VARIABLE INTEREST ENTITIES

The Company holds ownership interests in alternative energy partnerships and the SECT. The Company evaluates its interests in these entities to determine whether they meet the definition of a VIE and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the VIE. The Company has determined that its interests in these entities meet the definition of a variable interest.

Unconsolidated VIEs

The Company invests in certain alternative energy partnerships (limited liability companies) formed to provide sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits (energy tax credits). These entities were formed to invest in newly installed residential rooftop solar leases and power purchase agreements. As a result of its investments, the Company has the right to certain investment tax credits and tax depreciation benefits (recognized on the flow through and income statement method in accordance with ASC 740), and to a lesser extent, cash flows generated from the installed solar systems leased to individual consumers for a fixed period of time.

While the Company's interest in the alternative energy partnerships meets the definition of a VIE in accordance with ASC 810, the Company has determined that the Company is not the primary beneficiary because the Company does not have the power to direct the activities that most significantly impact the economic performance of the entities including operational and credit risk management activities. As the Company is not the primary beneficiary, the Company did not consolidate the entities. The Company uses the HLBV method to account for its investments in energy tax credits as an equity investment under ASC 970-323-25-17. Under the HLBV method, an equity method investor determines its share of an investee's earnings by comparing its claim on the investee's book value at the beginning and end of the period, assuming the investee were to liquidate all assets at their U.S. GAAP amounts and distribute the resulting cash to creditors and investors under their respective priorities.

The Company funded $30.9 million into the partnerships and recognized a loss on investment of $8.7 million through its HLBV application during the three months ended March 31, 2017. As a result, the balance of its investments were $47.6 million at March 31, 2017. The Company has funded $88.3 million of its $200.0 million aggregate funding commitments. From an income tax benefit perspective, the Company recognized investment tax credits of $8.8 million as well as income tax benefits relating to the recognition of its loss through its HLBV application during the three months ended March 31, 2017.

As the investments represent unconsolidated VIEs to the Company, the assets and liabilities of the investments themselves are not recorded on the Company's statements of financial condition. The following table represents the carrying value of the associated assets and liabilities and the associated maximum loss exposure for the unconsolidated VIEs as of the dates indicated:



	March 31 2017		December 31 2016
	(In thousands)
Cash	$	224	$	—
Equipment, net of depreciation	203,226		151,721
Other assets	8,337		351
Total unconsolidated assets	$	211,787	$	152,072
Total unconsolidated liabilities	$	651	$	—
Maximum loss exposure	$	159,365	$	68,298

The maximum loss exposure that would be absorbed by the Company in the event that all of the assets in the VIEs are deemed worthless is $159.4 million, consisting of the investment balance of $47.6 million and $111.7 million of unfunded equity commitments at March 31, 2017. The Company believes that the loss exposure on its investment is reduced considering its return on its investment is provided not only by the cash flows of the underlying customer leases and power purchase agreements, but also through the significant tax benefits, including federal tax credits generated from the investments. In addition, the arrangements include a transition manager to support any transition of the solar company sponsor whose role includes that of the servicer and operation and maintenance provider, in the event the sponsor would be required to be removed from its responsibilities (e.g., bankruptcy, breach of contract, etc.), thereby further limiting the Company’s exposure.

Consolidated VIE

The Company maintains a SECT to fund future employee stock compensation and benefit obligations of the Company. The SECT holds and will release shares of the Company's common stock to be used to fund the Company's obligations during the term of the SECT under certain stock and other employee benefit plans of the Company. During the three months ended September 30, 2016, the Company sold 2,500,000 shares of the Company’s common stock to the SECT for an aggregate purchase price of $53.6 million, in exchange for a cash amount equal to the aggregate par value of the shares and a promissory note for the balance of the purchase price. The promissory note is paid down through allocations of available shares to the Company’s stock and other employee benefit plans as directed by the Company, dividends on the shares received by the SECT, other earnings of the SECT, or may be forgiven by the Company.

The Company evaluated its interest in the SECT and determined it is a VIE of which the Company is the primary beneficiary. As such, the SECT is consolidated by the Company.

The entire amount of assets and liabilities of the SECT represents the transactions between the Company and the SECT. As a result, the note receivable on the Company and the note payable on the SECT are eliminated on a consolidated basis. All other transactions, such as note principal and dividend payments and receipts, are also eliminated on a consolidated basis, accordingly. See Note 15 for additional information.