After a Long Drought, Two PACE Deals on Same Day

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Two PACE program administrators, Ygrene Energy and Renew Financial, picked the same day to launch their first securitizations of the year.

Ygrene Energy’s $176 million deal, GoodGreen 2017-1, is backed by a mix of financing for energy efficiency improvements on residential and commercial properties in California and Florida; Renew Financial Group’s $217 million Renew 2017-1 is backed exclusively by financing for residential upgrades, primarily in California.  

Both come to market amid increased scrutiny of marketing and underwriting of Property Assessed Clean Energy loans, which are repaid via an assessment on a borrower’s property tax bill. Congressmen in the U.S. House and Senate have introduced bills that would require home improvement contractors to provide Truth in Lending Act disclosures to homeowners considering PACE loans.

Of the two offerings, Ygrene’s deal is more geographically diverse. It is secured by 7,672 PACE assessments on 6,676 residential and commercial properties located in 41 California (56.2%) and 8 Florida counties (43.8%), according to Kroll Bond Rating Agency. The aggregate principal balance is approximately $177 million. The average assessment is approximately $23,013, with an average annual payment of approximately $2,609.

Two classes of notes will be issued: $171.25 million of senior notes rated AA Kroll and AAA by Morningstar; $4.76 million rated single-A by both rating agencies. Both tranches have an expected maturity date of October 2017 and a final maturity of October 2052. The presale report does not name the underwriter.

Renew’s deal features a prefunding account; approximately $54.4 million of proceeds will be set aside to purchase future PACE assessments; the trust has until June 12 to put the money to work. The deal is initially secured by 4,814 PACE assessments levied against 4,626 residential properties in 40 California counties (96.8%) and nine Florida counties (3.2%). The average assessment is approximately $30,379 with an average annual payment of approximately $3,355.

The trust will issue two tranches of notes; a senior tranche rated double-A by both Kroll and DBRS and a subordinate tranche rated BBB by DBRS alone. Both have an expected maturity of September 2047 and a final maturity of September 2052. Natixis Securities Americas is the structuring agent and bookrunner, according to Kroll.

As a new asset class, there is minimal historical PACE assessment default or foreclosure data available. Kroll uses historical residential real estate tax default data for the counties where the properties subject to the PACE Assessments are located as a proxy for assessment defaults. The rating agency expects defaults on both deals to be 3%, in its base case scenario. However, it expects Ygrene's deal to recover 100% of the value within 19 months and Renew's within 24 months.

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