6. Our Portfolio

As of September 30, 2016, our Portfolio included approximately $1.4 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 renewable energy projects.

The following is an analysis of our Portfolio by type of obligor and credit quality as of September 30, 2016:

 

		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		$	380			$	464			$	21			$	865			$	—			$	865
Financing receivables held-for-sale			7				—				—				7				—				7
Investments			33				17				—				50				—				50
Real estate(5)							166				—				166				—				166
Equity method investments			—				—				—				—				324				324
Total		$	420			$	647			$	21			$	1,088			$	324			$	1,412
% of Debt and Real Estate Portfolio			39	%			59	%			2	%			100	%			N/A				N/A
Average Remaining Balance(6)		$	10			$	10			$	11			$	10			$	19			$	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 $230 million of U.S. federal government transactions and $190 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, $11 million of the transactions have been rated investment grade by an independent rating agency. Commercial investment grade financing receivables include $260 million of internally rated residential solar loans made on a nonrecourse basis to special purpose subsidiaries of SunPower Corporation, for which we rely on certain limited indemnities, warranties and other obligations of SunPower Corporation or its other subsidiaries.

(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 ownership interests in operating renewable energy projects.

(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 88 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $31 million.

 

The components of financing receivables as of September 30, 2016 and December 31, 2015, were as follows:

 

		September 30, 2016				December 31, 2015
		(dollars in millions)
Financing receivables
Financing or minimum lease payments(1)		$	1,122			$	1,025
Unearned interest income			(255	)			(238	)
Allowance for credit losses			—				—
Unearned fee income, net of initial direct costs			(2	)			(3	)
Financing receivables(1)		$	865			$	784

 

 

(1)	Excludes $7 million and $60 million in financing receivables held-for-sale as of September 30, 2016 and December 31, 2015, respectively.

In accordance with the terms of certain purchase agreements related to financing receivables or other investments, payments of the purchase price are scheduled to be made over time, generally within 12 months of entering into the transaction, and as a result, we have recorded deferred funding obligations of $64 million and $108 million as of September 30, 2016 and December 31, 2015, respectively. Approximately $41 million of those investments were pledged as collateral against these 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, 2016:

 

		Total				Less than 1 year				1-5 years				5-10 years				More than 10 years
		(dollars in millions)
Financing Receivables (1)
Maturities by period		$	865			$	1			$	48			$	80			$	736
Weighted average yield by period			5.4	%			4.0	%			6.4	%			5.0	%			5.3	%
Investments
Maturities by period		$	50			$	—			$	—			$	1			$	49
Weighted average yield by period			3.9	%			—	%			—	%			4.7	%			4.0	%

 

(1)	Excludes financing receivables held-for-sale of $7 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 2051 under the initial terms and 2047 and 2080 if all extensions are exercised. The components of our real estate portfolio as of September 30, 2016 and December 31, 2015, were as follows:

 

		September 30, 2016				December 31, 2015
		(dollars in millions)
Real Estate
Land		$	135			$	129
Real estate related intangibles			33				28
Accumulated amortization of real estate intangibles			(2	)			(1	)
Real Estate		$	166			$	156

There are conservation easement agreements covering several 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 contracted lease term.

 

As of September 30, 2016, the future amortization expense of these intangible assets and the future minimum rental income payments under our land lease agreements are as follows:

 

Year Ending December 31,		Future Amortization Expense				Minimum Rental Income Payments
		(dollars in millions)
From October 1, 2016 to December 31, 2016		$	—			$	2
2017			1				10
2018			1				11
2019			1				11
2020			1				10
2021			1				11
Thereafter			26				292
Total		$	31			$	347

We have made minority interest investments in a number of renewable energy projects operated by renewable energy companies that we account for as equity method investments. In June 2016, we acquired interests in several limited liability companies that collectively own approximately 43 megawatts of operating distributed commercial, industrial and residential solar projects. We receive a priority distribution from these projects until negotiated financial targets are achieved at which time the partnerships will flip and the company that operates the project will receive a larger portion of the cash flows and we will have an on-going residual interest. We financed approximately $33 million of the approximately $42 million purchase price with the seller through a two-year non-interest bearing loan secured by our ownership interest in the limited liability companies. We have recorded our purchase obligation to the seller as a deferred funding obligation on our balance sheet and have reflected an imputed interest expense on the outstanding balance on the investment interest expense line of our income statement. As of September 30, 2016, we held equity method investments of approximately $324 million in these renewable energy projects.

See Note 2 for our accounting treatment of these investments and Note 13 for the aggregate financial position and results of operations of the significant holding companies.

We had no financing receivables, investments or leases that were impaired or on nonaccrual status as of September 30, 2016 or December 31, 2015. There was no provision for credit losses for the three or nine months ended September 30, 2016 or 2015. We did not have any loan modifications that qualify as trouble debt restructurings for the three or nine months ended September 30, 2016 or 2015.