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Ygrene breaks yearlong PACE drought in $312.7M transaction

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Property assessed clean energy (PACE) securitization transactions are still feeling the chilling effects of tighter regulations meant to boost consumer protections, but Ygrene Energy Fund is still preparing to come to market with a sizable $312.7 million transaction.

The notes maintain the level of borrowing set by the previous deal, GoodGreen 2019-01, which raised $225 million in a January pricing.

GoodGreen 2019-2’s class A notes are at $271.6 million while the Class B notes total $4.4 million. Both Class A and Class B pay investors on a semiannual frequency, according to a presale report from Kroll Bond Rating Agency.

The Class C notes are sized at $32.7 million.

The ABS notes follow the typical semiannual or annual repayment schedule of PACE liens, which are linked to the financed property’s tax assessment.

The GoodGreen 2019-2 transaction, in particular, is secured by revenue liens in California, Florida and Missouri, the three states leading the industry in residential PACE programs.

Kroll and DBRS Morningstar assigned provisional ratings to the GoodGreen 2019-2 notes. Kroll and DBRS Morningstar expect to rate the Class A notes at AAA; Kroll is rating the Class B notes at A while DBRS Morningstar rates than at AA; only Kroll is rating the Class C notes, at BBB.

The transaction is backed by residential PACE financings, which support efficient and clean energy property improvements, such as solar panels, energy-efficient roofing, or hurricane/earthquake preparedness measures. The lien remains linked to the property until the financing is repaid, even if the property is sold to a new owner.

Although GoodGreen 2019-2 is one of an increasingly rare issuance type, the deal has several credit enhancements. The deal has a subordinate note, a liquidity reserve and excess spread, which DBRS Morningstar and Kroll both register as positive characteristics.

Kroll cited regulatory improvements as a positive in its rating assessment on GoodGreen 2019-02. A solid 24% of loans in the portfolio were sourced from California, the state that enacted new ability-to-pay underwriting standards that drove nationwide use on PACE originations elsewhere.

In October 2017, former California Gov. Jerry Brown signed two pieces of legislation that established new requirements for residential PACE originations. Assembly Bill 1284 required that program administrators make a good faith determination that the property owner has the reasonable ability to repay the loan. Senate Bill 242 sets out reporting and operating standards for contractors.

In the aftermath of the new regulations, originations declined. In the first half of 2018, new financings totaled about $430 million, according to the California State Treasurer, a drop of about 36.5% from the $678 million originated in the second half of 2017, before the legislation took effect.

The slowdown also hit securitizations, as securitizations backed by residential PACE deals fell to three deals totaling $693 million in 2018, from $1.5 billion in seven deals in 2017, according to Finsight data.

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Property Assessed Clean Energy