HA Sustainable Infrastructure Capital, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level hierarchy for classifying financial instruments. The levels of inputs used to determine the fair value of our financial assets and liabilities carried on the balance sheet at fair value and for those which only disclosure of fair value is required are characterized in accordance with the fair value hierarchy established by ASC 820, Fair Value Measurements. Where inputs for a financial asset or liability fall in more than one level in the fair value hierarchy, the financial asset or liability is classified in its entirety based on the lowest level input that is significant to the fair value measurement of that financial asset or liability. We use our judgment and consider factors specific to the financial assets and liabilities in determining the significance of an input to the fair value measurements. As of September 30, 2019 and December 31, 2018, only our residual assets related to our securitization trusts, interest rate swaps and investments, if any, were carried at fair value on the consolidated balance sheets on a recurring basis. The three levels of the fair value hierarchy are described below:

•Level 1 — Quoted prices (unadjusted) in active markets that are accessible at the measurement date.


•	Level 2 — Observable prices that are based on inputs not quoted on active markets but corroborated by market data.


•	Level 3 — Unobservable inputs are used when little or no market data is available.

The tables below illustrate the estimated fair value of our financial instruments on our balance sheet. Unless otherwise discussed below, fair value for our Level 2 and Level 3 measurements is measured using a discounted cash flow model, contractual terms and inputs which consist of base interest rates and spreads over base rates which are based upon market observation and recent comparable transactions. An increase in these inputs would result in a lower fair value and a decline would result in a higher fair value. Our senior unsecured notes and convertible notes are valued using a market based approach and observable prices. The receivables held-for-sale, if any, are carried at the lower of cost or fair value.



	As of September 30, 2019
	Fair Value		Carrying Value		Level
	(in millions)
Assets
Government receivables	$	318	$	300	Level 3
Commercial receivables	692		675		Level 3
Investments ⁽¹⁾	113		113		Level 3
Securitization residual assets ⁽²⁾	84		84		Level 3
Liabilities
Credit facilities ⁽³⁾	$	38	$	38	Level 3
Non-recourse debt ⁽³⁾	714		680		Level 3
Senior unsecured notes ⁽³⁾	533		514		Level 2
Convertible notes ⁽³⁾	168		151		Level 2


(1)	The amortized cost of our investments as of September 30, 2019, was $109 million.


(2)	Included in other assets on the consolidated balance sheet.


(3)	Fair value and carrying value exclude unamortized debt issuance costs.



	As of December 31, 2018
	Fair Value		Carrying Value		Level
	(in millions)
Assets
Government receivables	$	487	$	497	Level 3
Commercial receivables	443		447		Level 3
Investments ⁽¹⁾	170		170		Level 3
Securitization residual assets ⁽²⁾	71		71		Level 3
Liabilities
Credit facilities ⁽³⁾	$	259	$	259	Level 3
Non-recourse debt ⁽³⁾	835		852		Level 3
Convertible notes ⁽³⁾	139		152		Level 2

(1) The amortized cost of our investments as of December 31, 2018, was $173 million.

(2) Included in other assets on the consolidated balance sheet.

(3) Fair value and carrying value exclude unamortized debt issuance costs.

Investments

The following table reconciles the beginning and ending balances for our Level 3 investments that are carried at fair value on a recurring basis:



	For the three months ended September 30,						For the nine months ended September 30,
	2019			2018			2019			2018
	(in millions)
Balance, beginning of period	$	124		$	154		$	170		$	151
Purchases of investments	7			12			22			19
Payments on investments	(2		)	(3		)	(4		)	(4		)
Sale of investments	(20		)	—			(85		)	—
Realized gains on investments recorded in earnings	2			—			2			—
Unrealized gains (losses) on investments recorded in AOCI	2			(1		)	8			(4		)
Balance, end of period	$	113		$	162		$	113		$	162

The following table illustrates our investments in an unrealized loss position:



	Estimated Fair Value				Unrealized Losses ⁽¹⁾
	Securities with a loss shorter than 12 months		Securities with a loss longer than 12 months		Securities with a loss shorter than 12 months		Securities with a loss longer than 12 months
	(in millions)
September 30, 2019	$	—	$	17	$	—	$	1
December 31, 2018	82		67		1		3

(1) Loss position is due to interest rates movements. We have the intent and ability to hold these investments until a recovery of fair value.

In determining the fair value of our investments we used a market-based risk-free rate and a range of interest rate spreads of approximately 1% to 4% based upon transactions involving similar assets as of September 30, 2019 and December 31, 2018.

Non-recurring Fair Value Measurements

Our financial statements may include non-recurring fair value measurements related to acquisitions and non-monetary transactions, if any. Assets acquired in a business combination are recorded at their fair value. We may use third party valuation firms to assist us with developing our estimates of fair value.

Concentration of Credit Risk

Government and commercial receivables, real estate leases, and debt investments consist primarily of U.S. federal government-backed receivables, investment grade state and local government receivables and receivables from various sustainable infrastructure projects and do not, in our view, represent a significant concentration of credit risk. See Note 6 for an analysis by type of obligor and the method of rating. Additionally, our investments are collateralized by projects concentrated in certain geographic regions throughout the United States. We have structural credit protections to mitigate our risk exposure and, in most cases, the projects are insured for estimated physical loss which helps to mitigate the possible risk from these concentrations.

We had cash deposits that are subject to credit risk as shown below:



	September 30, 2019		December 31, 2018
	(in millions)
Cash deposits	$	186	$	21
Restricted cash deposits (included in other assets)	43		38
Total cash deposits	$	229	$	59
Amount of cash deposits in excess of amounts federally insured	$	227	$	57