Ygrene is borrowing more heavily against the collateral in its next Property Assessed Clean Energy securitization.
The $225 million transaction consists of two tranches of notes: a $218.25 million senior tranche that is provisionally rated AAA by Kroll Bond Rating Agency and AA by S&P Global Ratings is entitled to 97% of the principal repayment of the collateral; there is also a $6.75 million subordinate tranche rated A by Kroll alone entitled to the remaining 3% of the principal repayment of the collateral.
By comparison, a single tranche of notes with a 97% advance rate was issued in Ygrene’s previous PACE securitization, completed in April 2018. The addition of a subordinate tranche of notes in the new deal provides investors in the senior notes with an additional form of credit enhancement, according to the rating agencies.
However, investors may also want take into consideration the fact that Ygrene received a civil investigative demand from a regulatory agency requesting information in November 2018 relating to the PACE provider’s advertising, marketing, origination, underwriting or servicing of residential PACE assets, according to Kroll. The rating agency did not name the regulatory agency; however Ygrene provides residential PACE financing primarily in California and Florida.
S&P did not disclose the civil investigative demand in its presale report.
The request comes as the broader PACE industry is facing heightened regulatory scrutiny. In April 2018, laws establishing new consumer protection requirements, and reporting standards effect in California. Lawmakers in the U.S. Senate have also introduced legislation that would require Truth in Lending Act disclosure for PACE assessments, and similar legislation is expected to be proposed in the House of Representatives, which may include placing PACE assessments under the regulatory purview of the Consumer Financial Protection Bureau, Kroll noted.
There are other structural changes benefiting investors in Ygrene's new deal. The interest reserve account will remain in the transaction unless drawn. In series 2018-1, the interest reserve was available on the first payment date only.
And there is a higher cap on liquidity reserve account; on any payment date, it must be the greater of $1 million or 3% of the outstanding principal balance of the notes, compared with 2% in the prior transaction.
The collateral for GoodGreen 2019-1 is broadly similar to that of the sponsor’s 2018 transaction. It features a higher share of commercial properties (8.58% vs. 5.9%), but this is likely to fall because the deal includes a prefunding feature and these funds can only be used to acquire residential PACE assessments. This prefunding feature is smaller than that of Ygrene’s previous deal, it represents just 23.3% of total proceeds from note issuance, compared with 32.5% of proceeds for GoodGreen 2018-1.
Among other differences, a smaller proportion initial pool of collateral for the new deal, 29%, consists of California PACE assets; that's down from 55% of the 2018 transaction. (The remainder of assets in each deal are in Florida.)
The average PACE assessment in GoodGreen 2019-1 is approximately $23,409.62 and the average annual payment is $2,446.63. The weighted average coupon is 7.05%, the weighted average term is 19.4 years, and weighted average property value is $444,032.13.
