An alternative asset manager is reviving the securitization platform of a former leading player in property-assessed clean energy financing that
According to a presale report from DBRS Morningstar, an affiliate of Miami-based Kawa Capital Partners is sponsoring a $63.65 million notes offering backed by property-assessed clean energy bonds via the Home Energy Renovation Opportunity (HERO) shelf formerly utilized by Renovate America.
The PACE assessments included in HERO Funding 2021-1 were acquired by Kawa in a series of acquisitions between August and January, involving Renovate America and the municipal and regional bond issuers in California, Missouri and Florida, according to DBRS Morningstar’s report.
The PACE bonds securing the notes are paid through the receivables from local tax assessments levied on homeowners to repay PACE financing on solar-panel and other energy-efficiency upgrades to their properties.
The 2,557 PACE assessments in the pool are from 65 counties the three states, and all were originated by San Diego-based Renovate America. Once a leading residential PACE finance company and program administrator, Renovate America filed for Chapter 11 reorganization Dec. 22 with plans to liquidate assets and repay creditors following a steep drop in originations in recent years.
The assets included unsecured consumer loans (from Renovate America’s “Benji” program) which are not included in the HERO Funding 2021-1 transaction.
At its peak in 2016, Renovate America originated about $944 million in HERO assessments, captured about 60% of California’s $1.5 billion-plus market. But the new issuance market for PACE-bond securitizations declined sharply after California’s passage of new consumer protection laws in 2017 that imposed income-based underwriting and ability-to-repay standards on PACE originations. Previously, PACE assessments were financed based on property valuation and homeowner equity.
Renovate America’s HERO originations fell to $286.3 million in 2018 and $134.4 million in 2019, as the sector waned from the underwriting changes as well as mounting opposition from bank lenders and Congress over the safety and soundness of PACE financing. In addition, Renovate America
The HERO platform’s 13 outstanding residential PACE deals were not affected by the December bankruptcy, with assets largely insulated from Renovate America’s own financial performance, according to a recent report from Kroll Bond Rating Agency.
PACE financing is attached as a first lien on a homeowner mortgage, equal to other ad valorem and property tax assessments with Renovate America serving as program administrator on the bonds. Those deals continue to perform with expectations, according to DBRS Morningstar, with delinquency rates of the outstanding deals falling in recent months after peaking between 2.75%-3.5% for the 2019-2020 tax year last May, when first installments were due.
The HERO Funding 2021-1 transaction features two classes of notes: a Class A tranche of notes sized at $52.85 million with preliminary AAA ratings from DBRS Morningstar, and a $10.8 million Class B tranche with an early BBB rating.
