Fair Value Measurement (Tables)

9 Months Ended

Sep. 30, 2022

Carrying values and fair values of assets and liabilities recorded at fair value on a recurring and non-recurring basis

The carrying values and fair values of Sunlight’s assets and liabilities recorded at fair value on a recurring or non-recurring basis, as well as other financial instruments for which fair value is disclosed, at September 30, 2022 and December 31, 2021 were as follows:


	Principal Balance or Notional Amount		Carrying Value		Fair Value
					Level 1		Level 2		Level 3		Total
September 30, 2022 (Successor)
Assets:
Financing Receivables:
Loan participations, held-for-investment	$	3,817	$	3,332	$	—	$	—	$	3,160	$	3,160
Loans, held-for-investment	278		249		—		—		220		220
Cash and cash equivalents	70,569		70,569		70,569		—		—		70,569
Restricted cash	1,228		1,228		1,228		—		—		1,228
Contract derivatives	39,793		462		—		—		462		462

Liabilities:
Debt	20,613		20,613		—		—		20,613		20,613
Warrants	312,225		3,691		—		—		3,691		3,691
Contract derivatives	82,251		1,298						1,298		1,298
Guarantee obligation	n.a.		2,299		—		—		2,299		2,299

December 31, 2021 (Successor)
Assets:
Financing Receivables:
Loan participations, held-for-investment	4,584		4,051		—		—		4,260		4,260
Loans, held-for-investment	291		262		—		—		250		250
Cash and cash equivalents	91,882		91,882		91,882		—		—		91,882
Restricted cash	2,018		2,018		2,018		—		—		2,018
Contract derivatives	76,770		1,411		—		—		1,411		1,411

Liabilities:
Debt	20,613		20,613		—		—		20,613		20,613
Warrants	312,225		19,007		—		—		19,007		19,007
Guarantee obligation	n.a.		418		—		—		418		418

Change in assets measured at fair value on a recurring basis

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


	Assets		Liabilities
	Contract Derivatives		Contract Derivatives		Warrants
December 31, 2021 (Successor)	$	1,411	$	—	$	19,007
Transfers(a)









Transfers to Level 3	—		—		—
Transfers from Level 3	—		—		—
Gains (losses) included in net income(b)
Included in change in fair value of warrant liabilities	—		—		(15,316)
Included in change in fair value of contract derivatives, net	(949)		1,298		—
Included in realized gains on contract derivatives, net	257		3,429		—
Payments, net	(257)		(3,429)		—
September 30, 2022 (Successor)	$	462	$	1,298	$	3,691

December 31, 2020 (Predecessor)	$	1,435	$	—	$	5,643
Transfers(a)
Transfers to Level 3	—		—		41,591
Transfers from Level 3	—		—		(11,148)
Gains (losses) included in net income(b)
Included in change in fair value of warrant liabilities	—		—		5,504
Included in change in fair value of contract derivatives, net	(662)		—		—
Included in realized gains on contract derivatives, net	2,992		—		—
Payments, net	(2,992)		—		—
July 9, 2021 (Predecessor)	773		—		41,590
Transfers(a)
Transfers to Level 3	—		—		—
Transfers from Level 3	—		—		—
Gains (losses) included in net income(b)
Included in change in fair value of warrant liabilities	—		—		(10,116)
Included in change in fair value of contract derivatives, net	489		—		—
Included in realized gains on contract derivatives, net	1,377		—		—
Payments, net	(1,377)		—		—
September 30, 2021 (Successor)	$	1,262	$	—	$	31,474

a.Transfers are assumed to occur at the beginning of the respective period, except transfers that occurred at the Closing Date of the Business Combination.

b.Increases in the fair value of liabilities represent losses included in net income.

Change in liabilities measured at fair value on a recurring basis

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


	Assets		Liabilities
	Contract Derivatives		Contract Derivatives		Warrants
December 31, 2021 (Successor)	$	1,411	$	—	$	19,007
Transfers(a)









Transfers to Level 3	—		—		—
Transfers from Level 3	—		—		—
Gains (losses) included in net income(b)
Included in change in fair value of warrant liabilities	—		—		(15,316)
Included in change in fair value of contract derivatives, net	(949)		1,298		—
Included in realized gains on contract derivatives, net	257		3,429		—
Payments, net	(257)		(3,429)		—
September 30, 2022 (Successor)	$	462	$	1,298	$	3,691

December 31, 2020 (Predecessor)	$	1,435	$	—	$	5,643
Transfers(a)
Transfers to Level 3	—		—		41,591
Transfers from Level 3	—		—		(11,148)
Gains (losses) included in net income(b)
Included in change in fair value of warrant liabilities	—		—		5,504
Included in change in fair value of contract derivatives, net	(662)		—		—
Included in realized gains on contract derivatives, net	2,992		—		—
Payments, net	(2,992)		—		—
July 9, 2021 (Predecessor)	773		—		41,590
Transfers(a)
Transfers to Level 3	—		—		—
Transfers from Level 3	—		—		—
Gains (losses) included in net income(b)
Included in change in fair value of warrant liabilities	—		—		(10,116)
Included in change in fair value of contract derivatives, net	489		—		—
Included in realized gains on contract derivatives, net	1,377		—		—
Payments, net	(1,377)		—		—
September 30, 2021 (Successor)	$	1,262	$	—	$	31,474

a.Transfers are assumed to occur at the beginning of the respective period, except transfers that occurred at the Closing Date of the Business Combination.

b.Increases in the fair value of liabilities represent losses included in net income.

Significant inputs and assumptions used in the valuation of contract derivatives, share-based compensation, and warrants

Significant inputs used in the valuation of Sunlight’s contract derivatives include:


Contract Derivative						Significant Inputs
1						Inputs include 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.
2						Inputs include expected prepayment rate of applicable Indirect Channel Loans sold to the Indirect Channel Loan Purchaser. Significant increases (decreases) in the expected prepayment rate in isolation would result in a significantly higher (lower) fair value measurement.

The following significant assumptions were used to value Sunlight’s contract derivative:


	Successor
	September 30, 2022		December 31, 2021
Contract Derivative 1
Discount rate	11.7	%	10.0	%
Weighted average life (in years)	0.1		0.2
Contract Derivative 2
Expected prepayment rate	75.0	%	75.0	%

Sunlight uses the observed market price of its publicly-traded Class A Shares and the warrants thereon to measure the value of RSU awards on the grant date and the value of Public Warrants, respectively. For Private Placement Warrants, Sunlight uses an independent third-party valuation firm to value those warrants using a Monte Carlo option pricing model, which includes the following estimates of underlying asset value, volatility, dividend rates, expiration dates, and risk-free rates:


	Successor
Assumption	September 30, 2022

Class A common share value per share(a)	$	1.24
Implied volatility(a)	79.2		%
Dividend yield(b)	—		%
Time to expiry (in years)(a)	3.8
Risk free rate(a)	4.1		%

a.Significant increases in these assumptions in isolation would result in a higher fair value measurement.

b.Significant increases in these assumptions in isolation would result in a lower fair value measurement.

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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