Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.20.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
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, 2020 and December 31, 2019, only our residual assets related to our securitization trusts and investments 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, 2020
  Fair Value Carrying
Value
Level
  (in millions)
Assets
Government receivables $ 283  $ 251  Level 3
Commercial receivables 895  849  Level 3
Investments (1)
52  52  Level 3
Securitization residual assets (2)
142  142  Level 3
Liabilities (3)
Credit facilities $ 23  $ 23  Level 3
Non-recourse debt 688  613  Level 3
Senior unsecured notes 1,344  1,295  Level 2
Convertible notes 393  295  Level 2
(1)The amortized cost of our investments as of September 30, 2020, was $47 million.
(2)Included in securitization assets on the consolidated balance sheet. This amount excludes securitization servicing assets, which are carried at amortized cost.
(3)Fair value and carrying value exclude unamortized financing costs.
  As of December 31, 2019
  Fair Value Carrying
Value
Level
  (in millions)
Assets
Government receivables $ 278  $ 263  Level 3
Commercial receivables 906  896  Level 3
Investments (1)
75  75  Level 3
Securitization residual assets (2)
122  122  Level 3
Liabilities (3)
Credit facilities $ 31  $ 31  Level 3
Non-recourse debt 739  716  Level 3
Senior unsecured notes 540  520  Level 2
Convertible notes 185  152  Level 2
(1)    The amortized cost of our investments as of December 31, 2019, was $74 million.
(2)    Included in securitization assets on the consolidated balance sheet. This amount excludes securitization servicing assets, which are carried at amortized cost.
(3)    Fair value and carrying value exclude unamortized financing 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,
  2020 2019 2020 2019
  (in millions)
Balance, beginning of period $ 46  $ 124  $ 75  $ 170 
Purchases of investments 23  22 
Principal payments on investments —  (2) (2) (4)
Sale of investments —  (20) (53) (85)
Realized gains on investments recorded in gain on sale of receivables and investments — 
Unrealized gains (losses) on investments recorded in OCI
Balance, end of period $ 52  $ 113  $ 52  $ 113 

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, 2020 $ $ $ —  $ — 
December 31, 2019 25  — 
(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 5% based upon transactions involving similar assets as of September 30, 2020 and December 31, 2019. The weighted average discount rate used to determine the fair value of our investments as of September 30, 2020 and December 31, 2019 were 3.0% and 4.4%, respectively.

Securitization residual assets
The following table reconciles the beginning and ending balances for our Level 3 securitization residual assets that are carried at fair value on a recurring basis:
  For the three months ended September 30, For the nine months ended September 30,
  2020 2019 2020 2019
  (in millions)
Balance, beginning of period $ 135  $ 79  $ 122  $ 71 
Accretion of securitization residual assets 3
Additions to securitization residual assets 10  36  25 
Collections of securitization residual assets (4) (1) (9) (6)
Sales of securitization residual assets —  (13) (21) (18)
Unrealized gains (losses) on securitization residual assets recorded in AOCI —  10 
Balance, end of period $ 142  $ 84  $ 142  $ 84 

In determining the fair value of our securitization residual assets, we used a market-based risk-free rate and a range of interest rate spreads of approximately 1% to 5% based upon transactions involving similar assets as of September 30, 2020 and December 31, 2019. The weighted average discount rate used to determine the fair value of our securitization residual assets as of September 30, 2020 and December 31, 2019 were 4.0% and 4.4%, respectively.
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. Additionally, certain of our investments are collateralized by projects concentrated in certain geographic regions throughout the United States. These investments typically 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, 2020 December 31, 2019
  (in millions)
Cash deposits $ 881  $
Restricted cash deposits (included in other assets) 24  101 
Total cash deposits $ 905  $ 107 
Amount of cash deposits in excess of amounts federally insured $ 904  $ 105