Renovate America is marketing another $305.3 million of bonds backed by Property Assessed Clean Energy (PACE) bonds financing energy efficiency renovations for California homeowners.
DBRS and Kroll Bond Rating Agency both expect to assign double-AA ratings to a single tranche of class A notes maturing in September 2036.
Morgan Stanley and Deutsche Bank Securities are the structuring agents and bookrunners.
The notes are backed by approximately $314.8 million of PACE bonds issued by three local authorities, the Western Riverside Council of Governments, San Bernardino Associated Governments, and the County of Los Angeles, to finance energy retrofit or renewable energy installations such as solar panels. The bonds in turn are backed by 13,432 assessments paid in twice yearly instalments to the county alongside property tax assessments in 31 counties.
LA County is the largest county, representing 37.51% of the initial balance.
The assessments have an average balance of approximately $23,433, a weighted-average annual percentage rate of 7.96% and a weighted average original term of 14.95 years. They were originated between January 2016 and April 2016.
Generally, the amount of a PACE assessment is small compared to the value of the related property. The maximum initial lien-to-value for assessments included in HERO 2016-2 is approximately 14.7%, according to KBRA.
The transaction is the second securitization this year by Renovate America and the seventh overall since 2014.
Initial credit enhancement for the notes will be 3%, consisting of overcollateralization in the PACE Bond portfolio. There will also be a liquidity reserve account, which will not be funded at closing, but will gradually build up to 7% of the aggregate principal balance of the PACE Bonds. The notes will also benefit from the excess spread, or difference between the yield on the collateral and the interest paid on the notes, of approximately 2.96% per annum.