Buyside likes PACE energy bond even after votes to cancel


By Will Caiger-Smith and Joy WiltermuthNEW YORK, July 25 (IFR) - Investors are flocking to a new
bond backed by energy-efficiency loans from Renovate America,
shrugging off recent votes in two California locales to end the
underlying lending plan.
    Renovate declined to discuss the roughly US$205m deal, its
11th securitization of Property Assessed Clean Energy financing
    But two people close to the transaction told IFR it was
progressing smoothly, with strong investor demand.
    PACE financing allows homeowners to make energy efficient
upgrades to their homes and repay the cost through extra
property taxes.
    But because PACE loans are attached to the property, and in
some cases can be senior to the mortgage, some realtors and
property owners say it can make the homes harder to sell.
    The city council in Bakersfield, California voted last week
to end PACE funding in the city as of August 5.
    Kern County decided in July to end the PACE program, but did
grant Renovate America's HERO Funding program special exception
for an additional six months.
    Renovate called the decisions "the middle of the story and
not the end", and said tweaks to the program should allow it to
    "We believe that PACE will be back in Bakersfield and Kern
County," the company said.
    "Either federal regulators or a consumer-protection bill
working its way through [the state capitol] will answer council
members' questions."
    Cecil Smart, a senior director at Kroll Bond Ratings Agency,
said he did not believe the council votes would impact existing
PACE contracts, many of which have been packaged into bonds.
    "It only impacts the ability of PACE originators to
originate more PACE assessments," he told IFR. "Nothing has been
done retroactively."
    According to a pre-sale report from Kroll, Kern County is
listed as a transaction party on the new HERO Funding 2017-2A
deal, as the bond is formally known.
    DBRS, the other ratings agency on the securitiztion, was not
immediately available to comment.
    Renovate America said in July that it already has supplied
more than 100,000 homes with PACE financing.
    But the recent votes to shut down PACE could affect that
    "For a program that's grown pretty fast, that's a pretty
interesting step backwards," a banker away from the deal said.

    Morgan Stanley is sole structurer and a bookrunner on the
securitization, with Bank of America Merrill Lynch and Barclays
acting as joint bookrunners.
    Barclays has thrown its weight behind Renovate America,
which said Monday that the bank was providing a US$200m credit
facility to support the expansion of its HERO lending program.

 (Reporting by Will Caiger-Smith and Joy Wiltermuth; Editing by
Marc Carnegie)
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