Transactions with Affiliates and Affiliated Entities |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transactions with Affiliates and Affiliated Entities | Transactions with Affiliates and Affiliated Entities Sunlight has entered into agreements with the following affiliates, including equity members and those who serve on Sunlight’s Board of Directors.
Private Placement Warrants — Simultaneously with the closing of the Initial Public Offering, the Company consummated the Private Placement of 9,900,000 Private Placement Warrants, at a price of $1.00 per Private Placement Warrant to the Sponsor, generating proceeds of $9.9 million.
Each whole Private Placement Warrant is exercisable for one whole share of the Company’s Class A common stock at a price of $11.50 per share. A portion of the purchase price of the Private Placement Warrants was added to the proceeds from the Initial Public Offering held in the Trust Account. The Private Placement Warrants will be non-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.
Bank Partner Transactions — On April 2, 2023, Sunlight and its Bank Partner entered the Commitment & Transaction Support Agreement pursuant to which the parties agreed to amend the Bank Partner Agreements, enter into the Secured Term Loan (Note 5), and issue equity warrants to Bank Partner (Note 6). Effective April 25, 2023, Sunlight and its Bank Partner closed the aforementioned transactions contemplated by the Commitment & Transaction Support Agreement. At that time, Sunlight's Bank Partner became a related party of Sunlight.
Amended Bank Partner Agreements
As amended, the Bank Partner Agreements provide, among other things:
• a requirement that the Company establish a pricing and capital markets committee responsible for setting dealer discounts, interest rates, capital markets activity, policies relating to hedging, and other terms related to the Company’s loan products and executing any sales of loans held by CRB pursuant to the Bank Partner Agreements, and to provide the Bank Partner with observer rights and a right to attend all meetings held by the committee, subject to exclusions where CRB is the loan purchaser.
• modifications to the procedures for submitting credit approvals.
• a modification to the cap on the total loans held by CRB at any time as provided below, measured on the last day of the calendar month, with a grace period election for loan sales executed during the seven (7) business days following the last day of a calendar month. The Company will be entitled to six (6) grace period elections in any twelve-month period:
• modifications to the Loan Purchase Trigger Date (as defined in the Amended Solar Loan Sale Agreement) related to each loan held on CRB’s balance sheet.
• a revised tiered fee structure and provision for certain fees accrued through June 30, 2023 to be payable in additional Tranche 1 Loans (as defined below).
• the Company will use best efforts to amend the Master Services Agreement dated January 13, 2020, between CRB, the Company, and Turnstile Capital Management, LLC (the “Servicer”) on or before July 1, 2023 to cause the Servicer to remit various cash payments associated with loans into an account held by CRB.
• effective on the CRB Closing Date and continuing until full repayment to CRB of all outstanding obligations, the Company will provide CRB with a pari passu first lien security interest in all assets of Sunlight as defined in the Secured Term Loan.
• waiver by CRB of any defaults known by CRB to be existing under the Bank Partner Agreements.
Loan Participations
In January 2017, Sunlight, its Bank Partner, and an Indirect Channel Loan Purchaser entered into a series of agreements whereby Sunlight’s Bank Partner originated certain residential solar loans designated by Sunlight and sold a participation representing a 95.0% ownership of such residential solar loans to the Indirect Channel Loan Purchaser and sell a participation representing the remaining 5.0% ownership to Sunlight. In April 2021, the Indirect Channel Loan Purchaser notified Sunlight that it had exceeded its internal asset concentration levels for residential solar loans and, accordingly, terminated their program agreement with Sunlight. Sunlight continues to retain its 5.0% ownership in the loan pool held by Sunlight’s Bank Partner (Note 3). During the three and six months ended June 30, 2023 and 2022, Sunlight received $0.2 million, $0.3 million, $0.4 million, and $0.6 million of principal and interest payments in connection with these loan participations, respectively.
Loan Servicing
Sunlight is responsible for all servicing costs in connection with Indirect Channel Loans held by Sunlight's Bank Partner and receives reimbursement of certain servicing costs associated with Direct Channel Loans held by Sunlight's Bank Partner for its own account. During the three and six months ended June 30, 2023 and 2022, Sunlight paid $0.9 million, $0.9 million, $2.5 million, and $2.3 million of servicing costs in connection with Indirect Channel Loans held by Sunlight's Bank Partner, respectively.
Contract Derivative
As more fully described in Note 4, Sunlight recognizes derivatives embedded within agreements with its Bank Partner to arrange Indirect Channel Loans. During the three and six months ended June 30, 2023 and 2022, Sunlight paid to (received from) its Bank Partner $12.3 million, $(1.9) million, $12.3 million, and $(3.8) million associated with these derivatives, respectively.
Guarantee Obligations
As more fully described in Note 10, Sunlight guarantees certain Indirect Channel Loans held by Sunlight's Bank Partner. During the three and six months ended June 30, 2023 and 2022, Sunlight paid its Bank Partner $5.1 million, $0.6 million, $7.3 million, and $1.1 million associated with these guarantees, respectively.
Other Fees and Costs
Prior to amendment of the Bank Partner Agreements in December 2022, Sunlight incurred certain costs to, and received certain fees and reimbursements from, its Bank Partner. Those amounts included $0.0 million, $0.5 million, $0.0 million, and $1.2 million in origination fees Sunlight paid its Bank Partner during the three and six months ended June 30, 2023 and 2022, respectively. During the three and six months ended June 30, 2023 and 2022, Sunlight received from its Bank Partner $0.0 million, $0.3 million, $0.0 million, and $0.3 million, respectively, associated with other fees and expense reimbursements.
Estimated Tax Distributions — Sunlight Financial LLC distributes cash to its unitholders using allocations of estimated taxable income it expects to generate. As Sunlight revises its estimate of taxable income or loss, the allocation of taxable income to its unitholders may change, resulting in amounts due to, or from, certain unitholders. For the six months ended June 30, 2023, Sunlight Financial LLC did not generate taxable income and expects to use tax distributions already declared to offset future estimated tax liability distributions, if any. At June 30, 2023, Sunlight Financial LLC did not declare tax distributions. Sunlight Financial LLC declared tax distributions of $1.5 million at June 30, 2022, that it had not yet paid, shown as “Other Liabilities” in the accompanying Unaudited Condensed Consolidated Balance Sheets.
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