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, 2021

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, 2021 and December 31, 2020, 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, 2021
	Fair Value		Carrying Value		Level
	(in millions)
Assets
Government receivables	$	139	$	126	Level 3
Commercial receivables	1,397		1,225		Level 3

Investments (1)	18		18		Level 3
Securitization residual assets (2)	198		198		Level 3

Liabilities (3)
Credit facilities	$	25	$	25	Level 3
Non-recourse debt	487		449		Level 3
Senior unsecured notes	1,838		1,793		Level 2
Convertible notes	203		158		Level 2

(1)The amortized cost of our investments as of September 30, 2021, was $17 million.

(2)Included in securitization assets on the consolidated balance sheet. This amount excludes securitization servicing assets, which are carried at amortized cost. The amortized cost of our securitization assets as of September 30, 2021 was $184 million.

(3)Fair value and carrying value exclude unamortized financing costs.


	As of December 31, 2020
	Fair Value		Carrying Value		Level
	(in millions)
Assets
Government receivables	$	282	$	248	Level 3
Commercial receivables	1,018		965		Level 3

Investments (1)	55		55		Level 3
Securitization residual assets (2)	159		159		Level 3
Liabilities (3)
Credit facilities	$	23	$	23	Level 3
Non-recourse debt	678		605		Level 3
Senior unsecured notes	1,362		1,299		Level 2
Convertible notes	552		296		Level 2

(1) The amortized cost of our investments as of December 31, 2020, was $51 million.

(2) Included in securitization assets on the consolidated balance sheet. This amount excludes securitization servicing assets, which are carried at amortized cost. The amortized cost of our securitization assets as of December 31, 2020 was $141 million.

(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,
	2021		2020		2021		2020
	(in millions)
Balance, beginning of period	$	18	$	46	$	55	$	75
Purchases of investments	—		5		5		23
Principal payments on investments	—		—		—		(2)
Sale of investments	—		—		(38)		(53)
Realized gains on investments recorded in gain on sale of receivables and investments	—		—		—		5
Unrealized gains (losses) on investments recorded in OCI	—		1		(4)		4
Balance, end of period	$	18	$	52	$	18	$	52

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, 2021	$	7	$	—	$	0.2	$	—
December 31, 2020	—		6		—		0.3

(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, 2021 and December 31, 2020. The weighted average discount rate used to determine the fair value of our investments as of September 30, 2021 and December 31, 2020 were 3.6% and 3.2%, 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,
	2021		2020		2021		2020
	(in millions)
Balance, beginning of period	$	188	$	135	$	159	$	122
Accretion of securitization residual assets	2		2		6		4
Additions to securitization residual assets	11		9		45		36
Collections of securitization residual assets	(2)		(4)		(8)		(9)
Sales of securitization residual assets	—		—		—		(21)
Unrealized gains (losses) on securitization residual assets recorded in OCI	(1)		—		(4)		10
Balance, end of period	$	198	$	142	$	198	$	142

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 4% based upon transactions involving similar assets as of September 30, 2021 and December 31, 2020. The weighted average discount rates used to determine the fair value of our securitization residual assets as of September 30, 2021 and December 31, 2020 were 4.3% and 3.8%, 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. See Note 6 for discussion of a fair value measurement recorded at September 30, 2021 related to an equity method investment.

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 climate solutions 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, 2021		December 31, 2020
	(in millions)
Cash deposits	$	413	$	286
Restricted cash deposits (included in other assets)	26		24
Total cash deposits	$	439	$	310
Amount of cash deposits in excess of amounts federally insured	$	437	$	309

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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