6. Our Portfolio

As of December 31, 2017, our Portfolio included approximately $2.0 billion of equity method investments, receivables, real estate and investments on our balance sheet. The equity method investments represent our non-controlling equity investments in renewable energy projects and land. The 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 following is an analysis of our Portfolio by type of obligor and credit quality as of December 31, 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)
Equity investments in renewable energy projects		$	—			$	—			$	—			$	—			$	502			$	502
Receivables (4)			519				464				10				993				—				993
Receivables held-for-sale			16				3				—				19				—				19
Real estate (5)			—				341				—				341				21				362
Investments			104				47				—				151				—				151
Total		$	639			$	855			$	10			$	1,504			$	523			$	2,027
% of Debt and real estate portfolio			42	%			57	%			1	%			100	%			N/A				N/A
Average remaining balance (6)		$	11			$	9			$	5			$	10			$	19			$	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 $400 million of U.S. federal government transactions and $239 million of transactions where the ultimate obligors are state or local governments. Transactions may have guaranties of energy savings from third party service providers, which typically 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 receivables include $314 million of internally rated residential solar loans made on a non-recourse basis to special purpose subsidiaries of the SunPower Corporation (“SunPower”), for which we rely on certain limited indemnities, warranties, and other obligations of SunPower 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)	Total reconciles to the total of the government receivables and commercial receivables lines of the consolidated balance sheets.

(5)	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.

(6)	Excludes approximately 135 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $52 million.

Equity Method Investments

We have made non-controlling equity investments in a number of renewable energy projects 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 December 31, 2017, we held the following equity method investments:

 

Investment Date		Investee		Carrying Value
				(in millions)
Various		Northern Frontier, LLC		$	127
Various		Vento I, LLC			119
December 2015		Buckeye Wind Energy Class B Holdings, LLC			68
October 2016		Invenergy Gunsight Mountain Holdings, LLC			37
June 2016		MM Solar Parent, LLC			29
Various		Helix Fund I, LLC			25
Various		Other transactions			118
		Total equity method investments		$	523

An underlying solar project associated with one of our equity method investments located in the U.S. Virgin Islands was materially damaged in the recent hurricanes. Although there can be no assurance in this regard, we believe that the project’s insurance will be sufficient to rebuild the project or to recover our investment in the project of approximately $10 million as of December 31, 2017.

We have a $25 million investment in a wind project that was purchased as part of a portfolio at a significant discount to the project’s book value, in part, due to the lack of a PPA and some operational issues. In February 2018, the sponsor indicated that they will be recording a material impairment on the project for their 2017 annual financial statements, which was primarily due to current merchant pricing estimates. Although there can be no assurance in this regard, we believe there are sufficient cash flows to recover the carrying value of our investment as of December 31, 2017. However, as discussed in Note 2, we account for this investment one quarter in arrears, which we expect to result in a portion of the project’s impairment being allocated to us using HLBV in the next quarter, and such allocation could be material.

Based on an evaluation of our equity method investments, inclusive of these projects, we determined that no OTTI had occurred as of December 31, 2017, 2016 or 2015.

Receivables and Investments

The following table provides a summary of our anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of December 31, 2017:

 

		Total				Less than 1 year				1-5 years				5-10 years				More than 10 years
		(dollars in millions)
Receivables
Maturities by period		$	993			$	3			$	22			$	62			$	906
Weighted average yield by period			5.2	%			7.3	%			5.8	%			5.1	%			5.1	%
Investments
Maturities by period		$	151			$	—			$	65			$	14			$	72
Weighted average yield by period			4.0	%			—	%			3.6	%			4.0	%			4.3	%

 

Our non-investment grade assets consists of two commercial receivables with a carrying value of approximately $10 million that became past due in the second quarter of 2017. These 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. The owner of the Projects is seeking to terminate the lease. In July 2017, we filed a legal claim against the owners of the Projects in order to protect our interests in these Projects and the amounts due to us under the land lease assignments. In January 2018, we received a $1.6 million payment from the Projects and we continue to pursue our legal claims. Although there can be no assurance in this regard, we believe that we have the ability to recover the carrying value from the Projects based on projected cash flows, and thus have not recorded an allowance for losses as of December 31, 2017. We have determined that the assets are impaired and placed them on non-accrual status.

Other than discussed above, we had no receivables or investments that were impaired or on non-accrual status as of December 31, 2017 or 2016. There was no provision for credit losses or troubled debt restructurings as of December 31, 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 December 31, 2017 and 2016, were as follows:

 

		December 31,
		2017				2016
		(in millions)
Real estate
Land		$	247			$	145
Lease intangibles			99				29
Accumulated amortization of lease intangibles			(5	)			(2	)
Real estate		$	341			$	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 $145 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 $56 million of our purchase price was allocated to intangible lease assets on a relative fair value basis. This transaction was accounted for as an asset acquisition.

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

 

Year Ending December 31,		Future Amortization Expense				Minimum Rental Payments
		(in millions)
2018		$	3			$	20
2019			3				20
2020			3				20
2021			3				20
2022			3				20
Thereafter			79				741
Total		$	94			$	841

 

Deferred Funding Obligations

In accordance with the terms of certain purchase agreements relating to 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 $153 million and $171 million as of December 31, 2017 and December 31, 2016, respectively. We have secured financing for, or placed in escrow, approximately $90 million of the deferred funding obligations as of December 31, 2017. As of December 31, 2017 and December 31, 2016, we have pledged approximately $29 million and $41 million of our equity method investments as collateral for a deferred funding obligation of $20 million and $34 million, respectively. We recognized imputed interest related to certain of our deferred funding obligations of $2 million and $1 million in the years ended December 31 2017 and 2016, respectively.

The outstanding deferred funding obligations to be paid are as follows:

 

Year Ending December 31,		Future Payments
		(in millions)
2018		$	97
2019			35
2020			16
2021			5
Total		$	153