Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.22.2
Fair Value Measurements
6 Months Ended
Jun. 30, 2022
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 June 30, 2022 and December 31, 2021, 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 values for our Level 3 measurements are 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 June 30, 2022
  Fair Value Carrying
Value
Level
  (in millions)
Assets
Commercial receivables $ 1,532  $ 1,446  Level 3
Government receivables 107  111  Level 3
Receivables held-for-sale 92  74  Level 3
Investments (1)
12  12  Level 3
Securitization residual assets (2)
178  178  Level 3
Liabilities (3)
Credit facilities $ 201  $ 201  Level 3
Commercial paper notes 100  100  Level 3
Non-recourse debt 402  426  Level 3
Senior unsecured notes 1,563  1,784  Level 2
Convertible Notes:
2023 Convertible Senior Notes 140  144  Level 2
2025 Exchangeable Senior Notes 195  201  Level 2
Total Convertible Notes 335  345 
(1)The amortized cost of our investments as of June 30, 2022, was $12 million.
(2)Included in securitization assets on the consolidated balance sheet. The amortized cost of our securitization residual assets as of June 30, 2022 was $206 million.
(3)Fair value and carrying value exclude unamortized financing costs.
  As of December 31, 2021
  Fair Value Carrying
Value
Level
  (in millions)
Assets
Commercial receivables $ 1,433  $ 1,299  Level 3
Government receivables 137  125  Level 3
Receivables held-for-sale 32  22  Level 3
Investments (1)
18  18  Level 3
Securitization residual assets (2)
210  210  Level 3
Liabilities (3)
Credit facilities $ 100  $ 100  Level 3
Commercial paper notes 50  50  Level 3
Non-recourse debt 476  440  Level 3
Senior unsecured notes 1,823  1,784  Level 2
Convertible Notes:
2022 Convertible Senior Notes 16  Level 2
2023 Convertible Senior Notes 170  144  Level 2
Total Convertible Notes 186  152 
(1)    The amortized cost of our investments as of December 31, 2021, was $17 million.
(2)    Included in securitization assets on the consolidated balance sheet. The amortized cost of our securitization residual assets as of December 31, 2021 was $194 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 June 30, For the six months ended June 30,
  2022 2021 2022 2021
  (in millions)
Balance, beginning of period $ 17  $ 26  $ 18  $ 55 
Purchases of investments — 
Sale of investments (7) (10) (7) (38)
Realized gains on investments recorded in gain on sale of receivables and investments —  —  — 
Unrealized gains (losses) on investments recorded in OCI —  (1) (4)
Balance, end of period $ 12  $ 18  $ 12  $ 18 

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)
June 30, 2022 $ $ $ 0.3  $ 0.4 
December 31, 2021 —  0.1  — 
(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 risk-free rate and add a range of interest rate spreads based upon transactions involving similar assets of approximately 1% to 3% as of June 30, 2022, and 1% to 4% as of December 31, 2021. The weighted average discount rates used to determine the fair value of our investments as of June 30, 2022 and December 31, 2021 were 5.3% and 3.6%, 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, with changes in fair value recorded through AOCI:
  For the three months ended June 30, For the six months ended June 30,
  2022 2021 2022 2021
  (in millions)
Balance, beginning of period $ 192  $ 160  $ 210  $ 159 
Accretion of securitization residual assets 4
Additions to securitization residual assets 10  19  15  34 
Collections of securitization residual assets (5) (5) (8) (5)
Unrealized gains (losses) on securitization residual assets recorded in OCI (22) 12  (44) (4)
Balance, end of period $ 178  $ 188  $ 178  $ 188 
In determining the fair value of our securitization residual assets, we used a risk-free rate and add a range of interest rate spreads of approximately 1% to 6% based upon transactions involving similar assets as of June 30, 2022 and December 31, 2021. The weighted average discount rates used to determine the fair value of our securitization residual assets as of June 30, 2022 and December 31, 2021 were 6.0% and 4.3%, respectively. The difference between fair value and amortized cost is due to interest rate movements, and no securitization residual assets have been in a material loss position for more than 12 months or has a loss which is individually material. We have the intent and ability to hold these assets until a recovery of fair value.
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, if any, 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
Commercial and governmental receivables, real estate leases and debt investments consist primarily of receivables from various projects, U.S. federal government-backed receivables, and investment grade state and local government receivables and do not, in our view, represent a significant concentration of credit risk. 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:
June 30, 2022 December 31, 2021
  (in millions)
Cash deposits $ 279  $ 226 
Restricted cash deposits (included in other assets) 25  25 
Total cash deposits $ 304  $ 251 
Amount of cash deposits in excess of amounts federally insured $ 302  $ 249