Finance Assets, net

6 Months Ended

Jun. 30, 2016

Finance Assets, net:

In 2003, PMCC ceased making new investments and began focusing exclusively on managing its portfolio of finance assets in order to maximize its operating results and cash flows from its existing lease portfolio activities and asset sales. Accordingly, PMCC’s operating companies income will fluctuate over time as investments mature or are sold.

At June 30, 2016, finance assets, net, of $1,155 million were comprised of investments in finance leases of $1,191 million, reduced by the allowance for losses of $36 million. At December 31, 2015, finance assets, net, of $1,239 million were comprised of investments in finance leases of $1,281 million, reduced by the allowance for losses of $42 million.

During the second quarter of 2016 and 2015, as a result of updated market value information, PMCC determined that the estimated unguaranteed residual values on certain aircraft should be reduced by $28 million and $35 million, respectively. These decreases in unguaranteed residual values resulted in a reduction to PMCC’s net revenues of $18 million and $29 million in the second quarter of 2016 and 2015, respectively.

PMCC assesses the adequacy of its allowance for losses relative to the credit risk of its leasing portfolio on an ongoing basis. PMCC believes that, as of June 30, 2016, the allowance for losses of $36 million was adequate. PMCC continues to monitor economic and credit conditions, and the individual situations of its lessees and their respective industries, and may increase or decrease its allowance for losses if such conditions change in the future.

The activity in the allowance for losses on finance assets was as follows:



	For the Six Months Ended June 30,
	2016			2015
	(in millions)
Balance at beginning of the year	$	42		$	42
Decrease to allowance	(6		)	—
Balance at June 30	$	36		$	42

All PMCC lessees were current on their lease payment obligations as of June 30, 2016.

The credit quality of PMCC’s investments in finance leases as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at June 30, 2016 and December 31, 2015 was as follows:



	June 30, 2016		December 31, 2015
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	214	$	212
“BBB+/Baa1” to “BBB-/Baa3”	584		702
“BB+/Ba1” and Lower	393		367
Total	$	1,191	$	1,281