Quarterly report pursuant to Section 13 or 15(d)

Our Portfolio

v3.7.0.1
Our Portfolio
3 Months Ended
Mar. 31, 2017
Receivables [Abstract]  
Our Portfolio
6. Our Portfolio

As of March 31, 2017, our Portfolio included approximately $1.9 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 non-controlling equity investments in renewable energy projects and land.

The following is an analysis of our Portfolio by type of obligor and credit quality as of March 31, 2017:

 

     Investment Grade                    
     Government (1)     Commercial (2)     Commercial
Non-Investment
Grade (3)
    Subtotal,
Debt and
Real Estate
    Equity
Method
Investments
     Total  
     (dollars in millions)  

Financing receivables

   $ 496     $ 496     $ 21     $ 1,013     $ —        $ 1,013  

Investments

     103       22       —         125       —          125  

Real estate(4)

     —         289       —         289       21        310  

Equity investments in renewable energy projects

     —         —         —         —         428        428  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total

   $ 599     $ 807     $ 21     $ 1,427     $ 449      $ 1,876  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

% of Debt and Real Estate Portfolio

     42     57     1     100     N/A        N/A  

Average Remaining Balance (5)

   $ 12     $ 9     $ 10     $ 10     $ 20      $ 11  

 

(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 $334 million of U.S. federal government transactions and $265 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, that have been rated investment grade (either by an independent rating agency or based on our internal credit analysis). Of this total, $11 million of the transactions have been rated investment grade by an independent rating agency. Commercial investment grade financing receivables include $306 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 that have ratings below investment grade (either by an independent rating agency or using our internal credit analysis).
(4) Includes the real estate and the lease intangible assets (including those held through equity method investments) from which we receive scheduled lease payments, typically under long-term triple net lease agreements.
(5) Excludes approximately 125 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $45 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 $175 million and $171 million as of March 31, 2017 and December 31, 2016, respectively. Approximately $43 million and $41 million of those investments were pledged as collateral against these obligations as of March 31, 2017 and December 31, 2016, respectively.

We had no financing receivables, investments or leases that were impaired or on nonaccrual status as of March 31, 2017 or December 31, 2016. There was no provision for credit losses or troubled debt restructurings as of March 31, 2017 or December 31, 2016.

The components of financing receivables as of March 31, 2017 and December 31, 2016, were as follows:

 

     March 31,
2017
     December 31,
2016
 
     (dollars in millions)  

Financing receivables

     

Financing or minimum lease payments

   $ 1,332      $ 1,395  

Unearned interest income

     (317      (351

Unearned fee income, net of initial direct costs

     (2      (2
  

 

 

    

 

 

 

Financing receivables

   $ 1,013      $ 1,042  
  

 

 

    

 

 

 

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 March 31, 2017:

 

     Total     Less than 1 year     1-5 years     5-10 years     More than 10
years
 
     (dollars in millions)  

Financing receivables

          

Maturities by period

   $ 1,013     $ 5     $ 33     $ 65     $ 910  

Weighted average yield by period

     5.2     6.2     6.3     4.7     5.2

Investments

          

Maturities by period

   $ 125     $ —       $ —       $ 1     $ 124  

Weighted average yield by period

     4.2     —       —       4.7     4.2

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 2056 under the initial terms and 2047 and 2080 if all renewals are exercised. The components of our real estate portfolio as of March 31, 2017 and December 31, 2016, were as follows:

 

     March 31,
2017
     December 31,
2016
 
     (dollars in millions)  

Real Estate

     

Land

   $ 213      $ 145  

Lease intangibles

     79        29  

Accumulated amortization of lease intangibles

     (3      (2
  

 

 

    

 

 

 

Real Estate

   $ 289      $ 172  
  

 

 

    

 

 

 

 

In 2017, we purchased a portfolio of over 4,000 acres of land and related long-term triple net leases to over 20 individual solar projects with investment grade off-takers at a cost of approximately $138 million. Approximately $21 million (1,100 acres) of this real estate portfolio was acquired through an equity interest in a joint venture that we account for under the equity method of accounting and approximately $49 million of our purchase price was allocated to intangible lease assets on a relative fair value basis. Up to an additional $8 million may become payable under this transaction upon completion of certain project related contingencies.

As of March 31, 2017, the future amortization expense of these intangible assets and the future minimum rental income payments under our land lease agreements are as follows:

 

Years Ending December 31,

   Future
Amortization
Expense
     Minimum Rental
Income Payments
 
     (dollars in millions)  

From April 1, 2017 to December 31, 2017

   $ 2      $ 12  

2018

     2        16  

2019

     2        16  

2020

     2        16  

2021

     2        17  

2022

     2        17  

Thereafter

     64        577  
  

 

 

    

 

 

 

Total

   $ 76      $ 671  
  

 

 

    

 

 

 

There are conservation easement agreements covering several of our properties that limit the use of the property upon its lease expiration.

Equity Investments

We have made non-controlling equity investments in a number of renewable energy projects operated by renewable energy companies as well as in a joint venture that owns land with a long-term triple net lease agreement to several solar projects that we account for as equity method investments. As of March 31, 2017, we held the following equity method investments:

 

Acquisition Date

  

Transaction

   Investment      Partner  
          (in millions)         

October 2014

   Strong Upwind Holdings I, LLC    $ 93        JPMorgan  

April 2015

   Strong Upwind Holdings II, LLC      30        JPMorgan  

December 2015

   Strong Upwind Holdings III, LLC      63        JPMorgan  

December 2015

   Buckeye Wind Energy Class B Holdings LLC      67        Invenergy  

June 2016

   MM Solar Holdings LLC      26        AES  

October 2016

   Invenergy Gunsight Mountain Holdings, LLC      38        Invenergy  

February 2017

   Strong Upwind Holdings IV, LLC      66        JPMorgan  

Various

   Other transactions      66        Various  
     

 

 

    
   Total Equity Method Investments    $ 449     
     

 

 

    

Based on an evaluation of our equity method investments, we determined that no OTTI impairment had occurred as of March 31, 2017 or December 31, 2016.