Quarterly report pursuant to Section 13 or 15(d)

Derivatives

v3.22.2.2
Derivatives
 9 Months Ended
Sep. 30, 2022
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 includes 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 Indirect Channel 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 Indirect Channel 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 Indirect Channel 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 Indirect Channel 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 contract derivatives are recorded at fair value in the accompanying Unaudited Condensed Consolidated Balance Sheets as follows:

Successor
Balance Sheet Location September 30, 2022 December 31, 2021
Contract derivative 1 Other assets (Other liabilities) $ (1,298) $ 1,076 
Contract derivative 2 Other assets 462  335 
$ (836) $ 1,411 
The following table summarizes notional amounts related to derivatives:

Successor
September 30, 2022 December 31, 2021
Contract derivative 1(a)
$ 82,251  $ 38,879 
Contract derivative 2(b)
39,793  37,891 
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 Loans.

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

Successor Predecessor Successor Predecessor
For the Three Months Ended September 30, 2022 For the Period July 10, 2021 to September 30, 2021 For the Period July 1, 2021 to July 9, 2021 For the Nine Months Ended September 30, 2022 For the Period January 1, 2021 to July 9, 2021
Change in fair value of contract derivatives, net
Contract derivative 1 $ (2,167) $ 509  $ 88  $ (2,374) $ (932)
Contract derivative 2 (173) (20) 37  127  270 
$ (2,340) $ 489  $ 125  $ (2,247) $ (662)
Realized gains/(losses) on contract derivatives, net
Contract derivative 1 $ (378) $ 1,299  $ 5  $ 3,429  $ 2,950 
Contract derivative 2 100  78  1  257  42 
$ (278) $ 1,377  $ 6  $ 3,686  $ 2,992