Attached files

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EX-10.3 - EX-10.3 - Vivint Solar, Inc.vslr-ex103_268.htm
EX-32.2 - EX-32.2 - Vivint Solar, Inc.vslr-ex322_8.htm
EX-32.1 - EX-32.1 - Vivint Solar, Inc.vslr-ex321_6.htm
EX-31.2 - EX-31.2 - Vivint Solar, Inc.vslr-ex312_10.htm
EX-31.1 - EX-31.1 - Vivint Solar, Inc.vslr-ex311_9.htm
EX-10.2 - EX-10.2 - Vivint Solar, Inc.vslr-ex102_267.htm
EX-10.1 - EX-10.1 - Vivint Solar, Inc.vslr-ex101_269.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934

For the quarterly period ended June 30, 2016

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36642

 

VIVINT SOLAR, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

45-5605880

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

1800 West Ashton Blvd.

Lehi, Utah 84043

(Address of principal executive offices) (Zip Code)

(877) 404-4129

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

As of August 1, 2016, 107,713,152 shares of the registrant’s common stock were outstanding.

 

 

 

 

 


 

Vivint Solar, Inc.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements

 

2

 

 

Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015

 

2

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015

 

4

 

 

Notes to Condensed Consolidated Financial Statements

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3.

 

Quantitative and Qualitative Disclosure About Market Risk

 

41

Item 4.

 

Controls and Procedures

 

41

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

44

Item 1A.

 

Risk Factors

 

45

Item 6.

 

Exhibits

 

74

 

 

 

 

 

 

 

Signatures

 

75

 

 

 

1


 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

Vivint Solar, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data and footnote 1)

(Unaudited)

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

69,614

 

 

$

92,213

 

Accounts receivable, net

 

11,940

 

 

 

3,636

 

Inventories

 

3,867

 

 

 

631

 

Prepaid expenses and other current assets

 

16,000

 

 

 

17,078

 

Total current assets

 

101,421

 

 

 

113,558

 

Restricted cash and cash equivalents

 

19,552

 

 

 

15,035

 

Solar energy systems, net

 

1,303,904

 

 

 

1,102,157

 

Property and equipment, net

 

28,743

 

 

 

48,168

 

Intangible assets, net

 

1,901

 

 

 

2,031

 

Goodwill

 

 

 

 

36,601

 

Prepaid tax asset, net

 

364,536

 

 

 

277,496

 

Other non-current assets, net

 

15,034

 

 

 

14,024

 

TOTAL ASSETS(1)

$

1,835,091

 

 

$

1,609,070

 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

54,268

 

 

$

49,986

 

Accounts payable—related party

 

493

 

 

 

1,905

 

Distributions payable to non-controlling interests and redeemable non-controlling interests

 

9,820

 

 

 

11,347

 

Accrued compensation

 

19,111

 

 

 

13,758

 

Current portion of deferred revenue

 

11,674

 

 

 

4,968

 

Current portion of capital lease obligation

 

5,706

 

 

 

5,489

 

Accrued and other current liabilities

 

32,792

 

 

 

29,017

 

Total current liabilities

 

133,864

 

 

 

116,470

 

Capital lease obligation, net of current portion

 

7,962

 

 

 

10,055

 

Long-term debt

 

550,572

 

 

 

415,850

 

Deferred tax liability, net

 

299,870

 

 

 

216,033

 

Deferred revenue, net of current portion

 

37,772

 

 

 

43,304

 

Other non-current liabilities

 

9,171

 

 

 

28,565

 

Total liabilities(1)

 

1,039,211

 

 

 

830,277

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

Redeemable non-controlling interests

 

150,686

 

 

 

169,541

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value—1,000,000 authorized, 107,696 shares issued and

   outstanding as of June 30, 2016; 1,000,000 authorized, 106,576 shares issued and

   outstanding as of December 31, 2015

 

1,077

 

 

 

1,066

 

Additional paid-in capital

 

532,611

 

 

 

530,646

 

Accumulated deficit

 

(31,617

)

 

 

(12,769

)

Total stockholders' equity

 

502,071

 

 

 

518,943

 

Non-controlling interests

 

143,123

 

 

 

90,309

 

Total equity

 

645,194

 

 

 

609,252

 

TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY

$

1,835,091

 

 

$

1,609,070

 

 

(1)

The Company’s assets as of June 30, 2016 and December 31, 2015 include $1,237.9 million and $1,005.8 million consisting of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. These assets include solar energy systems, net, of $1,208.8 million and $990.6 million as of June 30, 2016 and December 31, 2015; cash and cash equivalents of $17.8 million and $12.0 million as of June 30, 2016 and December 31, 2015; accounts receivable, net, of $9.3 million and $3.1 million as of June 30, 2016 and December 31, 2015; other non-current assets, net of $1.2 million and a de minimis amount as of June 30, 2016 and December 31, 2015; and prepaid expenses and other current assets of $0.8 million and $0.1 million as of June 30, 2016 and December 31, 2015. The Company’s liabilities as of June 30, 2016 and December 31, 2015 included $64.5 million and $66.4 million of liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include distributions payable to non-controlling interests and redeemable non-controlling interests of $9.8 million and $11.3 million as of June 30, 2016 and December 31, 2015; deferred revenue of $45.7 million and $47.9 million as of June 30, 2016 and December 31, 2015; accrued and other current liabilities of $7.2 million and $3.9 million as of June 30, 2016 and December 31, 2015; and other non-current liabilities of $1.8 million and $3.3 million as of June 30, 2016 and December 31, 2015. For further information see Note 11—Investment Funds.

See accompanying notes to condensed consolidated financial statements

2


 

 

 

Vivint Solar, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases and incentives

$

30,061

 

 

$

15,301

 

 

$

46,639

 

 

$

23,881

 

Solar energy system and product sales

 

4,843

 

 

 

834

 

 

 

5,495

 

 

 

1,799

 

Total revenue

 

34,904

 

 

 

16,135

 

 

 

52,134

 

 

 

25,680

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue—operating leases and incentives

 

38,538

 

 

 

33,295

 

 

 

76,298

 

 

 

57,175

 

Cost of revenue—solar energy system and product sales

 

3,716

 

 

 

476

 

 

 

4,138

 

 

 

914

 

Sales and marketing

 

10,813

 

 

 

18,697

 

 

 

23,461

 

 

 

25,130

 

Research and development

 

144

 

 

 

920

 

 

 

1,376

 

 

 

1,502

 

General and administrative

 

18,064

 

 

 

31,364

 

 

 

40,984

 

 

 

49,994

 

Amortization of intangible assets

 

155

 

 

 

3,721

 

 

 

420

 

 

 

7,484

 

Impairment of goodwill and intangible assets

 

 

 

 

 

 

 

36,601

 

 

 

4,506

 

Total operating expenses

 

71,430

 

 

 

88,473

 

 

 

183,278

 

 

 

146,705

 

Loss from operations

 

(36,526

)

 

 

(72,338

)

 

 

(131,144

)

 

 

(121,025

)

Interest expense

 

7,413

 

 

 

2,730

 

 

 

13,178

 

 

 

4,857

 

Other expense

 

309

 

 

 

60

 

 

 

339

 

 

 

373

 

Loss before income taxes

 

(44,248

)

 

 

(75,128

)

 

 

(144,661

)

 

 

(126,255

)

Income tax expense

 

8,055

 

 

 

14,577

 

 

 

13,204

 

 

 

23,425

 

Net loss

 

(52,303

)

 

 

(89,705

)

 

 

(157,865

)

 

 

(149,680

)

Net loss attributable to non-controlling interests and redeemable

   non-controlling interests

 

(64,674

)

 

 

(103,358

)

 

 

(139,017

)

 

 

(175,482

)

Net income available (loss attributable) to common stockholders

$

12,371

 

 

$

13,653

 

 

$

(18,848

)

 

$

25,802

 

Net income available (loss attributable) per share to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.12

 

 

$

0.13

 

 

$

(0.18

)

 

$

0.24

 

Diluted

$

0.11

 

 

$

0.12

 

 

$

(0.18

)

 

$

0.24

 

Weighted-average shares used in computing net income available

   (loss attributable) per share to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

107,226

 

 

 

105,988

 

 

 

106,922

 

 

 

105,647

 

Diluted

 

111,380

 

 

 

109,794

 

 

 

106,922

 

 

 

109,424

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

3


 

Vivint Solar, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Six Months Ended

 

 

June 30,

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(157,865

)

 

$

(149,680

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

19,876

 

 

 

9,753

 

Amortization of intangible assets

 

420

 

 

 

7,484

 

Impairment of goodwill and intangible assets

 

36,601

 

 

 

4,506

 

Deferred income taxes

 

83,837

 

 

 

54,203

 

Stock-based compensation

 

2,467

 

 

 

20,610

 

Loss on removal of solar energy systems and property and equipment

 

259

 

 

 

 

Non-cash interest and other expense

 

2,997

 

 

 

1,672

 

Reduction in lease pass-through financing obligation

 

(1,666

)

 

 

 

Excess tax effects from stock-based compensation

 

(981

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

(8,304

)

 

 

(3,586

)

Inventories

 

(3,236

)

 

 

432

 

Prepaid expenses and other current assets

 

2,307

 

 

 

252

 

Prepaid tax asset, net

 

(87,040

)

 

 

(87,193

)

Other non-current assets, net

 

(3,294

)

 

 

(228

)

Accounts payable

 

(1,078

)

 

 

1,051

 

Accounts payable—related party

 

(1,412

)

 

 

(154

)

Accrued compensation

 

4,638

 

 

 

3,611

 

Deferred revenue

 

1,174

 

 

 

2,751

 

Accrued and other liabilities

 

1,578

 

 

 

10,927

 

Net cash used in operating activities

 

(108,722

)

 

 

(123,589

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Payments for the cost of solar energy systems

 

(211,622

)

 

 

(234,050

)

Payments for property and equipment, net

 

(1,514

)

 

 

(3,402

)

Change in restricted cash and cash equivalents

 

(4,517

)

 

 

(6,132

)

Purchase of intangible assets

 

(291

)

 

 

(329

)

Net cash used in investing activities

 

(217,944

)

 

 

(243,913

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from investment by non-controlling interests and redeemable non-controlling interests

 

183,263

 

 

 

168,783

 

Distributions paid to non-controlling interests and redeemable non-controlling interests

 

(11,813

)

 

 

(10,689

)

Proceeds from long-term debt

 

144,706

 

 

 

103,500

 

Payments on long-term debt

 

(4,150

)

 

 

 

Payments for debt issuance costs

 

(6,230

)

 

 

(3,078

)

Proceeds from lease pass-through financing obligation

 

860

 

 

 

 

Principal payments on capital lease obligations

 

(3,059

)

 

 

(2,070

)

Proceeds from issuance of common stock

 

490

 

 

 

588

 

Excess tax effects from stock-based compensation

 

 

 

 

1,632

 

Payments for deferred offering costs

 

 

 

 

(589

)

Net cash provided by financing activities

 

304,067

 

 

 

258,077

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(22,599

)

 

 

(109,425

)

CASH AND CASH EQUIVALENTS—Beginning of period

 

92,213

 

 

 

261,649

 

CASH AND CASH EQUIVALENTS—End of period

$

69,614

 

 

$

152,224

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Costs of lessor-financed tenant improvements

$

7,850

 

 

$

 

Costs of solar energy systems included in changes in accounts payable, accrued compensation

   and other accrued liabilities

$

6,662

 

 

$

40,437

 

Property acquired under build-to-suit agreements

$

2,896

 

 

$

6,619

 

Sale-leaseback of property under build-to-suit agreements

$

(28,456

)

 

$

 

Vehicles acquired under capital leases

$

1,811

 

 

$

4,728

 

Receivable for tax credit recorded as a reduction to solar energy system costs

$

1,220

 

 

$

1,318

 

Accrued distributions to non-controlling interests and redeemable non-controlling interests

$

(1,527

)

 

$

(975

)

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

Vivint Solar, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Organization

Vivint Solar, Inc. was incorporated as a Delaware corporation on August 12, 2011. Vivint Solar, Inc. and its subsidiaries are collectively referred to as the “Company.” The Company commenced operations in May 2011.

The Company primarily offers solar energy to residential customers through long-term customer contracts, such as power purchase agreements and solar energy system leases. The Company also offers customers the option to purchase solar energy systems. The Company enters into customer contracts primarily through a sales organization that uses a direct-to-home sales model. The long-term customer contracts are typically for 20 years and require the customer to make monthly payments to the Company.

The Company has formed various investment funds and entered into long-term debt facilities to monetize the recurring customer payments under its long-term customer contracts and the investment tax credits, accelerated tax depreciation and other incentives associated with residential solar energy systems. The Company uses the cash received from the investment funds, long-term debt facilities and cash generated from operations to finance a portion of the Company’s variable and fixed costs associated with installing the residential solar energy systems under long-term customer contracts. The obligations of the Company are in no event obligations of the investment funds.  

Merger Agreement with SunEdison

On July 20, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SunEdison, Inc., a Delaware corporation (“SunEdison”) and SEV Merger Sub, Inc., a wholly-owned subsidiary of SunEdison. The Merger Agreement was subsequently amended on December 9, 2015 to update the terms of the merger. The Company terminated the Merger Agreement on March 7, 2016. On March 8, 2016, the Company filed suit against SunEdison alleging that SunEdison willfully breached its obligations under the Merger Agreement and breached its implied covenant of good faith and fair dealing.

2.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K dated as of March 14, 2016. The unaudited condensed consolidated financial statements are prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2016 or for any other interim period or other future year.

The condensed consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. The Company uses a qualitative approach in assessing the consolidation requirement for variable interest entities (“VIEs”). This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The Company has determined that it is the primary beneficiary in the operational VIEs in which it has an equity interest. The Company evaluates its relationships with the VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. For additional information, see Note 11—Investment Funds.


5


 

Use of Estimates

The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company regularly makes significant estimates and assumptions including, but not limited to, estimates that affect the Company’s principles of consolidation, investment tax credits, revenue recognition, solar energy systems, net, impairment of long-lived assets, goodwill impairment analysis, the recognition and measurement of loss contingencies, stock-based compensation, provision for income taxes, and non-controlling interests and redeemable non-controlling interests. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

Comprehensive Income (Loss)

As the Company has no other comprehensive income or loss, comprehensive income (loss) is the same as net income available (loss attributable) to common stockholders for all periods presented. 

Debt Issuance Costs

During the six months ended June 30, 2016, the Company adopted Accounting Standards Update (“ASU”) 2015-03, which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt obligation. ASU 2015-15 further clarified that this treatment is not required to be applied to revolving line-of-credit arrangements. The Company applied ASU 2015-03 on a retrospective basis; however, the Company’s long-term debt in all prior periods presented was comprised of revolving line-of-credit arrangements. As such, there is no change to the Company’s prior period condensed consolidated balance sheet. In 2016, the Company entered into term loan facilities that are presented net of debt issuance costs.

Intangible Assets – Internal-Use Software

During the six months ended June 30, 2016, the Company adopted ASU 2015-05, which requires that if a cloud computing arrangement includes a software license, the payment of fees should be accounted for in the same manner as the acquisition of other software licenses. If there is no software license, the fees should be accounted for as a service contract. The Company adopted this update prospectively, which did not have a significant impact on the Company’s condensed consolidated financial statements in the current period.

Other Changes

During the six months ended June 30, 2016, the Company consolidated its reporting segments as discussed in Note 18—Segment Information. There have been no other changes to the Company’s significant accounting policies as described in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

Recent Accounting Pronouncements

In March 2016 through May 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-12, ASU 2016-11, ASU 2016-10 and ASU 2016-08. These updates all clarify aspects of the guidance in ASU 2014-09, Revenue from Contracts with Customers. The Company is evaluating the impact that these updates will have on its condensed consolidated financial statements. Additionally, ASU 2015-14 defers the effective date of ASU 2014-09 for the Company to January 1, 2018, with early adoption available on January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating which transition method to use and does not expect the update to have a significant impact on its condensed consolidated financial statements and related disclosures based on its current business model.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of this update is to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeiture rates and classification on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2016 for public business entities and early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company expects to apply the update upon its effectiveness in the first quarter of 2017 and expects the update to have an impact to its equity balance in the condensed consolidated balance sheet and all expense line items on the condensed consolidated statement of operations in the first quarter of 2017.

6


 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update primarily changes the recognition by lessees of lease assets and liabilities for leases currently classified as operating leases. Lessor accounting remains largely unchanged. This update is effective in fiscal years beginning after December 15, 2018 for public business entities and early adoption is permitted. The amendments should be applied using a modified retrospective approach. The Company has operating leases that will be affected by this update and is evaluating the impact on its condensed consolidated financial statements and disclosures. The Company expects to apply the update upon its effectiveness in the first quarter of 2019.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This update is effective in fiscal years beginning after December 15, 2017. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company does not expect the update to have a significant impact on its condensed consolidated financial statements and related disclosures.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This ASU changes the measurement principle for inventories valued under the first-in, first-out ("FIFO") or weighted-average methods from the lower of cost or market to the lower of cost or net realizable value. Net realizable value is defined by the FASB as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU does not change the measurement principles for inventories valued under the last-in, first-out method. The update is effective in fiscal years beginning after December 15, 2016. Early adoption is permitted. This update is not expected to have a significant impact on the condensed consolidated financial statements of the Company.

3.

Fair Value Measurements

The Company measures and reports its cash equivalents at fair value. The following tables set forth the fair value of the Company’s financial assets measured on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

June 30, 2016

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

$

 

 

$

100

 

 

$

 

 

$

100

 

Total financial assets

$

 

 

$

100

 

 

$

 

 

$

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

$

 

 

$

1,900

 

 

$

 

 

$

1,900

 

Total financial assets

$

 

 

$

1,900

 

 

$

 

 

$

1,900

 

 

The carrying amounts of certain financial instruments of the Company, consisting of cash and cash equivalents excluding time deposits, accounts receivable, accounts payable, accounts payable—related party and distributions payable to redeemable non-controlling interests (all Level I) approximate fair value due to their relatively short maturities. Time deposits (Level II) approximate fair value due to their short-term nature (30 days) and, upon renewal, the interest rate is adjusted based on current market rates. The Company’s outstanding principal balance of long-term debt is carried at cost and was $556.4 million and $415.9 million as of June 30, 2016 and December 31, 2015. The Company estimated the fair values of long-term debt to approximate its carrying values as interest accrues at floating rates based on market rates. The Company did not realize gains or losses related to financial assets for any of the periods presented.

 


7


 

4.

Inventories 

Inventories consisted of the following (in thousands):

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

Solar energy systems held for sale

$

3,399

 

 

$

121

 

Photovoltaic installation devices and software products

 

468

 

 

 

510

 

Total inventories

$

3,867

 

 

$

631

 

Solar energy systems held for sale are solar energy systems under construction that have yet to be interconnected to the power grid and that will be sold to customers. Solar energy systems held for sale are stated at the lower of cost, on a FIFO basis, or market. Photovoltaic installation devices and software products are stated at the lower of cost, on an average cost basis, or market.

5.

Solar Energy Systems

Solar energy systems, net consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

System equipment costs

$

1,092,752

 

 

$

893,088

 

Initial direct costs related to solar energy systems

 

219,650

 

 

 

171,081

 

 

 

1,312,402

 

 

 

1,064,169

 

Less: Accumulated depreciation and amortization

 

(50,471

)

 

 

(32,505

)

 

 

1,261,931

 

 

 

1,031,664

 

Solar energy system inventory

 

41,973

 

 

 

70,493

 

Solar energy systems, net

$

1,303,904

 

 

$

1,102,157

 

 

Solar energy system inventory represents the solar components and materials used in the installation of solar energy systems prior to being installed on customers’ roofs. As such, no depreciation is recorded related to this line item. The Company recorded depreciation and amortization expense related to solar energy systems of $9.7 million and $4.9 million for the three months ended June 30, 2016 and 2015. Depreciation and amortization expense related to solar energy systems of $18.0 million and $8.7 million was recorded for the six months ended June 30, 2016 and 2015. 

6.

Property and Equipment

Property and equipment, net consisted of the following (in thousands):

 

 

 

Estimated

 

June 30,

 

 

December 31,

 

 

 

Useful Lives

 

2016

 

 

2015

 

Vehicles acquired under capital leases

 

3 years

 

$

22,361

 

 

$

24,149

 

Leasehold improvements

 

1-12 years

 

 

13,952

 

 

 

4,116

 

Furniture and computer and other equipment

 

3 years

 

 

6,755

 

 

 

6,524

 

 

 

 

 

 

43,068

 

 

 

34,789

 

Less: Accumulated depreciation and amortization

 

 

 

 

(14,325

)

 

 

(12,181

)

 

 

 

 

 

28,743

 

 

 

22,608

 

Build-to-suit lease asset under construction

 

 

 

 

 

 

 

25,560

 

Property and equipment, net

 

 

 

$

28,743

 

 

$

48,168

 

 

The Company recorded depreciation and amortization related to property and equipment of $2.8 million and $1.9 million for the three months ended June 30, 2016 and 2015. Depreciation and amortization expense related to property and equipment of $5.2 million and $3.4 million was recorded for the six months ended June 30, 2016 and 2015.

The Company leases fleet vehicles that are accounted for as capital leases and are included in property and equipment, net. Of total property and equipment depreciation and amortization, depreciation on vehicles under capital leases of $1.6 million and $1.2 million was capitalized in solar energy systems, net for the three months ended June 30, 2016 and 2015. Depreciation on vehicles under capital leases of $3.3 million and $2.4 million was capitalized in solar energy systems, net for the six months ended June 30, 2016 and 2015.

8


 

Because of its involvement in certain aspects of the construction of a new headquarters building in Lehi, UT, the Company was deemed the owner of the building for accounting purposes during the construction period. Accordingly, the Company recorded a build-to-suit lease asset and corresponding liabilities during the construction period. In May 2016, construction on the headquarters building was completed. The building qualified for sale-leaseback treatment. As such, the Company has removed the build-to-suit lease asset and liabilities from its condensed consolidated balance sheet as of June 30, 2016. For additional information regarding the related build-to-suit liabilities and the resulting ongoing lease, see Note 16—Commitments and Contingencies.

7.

Intangible Assets and Goodwill

Intangible Assets

Intangible assets consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

Cost:

 

 

 

 

 

 

 

Internal-use software

$

1,605

 

 

$

1,591

 

Developed technology

 

522

 

 

 

522

 

Trademarks/trade names

 

201

 

 

 

201

 

Customer relationships

 

164

 

 

 

164

 

Total carrying value

 

2,492

 

 

 

2,478

 

Accumulated amortization:

 

 

 

 

 

 

 

Internal-use software

 

(304

)

 

 

(219

)

Developed technology

 

(158

)

 

 

(126

)

Trademarks/trade names

 

(49

)

 

 

(39

)

Customer relationships

 

(80

)

 

 

(63

)

Total accumulated amortization

 

(591

)

 

 

(447

)

Total intangible assets, net

$

1,901

 

 

$

2,031

 

 

The Company recorded amortization expense of $0.2 million and $3.7 million for the three months ended June 30, 2016 and 2015, which was included in amortization of intangible assets in the condensed consolidated statements of operations. The Company recorded amortization expense of $0.4 million and $7.5 million for the six months ended June 30, 2016 and 2015. An internal-use software asset of $0.3 million reached the end of its useful life during the six months ended June 30, 2016 and was removed from cost and accumulated amortization.

In February 2015, the Company decided to discontinue the external sales of two Vivint Solar Labs products: the SunEye and PV Designer. This discontinuance was considered an indicator of impairment, and a review regarding the recoverability of the carrying value of the related intangible assets was performed. In-process research and development, which was intended to generate Vivint Solar Labs product sales in the residential market, was discontinued and deemed fully impaired resulting in a charge of $2.1 million. Certain trade names that will no longer be utilized were deemed fully impaired resulting in a charge of $1.3 million. The SunEye and PV Designer developed technology assets were deemed fully impaired resulting in a charge of $0.7 million. Customer relationships were deemed partially impaired by $0.4 million due to the loss of external customers who purchased the discontinued products. As a result of this review, the Company recorded a total impairment charge of $4.5 million for the six months ended June 30, 2015. In the second quarter of 2016, the Company resumed external sales of the SunEye product. These resumed sales were not significant for the three or six months ended June 30, 2016.


9


 

Goodwill Impairment

Annual Goodwill Impairment Test

Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net tangible and intangible assets acquired. As of December 31, 2015, the Company consisted of two operating segments: (1) Residential and (2) Commercial and Industrial (“C&I”). As the C&I business was created in 2015 by the Company, and not acquired, and the Company’s goodwill was recorded prior to 2015, all goodwill remains with the Residential operating segment. As such, the Company’s impairment test is based on a single operating segment and reporting unit structure.

The Company performs its goodwill impairment test annually or whenever events or circumstances change that would indicate that goodwill might be impaired. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If the qualitative step is not passed, the Company performs a two-step impairment test whereby in the first step, the Company must compare the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying value of the goodwill. Any excess of the goodwill carrying value over the implied fair value is recognized as an impairment loss.

Based on the results of the annual goodwill impairment analysis in the fourth quarter of 2015, the Company determined the two-step test was not necessary based on its qualitative assessments and concluded that it was more likely than not that the fair value of its Residential reporting unit was greater than its respective carrying value as of October 1, 2015 and 2014.

Goodwill Impairment Test as of March 31, 2016

In conjunction with the acquisition by SunEdison failing to occur, the Company’s market capitalization decreased significantly during the first quarter of 2016 from $1.0 billion as of December 31, 2015 to $283 million as of March 31, 2016. The Company considered this significant decrease in market capitalization to be an indicator of impairment and the Company performed a step one test for potential impairment as of March 31, 2016.

The step one analysis resulted in the Company concluding that the carrying book value of its Residential reporting unit was higher than the business unit’s fair value. Because the Residential reporting unit failed the step one test, the Company was required to perform the step two test, which utilizes a notional purchase price allocation using the estimated fair value from step one as the purchase price to determine the implied value of the reporting unit’s goodwill. The completion of the step two test resulted in the determination that the $36.6 million of the Residential reporting unit’s goodwill was fully impaired. The $36.6 million impairment charge is shown in the line item impairment of goodwill and intangible assets in the Company’s condensed consolidated statements of operations.

In performing step one of the goodwill impairment test, it was necessary to determine the fair value of the Residential reporting segment. The fair value of the reporting unit was estimated using a discounted cash flow methodology (“DCF”). The market analysis included looking at the valuations of comparable public companies, as well as recent acquisitions of comparable companies. The Residential reporting unit is comprised of many differing consolidated entities and components that have been aggregated for operational and financial reporting purposes. The discount rate is applicable to the Residential reporting unit as a whole and is not intended for use for any individual asset, entity or component of the Company.

Two key inputs to the DCF analysis were the future cash flow projection and the discount rate. The Company used a 30-year future cash flow projection, based on the Company’s long-range forecast of current customer contracts and an estimate of customer renewals of 90% subsequent to the 20-year customer contract period, discounted to present value.

The discount rate was determined by estimating the reporting unit’s weighted average cost of capital, reflecting the nature of the reporting unit as a whole and the perceived risk of the underlying cash flows. In its DCF methodology, the Company used a 7.25% discount rate for the cash flows related to current customer contracts and a 9.25% discount rate for the estimated cash flows from customer renewals subsequent to the 20-year customer contract period. A higher discount rate was used for the estimated customer renewals due to the increased subjectivity of this cash flow stream. If the Company had varied the discount rates by 1.0%, it would not have impacted the ultimate results of the step one test. The excess of the carrying value over the fair value of the Residential reporting unit was approximately 15%.

 


10


 

Because the Residential reporting unit failed the step one test, the Company was required to perform the step two test, which utilizes a purchase price allocation using the estimated fair value from step one as the purchase price to determine the implied value of the reporting unit’s goodwill. The step two test involves allocating the fair value of the Residential reporting unit to all of its assets and liabilities on a fair value basis, with the excess amount representing the implied value of goodwill. As part of this process the fair value of the reporting unit’s identifiable assets was determined. The fair values of these assets were determined primarily through the use of the DCF method if the fair value was estimated to differ materially from book value. After determining the fair value of the reporting unit’s assets and liabilities and allocating the fair value of the Residential reporting unit to those assets and liabilities, it was determined that there was no implied value of goodwill. The carrying value of the reporting unit’s goodwill was $36.6 million, which resulted in the impairment charge of $36.6 million, which was recorded in impairment of goodwill and intangible assets in the condensed consolidated statements of operations.

8.

Accrued Compensation

Accrued compensation consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

Accrued payroll

$

10,150

 

 

$

6,918

 

Accrued commissions

 

7,555

 

 

 

6,840

 

Accrued severance

 

1,406

 

 

$

 

Total accrued compensation

$

19,111

 

 

$

13,758

 

 

9.

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

Income tax payable

$

9,283

 

 

$

6,169

 

Current portion of lease pass-through financing obligation

 

4,671

 

 

 

3,835

 

Accrued professional fees

 

3,706

 

 

 

7,918

 

Accrued litigation settlements

 

2,690

 

 

 

1,790

 

Accrued return of lease pass-through upfront lease payment

 

2,500

 

 

 

 

Accrued unused commitment fees and interest

 

1,829

 

 

 

1,014

 

Sales and use tax payable

 

1,736

 

 

 

3,524

 

Deferred rent

 

1,732

 

 

 

1,064

 

Other accrued expenses

 

4,645

 

 

 

3,703

 

Total accrued and other current liabilities

$

32,792

 

 

$

29,017

 

 

 


11


 

10.

Debt Obligations  

Debt obligations consisted of the following as of June 30, 2016 (in thousands, except interest rates):

 

 

 

 

 

Unamortized

 

 

 

 

 

 

Unused

 

 

 

 

 

 

 

 

Principal

 

 

Debt Issuance

 

 

Net Carrying

 

 

Borrowing

 

 

 

 

 

 

 

 

Borrowings

 

 

Costs

 

 

Value

 

 

Capacity

 

 

Interest Rate

 

 

Maturity Date

Revolving lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregation credit facility

$

338,500

 

 

$

 

(1)

$

338,500

 

 

$

36,500

 

 

 

3.7

%

 

March 2018

Working capital credit facility

 

142,600

 

 

 

 

(1)

 

142,600

 

 

 

 

 

 

3.7

 

 

March 2020

Subordinated HoldCo credit facility

 

75,000

 

 

 

(5,662

)

 

 

69,338

 

 

 

125,000

 

 

 

6.1

 

 

March 2020

Credit agreement

 

306

 

 

 

(172

)

 

 

134

 

 

 

2,694

 

 

 

6.5

 

 

(2)

Total debt

$

556,406

 

 

$

(5,834

)

 

$

550,572

 

 

$

164,194

 

 

 

 

 

 

 

Debt obligations consisted of the following as of December 31, 2015 (in thousands, except interest rates):

 

 

 

 

 

Unamortized

 

 

 

 

 

 

Unused

 

 

 

 

 

 

 

 

Principal

 

 

Debt Issuance

 

 

Net Carrying

 

 

Borrowing

 

 

 

 

 

 

 

 

Borrowings

 

 

Costs

 

 

Value

 

 

Capacity

 

 

Interest Rate

 

 

Maturity Date

Aggregation credit facility

$

269,100

 

 

$

 

(1)

$

269,100

 

 

$

105,900

 

 

 

3.8

%

 

March 2018

Working capital credit facility

 

146,750

 

 

 

 

(1)

$

146,750

 

 

 

 

 

 

3.5

 

 

March 2020

Total debt

$

415,850

 

 

$

 

 

$

415,850

 

 

$

105,900

 

 

 

 

 

 

 

(1) Revolving lines of credit are not presented net of unamortized debt issuance costs. See Note 2—Summary of Significant Accounting Policies. 

(2) Quarterly payments of principal and interest are payable over a seven year term. The seven year term begins after the final completion date of the underlying solar energy systems.

Subordinated HoldCo Facility

In March 2016, the Company entered into a financing agreement (the “Subordinated HoldCo Facility,” formerly known as the “Term Loan Facility”) pursuant to which it may borrow up to an aggregate principal amount of $200.0 million of term loan borrowings from investment funds and accounts advised by Highbridge Principal Strategies, LLC. The borrower under the Subordinated HoldCo Facility is Vivint Solar Financing Holdings, LLC, one of the Company’s subsidiaries. The initial $75.0 million in borrowings are referred to as “Tranche A” borrowings. The remaining $125.0 million aggregate principal amount in borrowings may be incurred in three installments of at least $25.0 million aggregate principal amount prior to the first anniversary of the closing date. Such subsequent borrowings, if any, are referred to as “Tranche B” borrowings. If no Tranche B borrowings are incurred, the Company must repay outstanding Tranche A borrowings in December 2016. If any Tranche B borrowings are incurred, the maturity date for all borrowings will be extended to the fourth anniversary of the closing date. If any Tranche B borrowings are incurred, the Company may not prepay any borrowings until the second anniversary of the closing date and any subsequent prepayments of principal are subject to a fee equal to 3.0%. No Tranche B borrowings had been incurred as of June 30, 2016. Borrowings under the Subordinated HoldCo Facility will be used for the construction and acquisition of solar energy systems.

Interest on the Tranche A borrowings accrues at a floating rate of the London Interbank Offer Rate (“LIBOR”) plus 5.5%, provided that if any Tranche B borrowings are incurred, the interest rate increases to a floating rate of LIBOR plus 8.0% for the entire principal amount outstanding. The Subordinated HoldCo Facility includes customary events of default, conditions to borrowing and covenants, including covenants that restrict, subject to certain exceptions, the borrower’s, and the guarantors’ ability to incur indebtedness, incur liens, make investments, make fundamental changes to their business, dispose of assets, make certain types of restricted payments or enter into certain related party transactions. These restrictions do not impact the Company’s ability to enter into investment funds, including those that are similar to those entered into previously. Additionally, the parties to the Subordinated HoldCo Facility must maintain certain consolidated and project subsidiary loan-to-value ratios and a consolidated debt service coverage ratio, with such covenants to be tested as of the last day of each fiscal quarter and upon each incurrence of borrowings. Each of the parties to the Subordinated HoldCo Facility has pledged assets not otherwise pledged under another existing debt facility as collateral to secure their obligations under the Subordinated HoldCo Facility. Vivint Solar Financing Holdings Parent, LLC, another of the Company’s subsidiaries and the parent company of the borrower and certain other of the Company’s subsidiaries guarantee the borrower’s obligations under the financing agreement.

 

12


 

Interest expense for the Subordinated HoldCo Facility was approximately $1.6 million and $1.8 million for the three and six months ended June 30, 2016. No interest expense was recorded for the three and six months ended June 30, 2015. A $3.0 million interest reserve amount was deposited in an interest reserve account with the administrative agent and is included in restricted cash and cash equivalents. The interest reserve increases as borrowings increase under the Subordinated HoldCo Facility.

Bank of America, N.A. Aggregation Credit Facility

In September 2014, the Company entered into an aggregation credit facility (the “Aggregation Facility”), which was subsequently amended in February 2015 and November 2015, pursuant to which the Company may borrow up to an aggregate of $375.0 million and, upon the satisfaction of certain conditions and the approval of the lenders, up to an additional aggregate of $175.0 million in borrowings with certain financial institutions for which Bank of America, N.A. is acting as administrative agent.

Prepayments are permitted under the Aggregation Facility, and the principal and accrued interest on any outstanding loans mature in March 2018. Under the Aggregation Facility, interest on borrowings accrues at a floating rate equal to either (1)(a) LIBOR or (b) the greatest of (i) the Federal Funds Rate plus 0.5%, (ii) the administrative agent’s prime rate and (iii) LIBOR plus 1% and (2) a margin that varies between 3.25% during the period during which the Company may incur borrowings and 3.50% after such period. Interest is payable at the end of each interest period that the Company may elect as a term of either one, two or three months.

The borrower under the Aggregation Facility is Vivint Solar Financing I, LLC, one of the Company’s indirect wholly owned subsidiaries, which in turn holds the Company’s interests in the managing members in the Company’s existing investment funds. These managing members guarantee the borrower’s obligations under the Aggregation Facility. In addition, Vivint Solar Holdings, Inc. has pledged its interests in the borrower, and the borrower has pledged its interests in the guarantors as security for the borrower’s obligations under the Aggregation Facility. The related solar energy systems are not subject to any security interest of the lenders, and there is no recourse to the Company in the case of a default.

The Aggregation Facility includes customary covenants, including covenants that restrict, subject to certain exceptions, the borrower’s, and the guarantors’ ability to incur indebtedness, incur liens, make investments, make fundamental changes to their business, dispose of assets, make certain types of restricted payments or enter into certain related party transactions. Among other restrictions, the Aggregation Facility provides that the borrower may not incur any indebtedness other than that related to the Aggregation Facility or in respect of permitted swap agreements, and that the guarantors may not incur any indebtedness other than that related to the Aggregation Facility or as permitted under existing investment fund transaction documents. These restrictions do not impact the Company’s ability to enter into investment funds, including those that are similar to those entered into previously. As of June 30, 2016, the Company was in compliance with such covenants. As of June 30, 2016, the Company has not entered into any interest rate hedges, which the Company is required to obtain by September 13, 2016.

As of June 30, 2016, the remaining borrowing capacity was $36.5 million, which was available but undrawn.

The Aggregation Facility also contains certain customary events of default. If an event of default occurs, lenders under the Aggregation Facility will be entitled to take various actions, including the acceleration of amounts due under the Aggregation Facility and foreclosure on the interests of the borrower and the guarantors that have been pledged to the lenders.

Interest expense was approximately $4.2 million and $2.3 million for the three months ended June 30, 2016 and 2015. Interest expense was approximately $8.2 million and $4.4 million for the six months ended June 30, 2016 and 2015. As of June 30, 2016, the current portion of debt issuance costs of $4.0 million was recorded in prepaid expenses and other current assets, and the long-term portion of debt issuance costs of $2.9 million was recorded in other non-current assets, net in the condensed consolidated balance sheet. In addition, a $6.6 million interest reserve amount was deposited in an interest reserve account with the administrative agent and is included in restricted cash and cash equivalents. The interest reserve increases as borrowings increase under the Aggregation Facility.


13


 

Working Capital Credit Facility

In March 2015, the Company entered into a revolving credit agreement (the “Working Capital Facility”) pursuant to which the Company may borrow up to an aggregate principal amount of $150.0 million from certain financial institutions for which Goldman Sachs Lending Partners LLC is acting as administrative agent and collateral agent. Loans under the Working Capital Facility will be used to pay for the costs incurred in connection with the design and construction of solar energy systems, and letters of credit may be issued for working capital and general corporate purposes. In addition to the outstanding borrowings as of June 30, 2016, the Company had established letters of credit under the Working Capital Facility for up to $7.4 million related to insurance contracts. As such, there was no remaining borrowing capacity available as of June 30, 2016.

The Company has pledged the interests in the assets of the Company and its subsidiaries, excluding Vivint Solar Financing I, LLC, as security for its obligations under the Working Capital Facility. Prepayments are permitted under the Working Capital Facility, and the principal and accrued interest on any outstanding loans mature in March 2020. Interest accrues on borrowings at a floating rate equal to, dependent on the type of borrowing, (1) a rate equal to the Eurodollar Rate for the interest period divided by one minus the Eurodollar Reserve Percentage, plus a margin of 3.25%; or (2) the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Citibank prime rate and (c) the one-month interest period Eurodollar rate plus 1.00%, plus a margin of 2.25%. Interest is payable dependent on the type of borrowing at the end of (1) the interest period that the Company may elect as a term and not to exceed three months, (2) quarterly or (3) at maturity of the Working Capital Facility.

The Working Capital Facility includes customary covenants, including covenants that restrict, subject to certain exceptions, the Company’s ability to incur indebtedness, incur liens, make investments, make fundamental changes to its business, dispose of assets, make certain types of restricted payments or enter into certain related party transactions. Among other restrictions, the Working Capital Facility provides that the Company may not incur any indebtedness other than that related to the Working Capital Facility or permitted swap agreements. These restrictions do not impact the Company’s ability to enter into investment funds, including those that are similar to those entered into previously. The Company is also required to maintain $25.0 million in cash and cash equivalents and certain investments as of the last day of each quarter. As of June 30, 2016, the Company was in compliance with such covenants.

The Working Capital Facility also contains certain customary events of default. If an event of default occurs, lenders under the Working Capital Facility will be entitled to take various actions, including the acceleration of amounts then outstanding.

Interest expense for this facility was approximately $1.5 million and $0.4 million for the three months ended June 30, 2016 and 2015. Interest expense was approximately $3.0 million and $0.4 million for the six months ended June 30, 2016 and 2015. As of June 30, 2016, the current portion of debt issuance costs of $0.5 million was recorded in prepaid expenses and other current assets, and the long-term portion of debt issuance costs of $1.5 million was recorded in other non-current assets, net in the condensed consolidated balance sheet.

Credit Agreement

In February 2016, a subsidiary of the Company entered into a credit agreement (the “Credit Agreement”) pursuant to which Goldman Sachs, through GSUIG Real Estate Member LLC, committed to lend an aggregate principal amount of $3.0 million. Proceeds from the Credit Agreement are to be used for the deployment of certain solar energy systems. Quarterly payments of principal and interest are due over a seven year term. The seven year term begins after the final completion date of the underlying solar energy systems. Interest accrues on borrowings at a rate of 6.50%.  The repayment term had not yet begun as of June 30, 2016. Interest expense under the Credit Agreement was de minimis for the three and six months ended June 30, 2016. No interest expense was recorded for the three and six months ended June 30, 2015.

Interest Expense and Amortization of Debt Issuance Costs

For the three months ended June 30, 2016 and 2015, total interest expense incurred under all debt obligations was approximately $7.3 million and $2.7 million, of which $1.5 million and $0.9 million was amortization of debt issuance costs. For the six months ended June 30, 2016 and 2015, total interest expense incurred under all debt obligations was approximately $13.0 million and $4.8 million, of which $2.7 million and $1.7 million was amortization of debt issuance costs.

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11.

Investment Funds 

As of June 30, 2016, the Company had 17 investment funds for the purpose of funding the purchase of solar energy systems. The aggregate carrying value of these funds’ assets and liabilities (after elimination of intercompany transactions and balances) in the Company’s condensed consolidated balance sheets were as follows (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$