Quarterly report pursuant to Section 13 or 15(d)

Derivatives

v3.21.2
Derivatives
9 Months Ended
Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives
Sunlight has entered into two agreements considered derivatives under GAAP that are subject to interest rate, credit, and/ or prepayment risks. Interest rate risk is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, as well as other factors. Credit risk include a borrower’s inability or unwillingness to make contractually required payments. Prepayment risk includes a borrower’s payment, or lack of payment, of contractual Loan amounts prior to the date such amounts are contractually due.

In January 2019, Sunlight entered into an agreement with its Bank Partner to arrange Loans for the purchase and installation of home improvements other than residential solar energy systems. The agreement (a) entitles Sunlight to cash flows collected from the portfolio of Loans held by its Bank Partner in excess of a contractual rate, based upon one-month LIBOR plus a fixed spread, and (b) requires Sunlight to pay its Bank Partner for portfolio cash flows below such contractual rate. This contractual arrangement incorporates interest rate and credit risks related to the risk of default on Loans held by its Bank Partner that results from a borrower’s inability or unwillingness to make contractually required payments.

In February 2021, Sunlight entered into an agreement with an Indirect Channel Loan Purchaser to purchase Loans for the installation of home improvements other than residential solar energy systems. As part of that agreement, Sunlight is entitled to additional sale proceeds upon the prepayment of certain Indirect Channel Loans sold. This contractual arrangement incorporates prepayment risk related to loan prepayment rates below Sunlight’s expectations.

Sunlight’s derivative asset is recorded at fair value in the accompanying Condensed Consolidated Balance Sheets as follows:

Successor Predecessor
Balance Sheet Location September 30, 2021 December 31, 2020
Contract derivative 1 Other assets $ 1,012  $ 1,435 
Contract derivative 2 Other assets 250  — 
$ 1,262  $ 1,435 
The following table summarizes notional amounts related to derivatives:

Successor Predecessor
September 30, 2021 December 31, 2020
Contract derivative 1(a)
$ 34,933  $ 59,770 
Contract derivative 2(b)
28,546  n.a.
a.Represents the carrying value of Indirect Channel Loans for the purchase and installation of home improvements other than residential solar energy systems held by Sunlight’s Bank Partner.
b.Represents the unpaid principal balance of the Loans at time of sale to the Indirect Channel Loan Purchaser for which Sunlight is entitled to income in the event of prepayment of the Indirect Channel Loan.

The following table summarizes all income (loss) recorded in relation to derivatives:

Successor Predecessor
For the Period July 10, 2021 to September 30, 2021 For the Period July 1, 2021 to July 9, 2021 For the Three Months Ended September 30, 2020 For the Period January 1, 2021 to July 9, 2021 For the Nine Months Ended September 30, 2020
Change in fair value of contract derivatives, net
Contract derivative 1 $ 509  $ 88  $ 391  $ (932) $ 846 
Contract derivative 2 (20) 37   n.a. 270   n.a.
$ 489  $ 125  $ 391  $ (662) $ 846 
Realized gains on contract derivatives, net
Contract derivative 1 $ 1,299  $ $ 170  $ 2,950  $ 291 
Contract derivative 2 78   n.a. 42   n.a.
$ 1,377  $ $ 170  $ 2,992  $ 291