Real estate (5)			—				172				—				172				—				172
Equity method investments			—				—				—				—				363				363
Total		$	564			$	686			$	22			$	1,272			$	363			$	1,635
% of Debt and Real Estate Portfolio			44	%			54	%			2	%			100	%			N/A				N/A
Average Remaining Balance (6)		$	12			$	10			$	11			$	11			$	19			$	12

 

(1)

Transactions where the ultimate obligor is the U.S. federal government or state or local governments where the obligors are rated investment grade (either by an independent rating agency or based upon our internal credit analysis). This amount includes $337 million of U.S. federal government transactions and $227 million of transactions where the ultimate obligors are state or local governments. Transactions may have guaranties of energy savings from third party service providers, the majority of which are entities rated investment grade by an independent rating agency.

(2)

Transactions where the projects or the ultimate obligors are commercial entities, including institutions such as hospitals or universities, that have been rated investment grade (either by an independent rating agency or based on our internal credit analysis). Of this total, $10 million of the transactions have been rated investment grade by an independent rating agency. Commercial investment grade financing receivables include $289 million of internally rated residential solar loans made on a nonrecourse basis to special purpose subsidiaries of SunPower Corporation, for which we rely on certain limited indemnities, warranties and other obligations of SunPower Corporation or its other subsidiaries.

(3)	Transactions where the projects or the ultimate obligors are commercial entities, including institutions such as hospitals or universities, that have ratings below investment grade (either by an independent rating agency or using our internal credit analysis).

(4)	Consists of ownership interests in operating renewable energy projects.

(5)	Includes the real estate and the lease intangible assets through which we receive scheduled lease payments, typically under long-term triple net lease agreements.

(6)	Excludes 88 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $31 million.

Financing Receivables and Investments

In accordance with the terms of certain purchase agreements relating to financing receivables or transactions, payments of the purchase price are scheduled to be made over time, generally within twelve months of entering into the transaction, and as a result, we have recorded deferred funding obligations of $171 million and $108 million as of December 31, 2016 and 2015, respectively. Approximately $41 million of those investments were pledged as collateral against these obligations as of December 31, 2016.

We had no financing receivables, investments or leases that were impaired or on nonaccrual status as of December 31, 2016 or 2015. There was no provision for credit losses or troubled debt restructurings as of December 31, 2016 or 2015.

The components of financing receivables of December 31, 2016 and 2015 were as follows:

 

		December 31,
		2016				2015
		(dollars in millions)
Financing receivables
Financing or minimum lease payments (1)		$	1,395			$	1,025
Unearned interest income			(351	)			(238	)
Unearned fee income, net of initial direct costs			(2	)			(3	)
Financing receivables (1)		$	1,042			$	784

 

(1)	Excludes $60 million in financing receivables held-for-sale as of December 31, 2015.

The following table provides a summary of our anticipated maturity dates of our financing receivables and investments and the weighted average yield for each range of maturities as of December 31, 2016:

 

		Total				Less than 1 year				1-5 years				5-10 years				More than 10 years
						(dollars in millions)
Financing Receivables
Maturities by period		$	1,042			$	1			$	39			$	88			$	914
Weighted average yield by period			5	%			5	%			7	%			5	%			5	%
Investments
Maturities by period		$	58			$	—			$	—			$	1			$	57
Weighted average yield by period			4	%			—	%			—	%			5	%			4	%

 

Real Estate

Our real estate is leased to renewable energy projects, typically under long-term triple net leases with expiration dates that range between the years 2033 and 2051 under the initial terms and 2047 and 2080 if all extensions are exercised. The components of our real estate portfolio as of December 31, 2016 and 2015 were as follows:

 

		December 31,
		2016				2015
		(dollars in million)
Real Estate
Land		$	145			$	129
Real estate related intangibles			29				28
Accumulated amortization of real estate intangibles			(2	)			(1	)
Real Estate		$	172			$	156

There are conservation easement agreements covering several of our properties that limit the use of the property upon expiration of the respective leases. The real estate related intangible assets are amortized on a straight-line basis over the contracted base lease term.

As of December 31, 2016, the future amortization expense of these intangible assets and the future minimum rental income payments under our land lease agreements are as follows:

 

Year Ending December 31,		Future Amortization Expense				Minimum Rental Income Payments
		(dollars in millions)
2017		$	1			$	10
2018			1				11
2019			1				11
2020			1				11
2021			1				11
Thereafter			22				324
Total		$	27			$	378

In May 2014, we acquired all of the outstanding member interests in American Wind Capital Company, LLC (“AWCC”) from Northwharf Nominees Limited, DBD AWCC LLC, NGP Energy Technology Partners II, L.P. and C.C. Hinckley Company, LLC in exchange for approximately $107 million (the “Purchase Price”), which we funded with our cash on hand and availability under our credit facilities. We did not assume any indebtedness in connection with these transactions and incurred approximately $2.5 million of acquisition related costs which we expensed as acquisition costs in 2014.

The unaudited pro forma summary below presents the consolidated results of operations as if the acquisition was completed on January 1, 2013. The pro forma information is not necessarily indicative of what our actual results of operations would have been for the period, nor does it purport to represent our estimate of future results of operations.

 

		For the year ended December 31, 2014
		(dollars in millions, unaudited)
Pro forma total revenue		$	32
Pro forma net income (loss)		$	12

 

The purchase price allocation for this business combination, which reflects our estimates of the fair value of the assets acquired with the assistance of a qualified appraiser, along with $19 million of other separately acquired transactions is as follows (dollars in millions, unaudited):

 

Financing receivables		$	37
Real estate			67
Real estate related intangibles			20
Goodwill			2
Purchase Price		$	126

As a result of these acquisitions, we recorded rental income of $3.2 million and interest income of $1.5 million for the year ended December 31, 2014 in our consolidated statement of operations.

Equity Investments

We have made non-controlling equity investments in a number of renewable energy projects operated by renewable energy companies that we account for as equity method investments. As of December 31, 2016, we held equity method investments in the following renewable energy projects.

 

Acquisition Date		Transaction		Investment				Partner
				(dollars in millions)
October 2014		Strong Upwind Holdings I, LLC		$	97			JPMorgan
April 2015		Strong Upwind Holdings II, LLC		$	30			JPMorgan
December 2015		Strong Upwind Holdings III, LLC		$	66			JPMorgan
December 2015		Buckeye Wind Energy Class B Holdings LLC		$	70			Invenergy
June 2016		MM Solar Holdings LLC		$	26			AES
October 2016		Invenergy Gunsight Mountain Holdings, LLC		$	40			Invenergy
Various		Other transactions		$	34			Various
		Total Equity Method Investments		$	363

Based on an evaluation of our equity method investments, we determined that no impairment had occurred for the years ended 2016, 2015 or 2014.