Securitization of Financial Assets
|9 Months Ended|
Sep. 30, 2023
|Transfers and Servicing [Abstract]|
|Securitization of Financial Assets||Securitization of Financial Assets
The following summarizes certain transactions with securitization trusts:
In connection with securitization transactions, we typically retain servicing responsibilities and residual assets. We generally receive annual servicing fees that are typically up to 0.25% of the outstanding balance. We may periodically make servicer advances that are subject to credit risk. Included in securitization assets in our consolidated balance sheets are our servicing assets at amortized cost and our residual assets at fair value. Our residual assets are subordinate to investors’ interests, and their values are subject to credit, prepayment and interest rate risks on the transferred financial assets. Other than our securitization assets representing these residual interests in the trusts’ assets, the investors and the securitization trusts have no recourse to our other assets for failure of debtors to pay when due. In computing gains and losses on securitizations, we use discount rates based on a review of comparable market transactions including Level 3 unobservable inputs, which consist of base interest rates and spreads over these base rates. Depending on the nature of the transaction risks, the all-in discount rate ranged from 5% to 10% for the nine months ended September 30, 2023.
As of September 30, 2023 and December 31, 2022, our managed assets totaled $11.5 billion and $9.8 billion, respectively, of which $6.0 billion and $5.5 billion, respectively, were securitized assets held in unconsolidated securitization trusts.
In the third quarter of 2023, we recorded an allowance for losses on securitization residual assets related to prepayable assets secured by real estate. While there is no change in the underlying credit quality of the securitized assets, we have revised our estimates of cash flows due to prepayments on certain of these assets. The following table reconciles our beginning and ending allowance for loss on securitization residual assets:
As of September 30, 2023, there were no material payments from debtors to the securitization trusts that were greater than 90 days past due.Receivables from contracts for the installation of energy efficiency and other technologies are the source of cash flows of $101 million of our securitization residual assets. These technologies are installed in facilities owned by, or operated for or by, federal, state or local government entities where the ultimate obligor for the receivable is a governmental entity. The contracts may have guarantees of energy savings from third-party service providers, which typically are entities rated investment grade by an independent rating agency. The remainder of our securitization residual assets are related to contracts where the underlying cash flows are secured by an interest in real estate which are typically senior in terms of repayment to other financings.