Renewable Funding, a/k/a Renew Financial Group, is structuring its second round of Property Assessed Green Energy (PACE) bonds this year financing residential renewable energy and energy efficiency projects for California homeowners.
Golden Bear 2016- 2 Class A Notes consists of a single tranche of fixed-rate notes sized at $115.3 million – slightly down from Renewable’s prior transaction this year sized at $122.5 million.
Kroll Bond Rating Agency has assigned a preliminary ‘AA’ rating to the notes, which are backed by PACE-designated green bonds issued by the California State Communities Development Authority and Los Angeles County. The rating is on par with the 2016-1 transaction, as well as recent deals from other PACE program administrators such as Renovate America and Ygrene Energy.
The transaction is secured by 4,226 PACE assessments against 3,991 residential properties in 37 California counties (1,210 of them in Los Angeles County), according to a KBRA presale report issued Monday. The average assessment is $8,135, with an annual levy of $3,218.
The weighted average original term is 19.32 years, and they have an expected maturity of 2042.
Weighted average coupon is 8.15%; KBRA assumed an ABS note rate equal to 4.5%, resulting in 3.65% of initial excess spread. OC is 3%. Liquidity reserve will be 3% of PACE bond principal amount, or $3.57 million.
Natixis is the structuring agent and bookrunner on the deal.
PACE programs finance energy improvements for residential, commercial and industrial buildings, and are administered through private lenders that are repaid through annual tax levies. The programs are controversial, in that state law places the PACE bond in a first-lien position on a property that contravenes the GSE mortgage guarantees through the Federal Housing Financial Authority – which disallows homeowners with from refinancing or purchasing homes with a PACE lien through Freddie Mac or Fannie Mae.
In regard to the FHFA’s objections, California has in place the PACE Loss Reserve Program funded with $10 million to mitigate risk for lenders with funds offsetting losses that could occur to the first-priority PACE lien. (The FHFA has said the reserve program “does not address all of its concerns,” wrote KBRA.
Overall, 32 states and the District of Columbia have passed local legislation allowing municipalities to create PACE programs to finance renewable energy and energy efficiency projects for homes as well as commercial/agricultural and industrial parties. But the vast majority of bonds have been issued in California, where state lawmakers
Renew Financial Group, founded in 2008, has raised $123 million in equity capital, and partners include Prelude Ventures, Angeleno Group, Apollo Investment Corp, NGEN Partners and Claremont Creek Ventures. The Company has expanded to Florida and is expected to ramp up programs in Missouri and Colorado
The new deal is its third securitization overall, following a $50 million privately placed transaction in 2015.