A recent bankruptcy filing by Renovate America will have no bearing on its outstanding securitizations collateralized by property assessed clean energy (PACE) financing contracts for residential solar-panel and energy efficiency improvements.
Kroll Bond Rating Agency, in a report issued Monday, noted that the ABS transactions were “largely insulated” from the San Diego-based company’s own financial performance, since the company served only as program administrator for the PACE financing that homeowners must repay through twice-annual property tax assessments.
Homeowners’ obligations fund limited obligation improvement bonds issued by counties in the two states (California and Missouri) in which Renovate originated contracts.
“Under California and Missouri law, PACE assessments have equal lien priority with real estate taxes and other special assessments and are senior to all non-tax liens, including mortgages,” Kroll’s report noted. The assessments are tied to the property, making them on obligation of future owners of the improved homes, as well, until the contracts are paid down.
Renovate America, once a market-leading originator of PACE financing that also later entered unsecured home improvement loans, filed for Chapter 11 on Dec. 22, with plans to liquidate its assets to pay off its creditors. Those assets include unsecured consumer loans (through its "Benji" program), which has a stalking-horse bid from Finance of America Mortgage that will be the floor price of an eventual bankruptcy auction, according to Kroll.
Renovate America bowed out of its PACE originations business in October,
The senior bonds across Renovate’s 13 outstanding PACE ABS deals carry triple-A ratings from Kroll and/or DBRS Morningstar. The top ratings are supported from PACE-contract collateral secured by first-lien property claims to homes that undergo the solar-panel installations.
Renovate had issued PACE securitizations through its HERO Funding platform since 2014, including the most recent deal from March 2020 involving approximately $47 million in triple-A rated notes.
But residential PACE deals tailed off in 2018, following the passage of new underwriting requirements for PACE contract issuance in California. The California regulations enacted two years ago required borrowers to meet “ability-to-pay” standards which made financing more costly
In addition, the company was impacted by the economic disruption this year from the COVID-19 pandemic, according to Kroll.
The coronavirus-driven slowdown, however, has not impeded solar financing via traditional consumer loans from finance companies including Loanpal, Sunnova Corp. and Vivint Solar. Those firms have helped drive non-PACE green-bond issuance through ABS investors in a market some analysts project will exceed $100 billion next year.
