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Renew Financial builds Sunshine State exposure in its next PACE deal

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Renew Financial's next securitization of property assessed clean-energy (PACE) financing features higher exposure to Florida, where it has not been operating as long as it has in California.

In the $147.3 million Renew 2018-1 transaction is backed by bonds secured in turn by financing for energy and water efficiency upgrades on residences in both the Sunshine State and the Golden State.

The contracts are repaid by homeowners via local property tax assessments.

Florida accounts for 10.5% share of the pool, according to Kroll Bond Rating Agency. By comparison, Renew's previous deal last October, the Florida concentration was 7.3% which itself more than doubled the 3.2% Florida share of Renew’s first PACE ABS issuance of 2017.

Kroll has issued a preliminary A rating to the single series of Class A notes in the transaction, unchanged from prior Renew deals.

The average PACE assessment is slightly lower than Renew’s previous deal at $26,755, with a lower average annual payment of $2,914.

One significant shift in the deal was the inclusion of a small portion of PACE contracts (4.4% of the aggregate principal assets of the pool) that have a limited subordination to the mortgage lien.

Under most PACE financing agreements, the tax lien takes a first position of claims in the event of a delinquency and subsequent foreclosure. But for the handful of homes with limited subordination, two of the bond-issuing entities must obtain lender consent to proceed with a foreclosure for a PACE delinquency.

According to Kroll, these were agreements based on a financing product that Renew no longer markets.

The deal carries a “significant” level of excess spread (3.24%) based on the weighted average coupon of 7.4% on the assessments and an assumed securitized note coupon of 4.5%, Kroll's report states.

The transaction is also the first for Renew under its new chief executive, Kirk Inglis, formerly its chief financial officer. Inglis succeeds Cisco Devries, who shifted to a new chief innovation officer position at the company. Devries remains on the company’s board of directors, according to a May 31 release.

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Property Assessed Clean Energy