November 18, 2014

Deutsche Bank closes second ever residential energy retrofit bond: helping California address its energy and water challenges

Deutsche Bank’s Structured Finance franchise completed the placement of the second energy bond which securitizes residential energy efficiency improvement loans.

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Video: What ist PACE Financing?

The $129m HERO 2014-2 ABS issuance was sponsored by 400 Capital LLC, secured by Property Assessed Clean Energy (“PACE”) bonds issued by Western Riverside Council of Governments (WRCOG) and San Bernardino Associated Governments (SBAG), and underwritten by Renovate America, the Program Administrator.

Energy efficiency improvements on over six thousand residential properties

The proceeds financed energy efficiency improvements on over six thousand residential properties across eleven counties in California. The properties have received an average of $19,414 of improvements including energy efficient windows, insulation, heating and air conditioning systems, water efficient products and solar panels. The bond will mature in September 2035 which corresponds with the scheduled maturity of the underlying PACE bonds.

The transaction was very well-received by investors and priced with a yield of 4%, compared to the first such bond, the $104m HERO 2014-1 transaction, which was priced at 4.75%. Deutsche Bank acted as sole structuring agent and bookrunner for both issuances.

Financings are repaid through special assessments

The securitization aggregates PACE bonds backed by special assessments for energy efficiency improvements originated through the Home Energy Renovation Opportunity (“HERO”) program administered by Renovate America. The program allows qualifying homeowners to finance the cost to purchase and install eligible products. The financings are repaid through special assessments with such assessments sharing the same lien priority as property taxes against the related real estate property.

The Class A securitization note benefits from credit enhancement in the form of overcollateralization, liquidity reserve and excess spread. The bonds were rated ‘AA’ by Kroll Bond Rating Agency.

According to Renovate America, the Program Administrator for WRCOG and SANBAG, the program is expected to result in substantial energy and water savings to the property owners as well as positive economic impact to the community.

To date, 31 states and the District of Columbia have PACE enabling legislation.

Energy efficiency improvements on over six thousand residential properties

The properties have received an average of $19,414 of improvements including energy efficient windows, insulation, heating and air conditioning systems, water efficient products and solar panels.

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Residential energy retrofit

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