The Western Riverside Council of Governments (WRCOG) is preparing its second securitization of PACE bonds, according to a presale report published by Kroll Bond Rating Agency.

The $129 million deal, HERO Funding Trust 2014-2 is very similar to one the $104 million one that WROCG completed in March, except that it is a little more geographically diverse.

Property Assessed Clean Energy programs allows property owners to finance energy efficiency and water conservation projects through property tax assessments. HERO 2014-2 is backed by 6,858 pace assessments levied against 6,666 residential properties in eleven California counties. The average assessment is $19,414 with an average annual payment of $2,499. The trust will issue a single, $129.15 million tranche of notes with an expected maturity of September 2013 and an initial ‘AA’ rating from Kroll.

The latest deal has no major structural differences from WROG’s initial deal and the assessments have similar attributes. The major difference between the two transactions is the inclusion of 10 new counties representing 60.1% of the collateral. The initial deal featured collateral only from Riverside County while Riverside County represents 39.90% of the HERO 2014-2 collateral pool.

PACE liens are senior to mortgages, and the Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, believes that they contravene the terms of mortgage insurance provided by the two companies. This means that there is a risk that the FHFA could challenge the validity of a PACE lien in court, resulting in an impairment.

Kroll views this risk as remote, but has nevertheless applied a stress test assuming that the 36% of mortgage in the pool encumbered by Fannie or Freddie mortgages defaulted and had their PACE liens nullified.

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