Quarterly report pursuant to Section 13 or 15(d)

Our Portfolio - Financing Receivables, Investments and Real Estate

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Our Portfolio - Financing Receivables, Investments and Real Estate
3 Months Ended
Mar. 31, 2015
Receivables [Abstract]  
Our Portfolio - Financing Receivables, Investments and Real Estate
6. Our Portfolio – Financing Receivables, Investments and Real Estate

As of March 31, 2015, our Portfolio included approximately $885 million of financing receivables, investments, real estate and equity method investments on our balance sheet. The financing receivables and investments are typically collateralized 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 sustainable infrastructure projects with high credit quality obligors. The equity method investment represents our investment in a partnership that holds minority equity investments in wind projects.

 

The following is an analysis of our Portfolio by type of obligor and credit quality as of March 31, 2015, with 98% of the debt and real estate portion of our Portfolio rated investment grade as shown below:

 

     Investment Grade                     
     Government (1)     Commercial
Investment
Grade(2)
    Commercial
Non-Investment
Grade (3)
    Subtotal,
Debt and
Real Estate
    Equity
Method
Investment(4)
     Total  
     ($ in millions)  

Financing receivables

   $ 304      $ 249      $ 1      $ 554      $         $ 554   

Financing receivables held-for-sale

     40        —          —          40        —           40   

Investments

     —          9        14        23        —           23   

Real estate(5)

     —          130        —          130        —           130   

Equity method investment

     —          —          —          —          138         138   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total

$ 344    $ 388    $ 15    $ 747    $ 138    $ 885   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

% of Debt and Real Estate Portfolio

  46   52   2   100   N/A      N/A   

Average Remaining Balance(6)

$ 11    $ 9    $ 14    $ 10    $ 14    $ 10   

 

(1) Transactions where the ultimate obligor is the U.S. federal government or state or local governments where the obligors are rated investment grade (either by an independent rating agency or based upon our internal credit analysis). This amount includes $261 million of U.S. federal government transactions and $83 million of transactions where the ultimate obligors are state or local governments. Transactions may have guaranties of energy savings from third party service providers, the majority of which are entities rated investment grade by an independent rating agency.
(2) Transactions where the projects or the ultimate obligors are commercial entities, including institutions such as hospitals or universities, that have been rated investment grade (either by an independent rating agency or based on our internal credit analysis). Of this total, $59 million of the transactions have been rated investment grade by an independent rating agency.
(3) Transactions where the projects or the ultimate obligors are commercial entities, including institutions such as hospitals or universities, that have ratings below investment grade (either by an independent rating agency or using our internal credit analysis).
(4) Consists of minority ownership interest in operating wind projects in which we earn a preferred return.
(5) Includes the real estate and the lease intangible assets through which we receive scheduled lease payments, typically under long-term triple net lease agreements.
(6) Excludes 73 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $21 million.

The components of financing receivables as of March 31, 2015 and December 31, 2014, were as follows:

 

     March 31,
2015
     December 31,
2014
 
     (amounts in millions)  

Financing receivables

     

Financing or minimum lease payments(1)

   $ 733       $ 723   

Unearned interest income

     (175      (166

Allowance for credit losses

     (1      (1

Unearned fee income, net of initial direct costs

     (3      (3
  

 

 

    

 

 

 

Financing receivables(1)

$ 554    $ 553   
  

 

 

    

 

 

 

 

(1) Excludes $40 million and $62 million in financing receivables held-for-sale as of March 31, 2015 and December 31, 2014, respectively.

In accordance with the terms of certain financing receivables purchase agreements, payments of the purchase price is scheduled to be made over time, generally within twelve months of entering into the transaction, and as a result, we have recorded deferred funding obligations of $72 million and $88 million as of March 31, 2015 and December 31, 2014, respectively. We have $1.6 million and $3.0 million in restricted cash as of March 31, 2015 and December 31, 2014, respectively, which will be used to pay these funding obligations.

The following table provides a summary of our anticipated maturity dates of our financing receivables and investments and the weighted average yield for each range of maturities as of March 31, 2015:

 

     Total     Less than
1 year
    1-5 years     5-10 years     More than
10 years
 
     (amounts in millions)  

Financing Receivables(1)

          

Payment due by period

   $ 554      $ 5      $ 62      $ 36      $ 451   

Weighted average yield by period(2)

     5.4     6.6     7.2     5.4     5.2

Investments

          

Payment due by period

   $ 23      $ —        $ 14      $ —        $ 9   

Weighted average yield by period

     5.3     —       5.8     —       4.6

 

(1) Excludes financing receivables held-for-sale of $40 million.
(2) Excludes yield on remaining $0.8 million loan balance that is on non-accrual status after the $1.2 million allowance for loan loss recorded as of March 2015.

 

The components of our real estate portfolio as of March 31, 2015 and December 31, 2014, were as follows:

 

     March 31,
2015
     December 31,
2014
 
     (amounts in millions)  

Real Estate

     

Land

   $ 106       $ 91   

Real estate related intangibles

     25         23   

Accumulated amortization of real estate intangibles

     (1      (0
  

 

 

    

 

 

 

Real Estate

$ 130    $ 114   
  

 

 

    

 

 

 

The real estate related intangible assets will be amortized on a straight-line basis over the lease terms with expirations dates that range between the years 2047 and 2061 assuming expected extensions. There are conservation easement agreements covering two of our properties that limit the use of the property upon expiration of the respective leases. As of March 31, 2015, the future amortization expense of these intangible assets is as follows:

 

Year Ending December 31,    (amounts in
millions)
 

From April 1, 2015 to December 31, 2015

   $ 0.5   

2016

     0.6   

2017

     0.6   

2018

     0.6   

2019

     0.6   

2020

     0.6   

Thereafter

     21.3   
  

 

 

 

Total

$ 24.8   
  

 

 

 

Our real estate is rented under long term land lease agreements with expiration dates that range between the years 2033 and 2044 under the initial terms and 2047 and 2061 assuming anticipated extensions by the lessees. As of March 31, 2015, the future minimum rental income under our land lease agreements is as follows:

 

Year Ending December 31,    (amounts in
millions)
 

From April 1, 2015 to December 31, 2015

   $ 8   

2016

     10   

2017

     10   

2018

     10   

2019

     10   

2020

     10   

Thereafter

     333   
  

 

 

 

Total

$ 391   
  

 

 

 

In 2013, we recorded an allowance of $11.0 million on the remaining $11.8 million balance of a $24 million loan to a wholly owned subsidiary of EnergySource to be used for a geothermal project. During 2014, we agreed to cap our recovery at $2 million in exchange for the ability to realize a portion of the proceeds from the sale of land held by EnergySource and thus we charged off $9.8 million of the receivable against the allowance resulting in a remaining allowance of $1.2 million. In April 2015, we entered into an agreement where we agreed to allow EnergySource to borrow against a pending land sale from an unrelated third party in exchange for a $0.4 million cash payment and an agreement to receive an additional $0.4 million upon the closing of the land sale. Thus, we expect our final recovery from the land sale to equal the net balance of $0.8 million. However, there can be no assurance as to the actual timing or ultimate recovery from any land sale or whether any land sale will in fact occur. The project is considered a variable interest entity and the maximum exposure to loss as of March 31, 2015 and December 31, 2014 is the net balance of $0.8 million, which represented our estimate of the realizable sale value of assets and was the average balance for the respective period, net of the allowance. No interest income was accrued or collected in cash on the loan for the three months ended March 31, 2015 or 2014. Certain of our executive officers and directors own an indirect minority interest in EnergySource following the distribution of the Predecessor’s ownership interest prior to our IPO.

We had no other financing receivables, investments or leases on nonaccrual status as of March 31, 2015 or December 31, 2014. There was no provision for credit losses for the three months ended March 31, 2015 or 2014. We did not have any loan modifications that qualify as trouble debt restructurings for the three months ended March 31, 2015 or 2014.