Quarterly report pursuant to Section 13 or 15(d)

Our Portfolio

v3.20.2
Our Portfolio
 9 Months Ended
Sep. 30, 2020
Investments [Abstract]  
Our Portfolio Our Portfolio
As of September 30, 2020, our Portfolio included approximately $2.2 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 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 September 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 $ —  $ 85  $ —  $ —  $ —  $ —  $ 85 
2019 2  399  —  2  —  —  403 
2018 —  270  —  —  —  —  270 
2017 38  1  —  8  —  —  47 
2016 68  60  —  —  —  —  128 
2015 88  —  —  —  —  —  88 
Prior to 2015
 55  47  —  —  —  8  110 
Total receivables 251  862  —  10  —  8  1,131 
Less: Allowance for loss on receivables
 —  (19) —  (4) —  (8) (31)
Net receivables (4)
251  843  —  6  —  —  1,100 
Investments 36  16  —  —  —  —  52 
Real estate —  360  —  —  —  —  360 
Equity method investments (5)
—  695  —  24  —  —  719 
Total
 $ 287  $ 1,914  $ —  $ 30  $ —  $ —  $ 2,231 
Percent of Portfolio 13  % 86  % —  % 1  % —  % —  % 100  %
Average remaining balance (6)
$ 7  $ 12  $ —  $ 11  $ —  $ 4  $ 11 
(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 September 30, 2020 which we 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 145 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $58 million.
Receivables
We adopted Topic 326 during the nine months ended September 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 months ended September 30, 2020, we increased the allowance on our receivables by $2 million, primarily as a result of additional loan commitments made during this period. During the nine months ended September 30, 2020, we increased our reserve by $6 million as a result of additional loan commitments made during the period, and to a lesser extent, the potential impacts of the COVID-19 pandemic on our commercial receivables. While macroeconomic indicators we consider
in our analyses including unemployment rates and power prices degraded over the nine months ended September 30, 2020, these factors are mitigated by the high credit quality of our obligors and the structural protections of our investments.
Below is a summary of the carrying value and allowance by type of receivable or "Portfolio Segment", as defined by Topic 326, as of September 30, 2020 and January 1, 2020:
September 30, 2020 January 1, 2020
Carrying Value Allowance Carrying Value Allowance
(in millions)
Government (1)
$ 251  $ —  $ 263  $ — 
Commercial (2)
880  31  904  26 
Total $ 1,131  31  $ 1,167  26 
(1)As of September 30, 2020, our government receivables include $145 million of U.S. federal government transactions and $106 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 September 30, 2020, this category of assets includes $469 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 $370 million of our commercial receivables are loans made to entities in which we also have non-controlling equity investments of approximately $16 million. This total also includes $47 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 $19 million allowance on these $862 million in assets as a result of lower probability assumptions utilized in our allowance methodology.
The following table reconciles our beginning and ending allowance for loss on receivables by Portfolio Segment:
Three months ended September 30, 2020 Nine months ended September 30, 2020
Government Commercial Government Commercial
(in thousands)
Beginning balance $ —  $ 28,831  $ —  $ 25,660 
Provision for loss on receivables —  2,458  —  5,629 
Ending balance $ —  $ 31,289  $ —  $ 31,289 

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 September 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) $ 1,131  $ —  $ 176  $ 302  $ 653 
Weighted average yield by period 8.2  % —  % 7.2  % 9.1  % 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 September 30, 2020:
 
Total Less than 1
year		 1-5 years 5-10 years More than 10
years
  (dollars in millions)
Maturities by period $ 52  $ —  $ —  $ —  $ 52 
Weighted average yield by period 3.9  % —  % —  % —  % 3.9  %

We had no investments that were impaired or on non-accrual status as of September 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 September 30, 2020 and December 31, 2019, were as follows: 
September 30, 2020 December 31, 2019
  (in millions)
Real estate
Land $ 269  $ 269 
Lease intangibles 104  104 
Accumulated amortization of lease intangibles (13) (11)
Real estate $ 360  $ 362 

As of September 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 October 1, 2020 to December 31, 2020 $ 1  $ 6 
2021 3  22 
2022 3  22 
2023 3  23 
2024 3  24 
2025 3  24 
Thereafter 75  740 
Total $ 91  $ 861 

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 September 30, 2020, we held the following equity method investments:  
Investment Date Investee Carrying Value
    (in millions)
July 2020 Jupiter Equity Holdings, LLC $ 152 
March 2020 University of Iowa Energy Collaborative Holdings LLC 116 
December 2015 Buckeye Wind Energy Class B Holdings, LLC 72 
Various 2007 Vento I, LLC 64 
Various Vivint Solar Asset 1 Class B, LLC 60 
Various Vivint Solar Asset 2 Class B, LLC 60 
October 2016 Invenergy Gunsight Mountain Holdings, LLC 33 
Various Other investees 162 
Total equity method investments $ 719 
On July 1, 2020, we acquired a preferred equity interest in Jupiter Equity Holdings, LLC ("the Partnership") that is expected to own an approximately 2.3 gigawatt portfolio of renewable energy projects. We have agreed to guarantee certain of the obligations of the subsidiary in connection with these agreements. To date, we have made capital contributions to the Partnership of approximately $150 million related to four operating wind projects with an aggregate capacity of approximately 663 megawatts. We expect to ultimately invest approximately $540 million in the Partnership by making additional periodic capital contributions related to nine more projects anticipated to be commercially operational on or prior to June 30, 2021, at which time the additional projects relating to a specific funding will be transferred into the Partnership. Assuming all of the projects are acquired by the Partnership, the renewables portfolio will consist of 13 projects (nine onshore wind projects and four utility-scale solar projects) and will feature cash flows from fixed-price power purchase agreements and financial hedges with a weighted average contract life of 13 years, contracted with highly creditworthy off-takers and counterparties.
The Partnership is governed by an amended and restated limited liability company agreement, dated July 1, 2020, by and among the Partnership, one of our subsidiaries and a subsidiary of the project sponsor, and contains customary terms and conditions. We own 100% of the Class A Units in the Partnership corresponding to 49% of the distributions from the Partnership subject to the preferences discussed below. Most major decisions that may impact the Partnership, its subsidiaries or its assets, require the majority vote of a four person committee in which we and the project sponsor each have two representatives. Through the Partnership, we will be entitled to preferred distributions until certain return targets are achieved. Once these return targets are achieved, then distributions will be allocated approximately 33% to us and approximately 67% to the sponsor. We and the sponsor each have a right of first offer if the other party desires to transfer any of its equity ownership to a third party on or after July 1, 2023. We use the equity method of accounting to account for our preferred equity interest in the Partnership, and have elected to recognize earnings from this investment one quarter in arrears to allow for the receipt of financial information.
Based on an evaluation of our equity method investments, we determined that no OTTI had occurred as of September 30, 2020 or December 31, 2019.