Quarterly report pursuant to Section 13 or 15(d)

Our Portfolio

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Our Portfolio
9 Months Ended
Sep. 30, 2015
Receivables [Abstract]  
Our Portfolio
6. Our Portfolio

As of September 30, 2015, our Portfolio included approximately $1.1 billion of financing receivables, investments, real estate and equity method investments on our balance sheet. The financing 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 with high credit quality obligors. The equity method investments represent our minority equity investments in wind projects.

The following is an analysis of our Portfolio by type of obligor and credit quality as of September 30, 2015, with 99% 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
Investments(4)
    Total  
    (dollars in millions)  

Financing receivables

  $ 328      $ 408      $ —        $ 736      $ —        $ 736   

Financing receivables held-for-sale

    41        —          —          41        —          41   

Investments

    —          15        13        28        —          28   

Real estate(5)

    —          155        —          155        —          155   

Equity method investments

    —          —          —          —          165        165   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 369      $ 578      $ 13      $ 960      $ 165      $ 1,125   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of Debt and Real Estate Portfolio

    39     60     1     100     N/A        N/A   

Average Remaining Balance(6)

  $ 11      $ 10      $ 13      $ 10      $ 15      $ 11   

 

(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 $269 million of U.S. federal government transactions and $100 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, $51 million of the transactions have been rated investment grade by an independent rating agency. Commercial investment grade financing receivables includes $164 million of internally rated residential solar loans where the cash flows which support our financing receivables are subordinated to the tax equity investors (whose return is largely derived from the renewable energy tax incentives) and for which we rely on certain tax related indemnities of the publicly traded residential solar provider.
(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 78 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $25 million.

The components of financing receivables as of September 30, 2015 and December 31, 2014, were as follows:

 

     September 30,
2015
     December 31,
2014
 
     (dollars in millions)  

Financing receivables

     

Financing or minimum lease payments(1)

   $ 938       $ 723   

Unearned interest income

     (199      (166

Allowance for credit losses

     —           (1

Unearned fee income, net of initial direct costs

     (3      (3
  

 

 

    

 

 

 

Financing receivables(1)

   $ 736       $ 553   
  

 

 

    

 

 

 

 

(1) Excludes $41 million and $62 million in financing receivables held-for-sale as of September 30, 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 $78 million and $88 million as of September 30, 2015 and December 31, 2014, respectively. We had $3.0 million in restricted cash as of December 31, 2014 which was be used to pay these funding obligations. As of September 30, 2015, we did not have any cash restricted to pay deferred 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 September 30, 2015:

 

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

Financing Receivables (1)

    

Payment due by period

   $ 736      $ 0      $ 146      $ 39      $ 551   

Weighted average yield by period

     5.5     —       6.2     5.3     5.3

Investments

      

Payment due by period

   $ 28      $ —        $ 13      $ 1      $ 14   

Weighted average yield by period

     4.9     —       5.7     4.7     4.4

 

(1) Excludes financing receivables held-for-sale of $41 million.

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 2045 under the initial terms and 2047 and 2061 if all extensions are exercised. The components of our real estate portfolio as of September 30, 2015 and December 31, 2014, were as follows:

 

     September 30,
2015
     December 31,
2014
 
     (dollars in millions)  

Real Estate

     

Land

   $ 129       $ 91   

Real estate related intangibles

     27         23   

Accumulated amortization of real estate intangibles

     (1      (0
  

 

 

    

 

 

 

Real Estate

   $ 155       $ 114   
  

 

 

    

 

 

 

 

There are conservation easement agreements covering two of our properties that limit the use of the property upon expiration of the respective leases. The real estate related intangible assets are amortized on a straight-line basis over the lease term. As of September 30, 2015, the future amortization expense of these intangible assets is as follows:

 

Year Ending December 31,

   (dollars in
millions)
 

From October 1, 2015 to December 31, 2015

   $ 0.2   

2016

     1.0   

2017

     1.0   

2018

     1.0   

2019

     1.0   

2020

     1.0   

Thereafter

     20.6   
  

 

 

 

Total

   $ 25.8   
  

 

 

 

As of September 30, 2015, the future minimum rental income under our land lease agreements is as follows:

 

Year Ending December 31,

   (dollars in
millions)
 

From October 1, 2015 to December 31, 2015

   $ 3   

2016

     11   

2017

     11   

2018

     11   

2019

     11   

2020

     11   

Thereafter

     234   
  

 

 

 

Total

   $ 292   
  

 

 

 

During the nine months ended September 30, 2015, we collected the outstanding net balance of $0.8 million, on our previously disclosed estimated recovery amount carried in commercial non-investment grade financing receivables as a final recovery from the EnergySource LLC (“EnergySource”) loan and therefore, we charged off the remaining loan balance of $1.2 million against the allowance of $1.2 million. There was no impact on the statement of operations for the charge off of this loan during the three and nine months ended September 30, 2015. 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 September 30, 2015 or December 31, 2014. There was no provision for credit losses for the three and nine months ended September 30, 2015 or 2014. We did not have any loan modifications that qualify as trouble debt restructurings for the three months ended September 30, 2015 or 2014.