Quarterly report pursuant to Section 13 or 15(d)

Our Portfolio

v3.20.2
Our Portfolio
 6 Months Ended
Jun. 30, 2020
Investments [Abstract]  
Our Portfolio Our Portfolio
As of June 30, 2020, our Portfolio included approximately $2.1 billion of equity method investments, receivables, real estate and investments on our balance sheet. In July 2020 we invested $150 million and have agreed to invest up to a total of $540 million in a joint venture owning 2.3 gigawatts of renewable energy projects. See Note 14 for further discussion. The equity method investments represent our non-controlling equity investments in renewable energy and energy efficiency 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. Our analysis of our Portfolio has historically been analyzed by type of obligor categorized as either government or commercial obligors and whether those obligors are investment grade or non-investment grade. In conjunction with the adoption of Topic 326, we re-evaluated our reporting for this disclosure and have modified our credit quality disclosure to provide more detail of how the assets in our Portfolio are performing. Additionally, as discussed in Note 2, we have adopted Topic 326 which requires the establishment of an allowance at origination for our receivables expected over the life of the asset rather than at the time it is probable that a loss has been incurred. These allowances are reflected in our disclosures below and are not necessarily an indication that an actual loss has been incurred.
We determine our expectation of credit losses related to our investments by evaluating a number of qualitative and quantitative factors including a project’s operating results, loan-to-value ratio, any cash reserves, the ability of expected cash from operations to cover the cash flow requirements currently and into the future, key terms of the transaction, the ability of the borrower to refinance the transaction, the financial and operating capability of the borrower, its sponsors or the obligor as well as any guarantors and the project’s collateral value. In addition, when deriving our reasonable and supportable forecasts we consider the overall economic environment, the sustainable infrastructure sector, the effect of local, industry, and broader economic factors, the impact of any variation in weather and the historical and anticipated trends in interest rates, defaults and loss severities for similar transactions.
The following is an analysis of the Performance Ratings of our Portfolio as of June 30, 2020, which is assessed quarterly:
Portfolio Performance
1 (1)
2 (2)
3 (3)
Total
Government Commercial Government Commercial Government Commercial
Receivable vintage (dollars in millions)
2020 $ —    $ 80    $ —    $ —    $ —    $ —    $ 80   
2019 2    400    —    2    —    —    404   
2018 —    264    —    —    —    —    264   
2017 40    1    —    8    —    —    49   
2016 69    61    —    —    —    —    130   
2015 90    —    —    —    —    —    90   
Prior to 2015
 56    47    —    —    —    8    111   
Total receivables 257    853    —    10    —    8    1,128   
Less: Allowance for loss on receivables
 —    (18)   —    (3)   —    (8)   (29)  
Net receivables (4)
257    835    —    7    —    —    1,099   
Investments 35    11    —    —    —    —    46   
Real estate —    361    —    —    —    —    361   
Equity method investments (5)
—    532    —    24    —    —    556   
Total
 $ 292    $ 1,739    $ —    $ 31    $ —    $ —    $ 2,062   
Percent of Portfolio 14  % 84  % —  % 2  % —  % —  % 100  %
Average remaining balance (6)
$ 7    $ 11    $ —    $ 11    $ —    $ 4    $ 10   
(1)This category includes our assets where based on our credit criteria and performance to date we believe that our risk of not receiving our invested capital remains low.
(2)This category includes our assets where based on our credit criteria and performance to date we believe there is a moderate level of risk to not receiving some or all of our invested capital.
(3)This category includes our assets where based on our credit criteria and performance to date, we believe there is substantial doubt regarding our ability to recover some or all of our invested capital. Included in this category are two commercial receivables with a combined total carrying value of approximately $8 million as of June 30, 2020 which we consider impaired and have held on non-accrual status since 2017. We recorded an allowance for the entire asset amounts as described in our 2019 Form 10-K. We expect to continue to pursue our legal claims with regards to these assets.
(4)Total reconciles to the total of the government receivables and commercial receivables lines of the consolidated balance sheets
(5)Some of the individual projects included in portfolios that make up our equity method investments have government off-takers. As they are part of large portfolios, they are not classified separately. 
(6)Average remaining balance is calculated gross of allowance for loss on receivables and excludes approximately 130 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $49 million.
Receivables
We adopted Topic 326 during the six months ended June 30, 2020 which requires us to recognize a provision for loss on receivables expected over the life of the receivable rather than only recording an allowance when it is probable a loss has been incurred. As of December 31, 2019, we had an allowance for loss on receivables on specific assets of $8 million discussed above with a Performance Rating of 3. At adoption on January 1, 2020, we recorded an additional pre-tax allowance for loss on receivables of $17 million which reflects our estimated loss as of that date. Quarterly, we update that expected loss to reflect both the expected loss on newly originated receivables and any changes in the expected loss on existing receivables. During the three and six months ended June 30, 2020, we increased that allowance on our receivables by $2.5 million and $3.2 million, respectively, as a result of the potential impact of the COVID-19 pandemic on our commercial receivables and as a result of additional loan commitments made during the three months ended June 30, 2020. While macroeconomic indicators we consider in our analyses including unemployment rates and power prices degraded over the three and six months ended June 30, 2020, these factors are mitigated by the high credit quality of our obligors and the structural protections of our investments. In determining our allowance, we included estimates of loss associated with unfunded commitments.
Below is a summary of the carrying value and allowance by type of receivable or "Portfolio Segment", as defined by Topic 326, as of June 30, 2020 and January 1, 2020:
June 30, 2020 January 1, 2020
Carrying Value Allowance Carrying Value Allowance
(in millions)
Government (1)
$ 256    $ —    $ 270    $ —   
Commercial (2)
843    29    892    26   
Total $ 1,099    29    $ 1,162    26   
(1)As of June 30, 2020, our government receivables include $146 million of U.S. federal government transactions and $110 million of transactions where the ultimate obligors are state or local governments.
Risk characteristics of our government receivables include the energy savings or the power output of the projects and the ability of the government obligor to generate revenue for debt service, via taxation or other means. Transactions may have guarantees of energy savings or other performance support from third-party service providers, which typically are entities, directly or whose ultimate parent entity is, rated investment grade by an independent rating agency. All of our government receivables are included in Performance Rating 1 in the Portfolio Performance table above. Our allowance for government receivables is primarily calculated by using PD/LGD methods as discussed in Note 2. Our expectation of credit losses for these receivables is immaterial given the high credit-quality of the obligors.
(2)As of June 30, 2020, this category of assets includes $461 million of mezzanine loans made on a non-recourse basis to special purpose subsidiaries of residential solar companies which are secured by residential solar assets where we rely on certain limited indemnities, warranties, and other obligations of the residential solar companies or their other subsidiaries. Approximately $371 million of our commercial receivables are loans made to entities in which we also have non-controlling equity investments of approximately $12 million. This total also includes $48 million of lease agreements where we hold legal title to the underlying real estate which are treated under GAAP as receivables since they were deemed to be failed sale/leaseback transactions as described in Note 2.
Risk characteristics of our commercial receivables include a project’s operating risks, which include the impact of the overall economic environment, the sustainable infrastructure sector, the effect of local, industry, and broader economic factors, the impact of any variation in weather and trends in interest rates. We use assumptions related to these risks to estimate an allowance using a discounted cash flow analysis or the PD/LGD method as discussed in Note 2. All of our commercial receivables are included in Performance Rating 1 in the Portfolio Performance table above, except for $10 million of receivables included in Performance Category 2 and the $8 million of receivables we have placed on non-accrual status which are included in Performance Rating 3. For those assets in Performance Rating 1, the credit worthiness of the obligor combined with the various structural protections of our assets cause us to believe we have a low risk we will not receive our invested capital, however we recorded a $18 million allowance on these $853 million in assets as a result of lower probability assumptions utilized in our allowance methodology.
The following table reconciles our allowance for loss on receivables by Portfolio Segment:


Three months ended June 30, 2020 Six months ended June 30, 2020
Government Commercial Government Commercial
(in millions)
Beginning balance $ —    $ 26    $ —    $ 26   
Provision for loss on receivables —    3    —    3   
Ending balance $ —    $ 29    $ —    $ 29   
Other than the $8 million of receivables discussed above with a Performance Rating of 3, we have no receivables which are on non-accrual status.
The following table provides a summary of our anticipated maturity dates of our receivables and the weighted average yield for each range of maturities as of June 30, 2020:
Total Less than 1
year		 1-5 years 5-10 years More than 10
years
  (dollars in millions)
Maturities by period (excluding allowance) $ 1,128    $ 1    $ 174    $ 309    $ 644   
Weighted average yield by period 8.1  % 4.3  % 7.1  % 8.9  % 7.6  %
Investments
The following table provides a summary of our anticipated maturity dates of our investments and the weighted average yield for each range of maturities as of June 30, 2020:
 
Total Less than 1
year		 1-5 years 5-10 years More than 10
years
  (dollars in millions)
Maturities by period $ 46    $ —    $ —    $ —    $ 46   
Weighted average yield by period 3.9  % —  % —  % —  % 3.9  %

We had no investments that were impaired or on non-accrual status as of June 30, 2020 or December 31, 2019, and no allowances associated with our investments.
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, 2020 and December 31, 2019, were as follows: 
June 30, 2020 December 31, 2019
  (in millions)
Real estate
Land $ 269    $ 269   
Lease intangibles 104    104   
Accumulated amortization of lease intangibles (12)   (11)  
Real estate $ 361    $ 362   

As of June 30, 2020, the future amortization expense of the intangible assets and the future minimum rental income payments under our land lease agreements are as follows:
Future Amortization Expense Minimum Rental Income Payments
  (in millions)
From July 1, 2020 to December 31, 2020 $ 2    $ 11   
2021 3    22   
2022 3    22   
2023 3    23   
2024 3    24   
2025 3    24   
Thereafter 75    741   
Total $ 92    $ 867   

Equity Method Investments
We have made non-controlling equity investments in a number of renewable energy and energy efficiency projects as well as in a joint venture that owns land with long-term triple net lease agreements to several solar projects that we account for as equity method investments. As of June 30, 2020, we held the following equity method investments:
 
Investment Date Investee Carrying Value
    (in millions)
March 2020 University of Iowa Energy Collaborative Holdings LLC $ 115   
Various 2007 Vento I, LLC 75   
December 2015 Buckeye Wind Energy Class B Holdings, LLC 71   
Various Vivint Solar Asset 1 Class B, LLC 62   
Various Vivint Solar Asset 2 Class B, LLC 59   
October 2016 Invenergy Gunsight Mountain Holdings, LLC 33   
Various Other investees 141   
Total equity method investments $ 556   
Based on an evaluation of our equity method investments, we determined that no OTTI had occurred as of June 30, 2020 or December 31, 2019.