6.	Our Portfolio

As of June 30, 2017, our Portfolio included approximately $2.1 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 June 30, 2017:

 

		Investment Grade
		Government (1)				Commercial Investment Grade(2)				Commercial Non-Investment Grade (3)				Subtotal, Debt and Real Estate				Equity Method Investments				Total
		(dollars in millions)
Financing receivables		$	632			$	482			$	26			$	1,140			$	—			$	1,140
Investments			104				22				—				126				—				126
Real estate(4)			—				298				—				298				21				319
Equity investments in renewable energy projects			—				—				—				—				530				530
Total		$	736			$	802			$	26			$	1,564			$	551			$	2,115
% of Debt and Real Estate Portfolio			47	%			51	%			2	%			100	%			N/A				N/A
Average Remaining Balance(5)		$	13			$	9			$	9			$	11			$	20			$	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 $525 million of U.S. federal government transactions and $211 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, $10 million of the transactions have been rated investment grade by an independent rating agency. Commercial investment grade financing receivables include $311 million of internally rated residential solar loans made on a nonrecourse basis to special purpose subsidiaries of the 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 $48 million.

Financing Receivables and Investments

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 June 30, 2017:

 

		Total				Less than 1 year				1-5 years				5-10 years				More than 10 years
		(dollars in millions)
Financing Receivables
Maturities by period		$	1,140			$	7			$	25			$	75			$	1,033
Weighted average yield by period			5.2	%			8.4	%			5.3	%			5.0	%			5.2	%
Investments
Maturities by period		$	126			$	—			$	—			$	1			$	125
Weighted average yield by period			4.3	%			—	%			—	%			4.7	%			4.3	%

Our non-investment grade assets includes two financing receivables with a carrying value of approximately $10 million that became past due in the second quarter of 2017. These financing receivables, which we acquired as part of our acquisition of American Wind Capital Company, LLC in 2014, are assignments of land lease payments from two wind projects (the “Projects”). We have been informed by the owner of the Projects that the Projects are experiencing a decline in revenue. On this basis, the owner of the Projects is seeking to renegotiate the land lease contractual payment terms or terminate the lease. In July 2017, we filed a legal claim against the owners of the Projects in order to protect our interests in the Projects and the amounts due to us under the land lease assignments. Although there can be no assurance in this regard, we believe that we have the ability to recover the carrying value from the Projects, including by taking title to the underlying collateral, and thus have not recorded an allowance for losses as of June 30, 2017. We have determined that the assets are impaired and placed them on non-accrual status.

Other than discussed above, we had no financing receivables, investments or leases that were impaired or on nonaccrual status as of June 30, 2017 or December 31, 2016. There was no provision for credit losses or troubled debt restructurings as of June 30, 2017 or December 31, 2016.

 

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 2057 under the initial terms and 2047 and 2080 if all renewals are exercised. The components of our real estate portfolio as of June 30, 2017 and December 31, 2016, were as follows:

 

		June 30,         2017				December 31, 2016
		(dollars in millions)
Real Estate
Land		$	222			$	145
Lease intangibles			80				29
Accumulated amortization of lease intangibles			(4	)			(2	)
Real Estate		$	298			$	172

In the first quarter of 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 $7 million may become payable under this transaction upon completion of certain project related contingencies.

As of June 30, 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 July 1, 2017 to December 31, 2017		$	1			$	8
2018			2				17
2019			2				17
2020			2				17
2021			2				17
2022			2				17
Thereafter			65				602
Total		$	76			$	695

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 June 30, 2017, we held the following equity method investments:

 

Acquisition Date		Transaction		Investment				Partner
				(in millions)
Various		Strong Upwind Holdings I,II, and III LLC		$	195			Various(1)
June 2017		Northern Frontier LLC			94			Various
December 2015		Buckeye Wind Energy Class B Holdings LLC			67			Invenergy
February 2017		Strong Upwind Holdings IV LLC			59			JPMorgan
October 2016		Invenergy Gunsight Mountain Holdings, LLC			36			Invenergy

 

Acquisition Date		Transaction		Investment				Partner
				(in millions)
June 2016		MM Solar Holdings LLC			28				AES
Various		Other transactions			72				Various
		Total Equity Method Investments		$	551

 

(1)

In June 2017, we acquired the remaining interest in these holding company entities for $22 million from JPMorgan. The entities are now consolidated entities in which the underlying assets (i.e. project level equity method investments) are being reported in our financial statements as equity method investments.

Based on an evaluation of our equity method investments, we determined that no OTTI impairment had occurred as of June 30, 2017, or December 31, 2016.

Deferred Funding Obligations

In accordance with the terms of certain purchase agreements relating to financing receivables and investments, payments of the purchase price are scheduled to be made over time and as a result, we have recorded deferred funding obligations of $273 million and $171 million as of June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017 and December 31, 2016, we have pledged approximately $34 million and $41 million of our equity method investments as collateral for a deferred funding obligation of $26 million and $34 million, respectively.

The next five years of outstanding deferred funding obligations to be paid are as follows:

 

		(dollars in millions)
July 1, 2017 to December 31, 2017		$	49
2018			103
2019			73
2020			36
2021			12
Total Deferred Funding Obligations		$	273