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New upgrade brings all Renovate America deals to AAA status

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Kroll Bond Rating Agency on Thursday upgraded the most recent of Renovate America’s PACE bond securitizations, bringing triple-A status to all of the lender’s outstanding securitizations.

Kroll upgraded the Class A-2 notes in HERO Funding 2018-1 to AAA from the original AA rating after 954 of the original 7,247 PACE assessments were reported fully paid off as of April 2019, the ratings agency reported. That has resulted in a “slightly higher” amortization rate than originally projected when the deal securitizing residential Property Assessed Clean Energy levies was issued in May 2018.

The decision means all of Renovate America’s outstanding ABS transactions now carry AAA ratings from Kroll. Kroll has never assigned an initial triple-A rating to a Renovate America transaction at closing, but has subsequently upgraded all 12 of the outstanding deals since 2014.

Renovate America achieved the first initial AAA rating for a PACE green-bond securitization through Morningstar Credit Ratings, which assigned the rating to two senior-note tranches in HERO Funding 2017-2 totaling $181.8 million.

The HERO 2018-1 transaction involves levies on 6,979 residential properties, with an average assessment of $23,512. Kroll reports 91 of the assessments are delinquent, representing 1.58% (or $148,689) of the collected levied balances. Kroll’s base-case loss assumption on the transaction is 3.75%.

The deal is the most recent publicly rated securitization by Renovate America, which has reduced its output in securitizations over the past two years as residential PACE financing came under increasing headwinds. The Trump administration’s placement of 30% tariffs on foreign-produced solar panels (targeting Chinese manufacturers) as well as California’s enactment of new ability-to-repay underwriting rules had a dampening effect on originations, analysts have reported.

Originations were down 50% in 2018, according to comments in a recent industry symposium summary reported by Morningstar.

Renovate America sponsored $1.4 billion in securitizations in 2016, but that fell to $668 million in 2017 prior to last year’s loan publicly rated deal.

In March of this year, Renovate America filed an ABS 15-G due diligence report on a forthcoming HERO Funding Trust 2018-2 transaction, but the deal has yet to be publicly rated by any ratings agency.

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Property Assessed Clean Energy Renovate America