Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurement

v3.20.2
Fair Value Measurement
6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurement Fair Value Measurement
At June 30, 2020 and December 31, 2019, the carrying value of receivables, accounts payable, accrued expenses and distributions payable to noncontrolling interests approximates fair value due to their short-term nature and falls under the Level 2 hierarchy. The carrying values and fair values of debt instruments are as follows (in thousands):
June 30, 2020 December 31, 2019
Carrying Value Fair Value Carrying Value Fair Value
Bank line of credit $ 236,435    $ 236,435    $ 239,485    $ 239,485   
Senior debt 774,451    775,765    625,519    626,023   
Subordinated debt 551,042    585,204    513,938    524,581   
Securitization debt 861,613    945,109    875,998    931,320   
Total $ 2,423,541    $ 2,542,513    $ 2,254,940    $ 2,321,409   
At June 30, 2020 and December 31, 2019, the fair value of the Company’s lines of credit, and certain senior, subordinated and SREC loans approximate their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At June 30, 2020 and December 31, 2019, the fair value of the Company’s other debt instruments are based on rates currently offered for debt with similar maturities and terms. The Company’s fair value of the debt instruments fell under the Level 2 hierarchy. These valuation approaches involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market.
        At June 30, 2020 and December 31, 2019, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy, are as follows (in thousands):
June 30, 2020
Level 1 Level 2 Level 3 Total
Derivative liabilities:
Interest rate swaps $ —    $ 166,325    $ —    $ 166,325   
Total $ —    $ 166,325    $ —    $ 166,325   
Contingent consideration:        
Contingent consideration $ —    $ —    $ 7,984    $ 7,984   
Total $ —    $ —    $ 7,984    $ 7,984   
December 31, 2019
Level 1 Level 2 Level 3 Total
Derivative assets:
Interest rate swaps $ —    $ 683    $ —    $ 683   
Total $ —    $ 683    $ —    $ 683   
Derivative liabilities:
Interest rate swaps $ —    $ 64,361    $ —    $ 64,361   
Total $ —    $ 64,361    $ —    $ 64,361   
Contingent consideration:
Contingent consideration: $ —    $ —    $ 11,809    $ 11,809   
Total $ —    $ —    $ 11,809    $ 11,809   
        
The above balances are recorded in other liabilities in the consolidated balance sheets, except for $11.2 million as of June 30, 2020, which is recorded in accrued expenses and other liabilities.
The Company determines the fair value of its interest rate swaps using a discounted cash flow model that incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of the Company’s credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.
        The Company recorded contingent consideration in connection with a business combination that occurred in July 2019, which is dependent on the achievement of specified deployment milestones associated with the number of solar energy systems installed through 2022. The Company determined the fair value of the contingent consideration using a probability-weighted expected return methodology that considers the timing and probabilities of achieving these milestones and uses discount rates that reflect the appropriate cost of capital. Contingent consideration was valued with Level 3 inputs. The Company reassesses the valuation assumptions each reporting period, with any changes in the fair value accounted for in the consolidated statements of operations.
The change in the activity of Level 3 contingent consideration balance is as follows (in thousands):

Balance at December 31, 2019
$ 11,809   
Change in fair value recognized in earnings within sales and marketing expense (3,145)  
Payable for solar systems that have met deployment milestones (680)  
Balance at June 30, 2020
$ 7,984