Fair Value Measurement

4 Months Ended

6 Months Ended

12 Months Ended

Dec. 31, 2020

Jun. 30, 2021

Dec. 31, 2020

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Fair Value Measurement

Note 9 — Fair Value Measurements

The following table presents information about the Company’s financial assets that are measured at fair value on a recurring basis as of December 31, 2020 by level within the fair value hierarchy:


			Significant		Significant
	Quoted Prices		Other		Other
	in Active		Observable		Unobservable
	Markets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Investments held in Trust Account:
U.S. Treasury Securities⁽¹⁾	$	344,931,000	$	—	$	—
Derivative warrant liabilities:
Private placement warrants					$	16,236,000
Public warrants					$	26,047,500

(1)	Excludes $79,316 of investments in an open-ended money market fund, in which the Company uses NAV as a practical expedient to fair value.

Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. There were no transfers between levels of the hierarchy during the period from August 17, 2020 (inception) through December 31, 2020.

The fair value of the Public Warrants issued in connection with the Initial Public Offering and Private Placement Warrants were initially and subsequently been measured at fair value using a Monte Carlo simulation model at each measurement date. For the period ended December 31, 2020, the Company recognized an expense in the statement of operations resulting from an increase in the fair value of derivative warrant liabilities of approximately $16.2 million.

The estimated fair value of the Private Placement Warrants, and the Public Warrants prior to being separately listed and traded, is determined using Level 3 inputs. Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:


	As of		As of
	November 30, 2020		December 31, 2020
Stock Price	$9.33 – $10.00		$9.91 – $10.80
Option term (in years)	5.00		5.00
Volatility	25	%	25	%
Risk-free interest rate	0.36% – 0.45	%	0.36% – 0.44	%
Dividend yield	0	%	0	%
Business combination probability	70	%	85	%

The change in the fair value of the derivative warrant liabilities for the period from August 17, 2020 (inception) through December 31, 2020 is summarized as follows:


Derivative warrant liabilities as of November 30, 2020	$	26,115,000
Change in fair value of derivative warrant liabilities		16,168,500
Derivative warrant liabilities as of December 31, 2020	$	42,283,500

Note 8 — Fair Value Measurements

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.


	Fair Value Measured as of June 30, 2021
		Level 1		Level 2		Level 3
Liabilities:
Derivative warrant liabilities - Public warrants	$	31,050,000	$	—	$	—
Derivative warrant liabilities - Private placement warrants		—		—		20,394,000
Total fair value	$	376,097,393	$	—	$	20,394,000


	Fair Value Measured as of December 31, 2020
	Level 1		Level 2		Level 3
Assets
Investments held in Trust Account – U.S. Treasury Securities (1)	$	344,931,000	$	—	$	—
Liabilities:
Derivative warrant liabilities – Public warrants		—		—		26,047,500
Derivative warrant liabilities – Private placement warrants		—		—		16,236,000
Total fair value	$	344,931,000	$	—	$	42,283,500

(1)	Excludes $79,316 of investments in an open-ended money market fund, in which the Company uses NAV as a practical expedient to fair value.

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. The Company transferred $31,567,500 of Public Warrants out of Level 3 to Level 1 due to the use of a quoted price in an active market. There were no other transfers between levels for the three and six months ended June 30, 2021.

As of December 31, 2020, the fair value of the Public Warrants issued in connection with the Initial Public Offering and Private Placement Warrants were measured at fair value using a Monte Carlo simulation model. As of June 30, 2021, the Company utilizes the Black-Scholes option pricing model and a quoted price in an active market to estimate the fair value of the Private Placement Warrants and Public Warrants, respectively, with changes in fair value recognized in the unaudited condensed consolidated statement of operations. For the three months ended June 30, 2021, the Company recognized a change from an increase in the fair value of liabilities of approximately $1,013,000 and for six months ended June 30, 2021, the Company recognized a change from a decrease in the fair value of liabilities of approximately $9,161,000 presented on the accompanying unaudited condensed consolidated statements of operations.

The change in the fair value of the derivative warrant liabilities, measured with Level 3 inputs, for three and six months ended June 30, 2021 is summarized as follows:


Derivative warrant liabilities as of January 1, 2021	$	42,283,500
Transfer of Public Warrants from Level 3		(26,047,500)
Change in fair value of derivative warrant liabilities		4,653,000
Derivative warrant liabilities as of March 31, 2021	$	20,889,000
Change in fair value of derivative warrant liabilities		(495,000)
Derivative warrant liabilities as of June 30, 2021	$	20,394,000

The estimated fair value of the Private Placement Warrants is determined using Level 3 inputs. Inherent in a Black-Scholes option pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

The following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:


	As of			As of
	June 30,			December 31,
	2021			2021
Stock Price		9.99		$	9.91-$10.80
Option term (in years)		5.00			5.00
Volatility		28	%		27.5	%
Risk-free interest rate		0.87	%		0.36%-0.44	%
Dividend yield		0	%		0	%
Business combination probability		100	%		85	%

SUNLIGHT FINANCIAL LLC

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Fair Value Measurement

Note 7. Fair Value Measurement

The carrying values and fair values of Sunlight’s assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, at December 31, 2020 and 2019 were as follows:


	Principal
	Balance or
	Notional		Carrying		Fair Value
	Amount		Value		Level 1		Level 2		Level 3		Total
December 31, 2020
Assets:
Financing Receivables:
Loan participations, held-for-investment	$	5,997	$	5,029	$	—	$	—	$	5,140	$	5,140
Loans, held-for-investment		354		304		—		—		310		310
Cash and cash equivalents		49,583		49,583		49,583		—		—		49,583
Restricted cash		3,122		3,122		3,122		—		—		3,122
Contract derivative		59,770		1,435		—		—		1,435		1,435
Liabilities:
Debt		14,625		14,625		—		—		14,625		14,625
Warrants		4,700		5,643		—		—		5,643		5,643
Guarantee obligation		n.a.		839		—		—		839		839
December 31, 2019
Assets:
Financing Receivables:
Loan participations, held-for-investment		5,674		4,796		—		—		5,400		5,400
Loans, held-for-investment		390		334		—		—		340		340
Cash and cash equivalents		47,341		47,341		47,341		—		—		47,341
Restricted cash		4,315		4,315		4,315		—		—		4,315
Liabilities:
Debt		11,811		11,811		—		—		11,811		11,811
Warrants		4,700		133		—		—		133		133
Guarantee obligation		n.a.		75		—		—		75		75

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value.

Sunlight’s assets and liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:


	Assets		Liabilities
	Contract
	Derivative		Warrants
Balance ‒ December 31, 2018
Transfers^(a)	$	—	$	19
Transfers to Level 3		—		—
Transfers from Level 3		—		—
Gains (losses) included in net income^(b)
Included in change in fair value of warrant liabilities		—		114
Included in change in fair value of contract derivative, net		—		—
Included in realized gains on contract derivative, net		—		—
Payments, net		—		—
Balance ‒ December 31, 2019
Transfers^(a)		—		133
Transfers to Level 3		—		—
Transfers from Level 3		—		—
Gains (losses) included in net income^(b)
Included in change in fair value of warrant liabilities		—		5,510
Included in change in fair value of contract derivative, net		1,435		—
Included in realized gains on contract derivative, net		103		—
Payments, net		(103)		—
Balance ‒ December 31, 2020	$	1,435	$	5,643

(a)	Transfers are assumed to occur at the beginning of the respective period.

(b)	Changes in the fair value of liabilities shown as losses included in net income.

Contract Derivative Valuation — Fair value estimates of Sunlight’s contract derivative are based on an internal pricing model that uses a discounted cash flow valuation technique, incorporates significant unobservable inputs, and includes assumptions that are inherently subjective and imprecise. Significant inputs used in the valuation include the expected cash flows from the financing and sale of applicable Indirect Channel Loans and discount rates that market participants would expect for the Indirect Channel Loans. Significant increases (decreases) in the discount rates in isolation would result in a significantly lower (higher) fair value measurement. The following significant assumptions were used to value Sunlight’s contract derivative:


			Weighted
			Average Life
	Discount Rate		(Years)
December 31, 2020	8.1	%	0.3
December 31, 2019	n.a.		n.a.

Compensation Unit and Warrant Valuation — To determine the grant-date value of each Class C Unit and LTIP Unit granted during the years ended December 31, 2020 and 2019 as well as the fair value of warrants at December 31, 2020 and 2019, an independent third-party valuation firm (a) uses an income valuation approach to determine the fair value of Sunlight’s equity on a quarterly basis and (b) allocates that fair value to each class of interest in Sunlight’s equity and warrants thereon on a per unit basis using an option pricing method. Sunlight determines the grant-date fair value of an award using the value at the quarter-end closest to the grant date of the award. Significant increases (decreases) in the cost of equity, volatility, tax rate, and equity term in isolation would result in a significantly lower

(higher) fair value measurement. The following significant assumptions were used to value Sunlight’s equity and warrants thereon, on a weighted-average basis:


	For the Year Ended December 31,
Assumption	2020		2019
Cost of equity	22.5	%	32.5	%
Volatility	46.0	%	42.0	%
Tax rate	26.0	%	28.0	%
Term	3.0 years		5.0 years

At December 31, 2020, Sunlight applied a hybrid probability-weighted expected return valuation method, which incorporated two scenarios: (a) a scenario using a market valuation approach that assumed Sunlight completed the business combination described in Note 10 and (b) a remain private scenario that used the aforementioned income valuation approach. The concluded fair value at December 31, 2020 reflects an adjustment for lack of marketability of 15.0%, and Sunlight considered the estimated probability of the completed business combination described in Note 10 of 60% was reasonable given Sunlight had entered into a non-binding agreement for the business combination, which was subject to substantial contingencies as well as the successful placement of equity by the acquirer to finance the business combination.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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