Spruce Finance, Inc., a newly formed financier of residential energy-efficiency and solar panel installations, is issuing its first securitization of home improvement loans originated through both its predecessor companies and Fannie Mae.
Spruce is issuing its first series under Spruce ABS Trust 2016-E1, an $83.78 million transaction comprised of two classes of twelve-year notes. The Class A notes total $73.5 million, with credit enhancement of 26% while the Class B notes are sized at $10.3 million with 15.5% CE.
Kroll Bond Rating Agency has issued an ‘A’ rating on the Class A notes, and a ‘BBB’ on the Class B notes. Credit enhancement consists of overcollateralization, excess spread, a reserve fund of 1% and subordination.
The loans are based on a pool balance of $105.4 million in loans, of which just over half were originated by Spruce or its predecessor companies Kilowatt Financial LLC and Clean Power Finance, Inc. The remaining 47% of the loans were purchased from the Western Electricity Coordinating Council and other originator partners of Fannie Mae’s energy-efficiency consumer lending program.
The securitization does not involve bonds backed by the popular PACE (Property Assessed Clean Energy) tax-based finance program for solar-panel installation and energy-efficiency improvements that are featured in deals involving companies like Renovate America and Ygrene Energy Fund.
The Spruce loans include both direct borrowings by consumers or financing through contractors providing the home energy-efficiency improvements. Those eligible improvements are from Photovoltaic solar panel systems or installation of the certain doors, windows, roofing, heating, ventilating, air conditioning, electrical or water conservation system upgrades.
The 2016-E1 transaction does not include the leases and power-purchase agreements offered by Spruce.
Spruce was created last December in a merger of the direct consumer-finance business of Kilowatt focused on solar and energy-efficiency financing, with the solar-installer finance marketplace offered by Clean Power. According to Kroll, the combined companies have raised more than $2 billion in capital and serviced about 50,000 homeowners.
The creation of Spruce provided “one-stop shopping” for origination and financing for energy-efficiency contractors, according to Kroll, as well access to a nationwide servicer (Viewtech Financial Services, a subsidiary of Spruce) that is the exclusive servicer for Fannie Mae’s energy efficiency and consumer lending programs.
The loans in the pool (all serviced by Viewtech) have an average balance of $9,502 and weighted average coupon of 5.89%. Borrowers’ average FICO score is 749 for loans with average terms of just over 10 years.
The initial and target overcollateralization is 14.5% and 19%, respectively, on the adjusted pool balance.