The market for green-certified PACE securitizations continues to expand
Written By: Stratton Report
June 22, 2016
An interview with Craig Braun of Renovate America
On June 6 Renovate America announced the closing of $305 million in PACE backed ABS bonds in the firm’s seventh securitization. The securitization is for a designated green bond and is the largest PACE securitization ever completed to date, according to the firm, by any issuer. The notes were rated AA (sf) by Kroll and AA (sf) by DBRS, secured by 13,432 PACE assessments levied on residential properties in 31 California counties. Stratton Report was fortunate to catch up with Craig Braun, the Managing Director of Capital Markets for Renovate America, Inc. to discuss this deal and its implications for the green bond and PACE markets.
Stratton Report: How would you describe the market reactions to this recent green bond issuance?
Craig Braun: The market was extremely receptive to our transaction. It was our largest to date at $305 million and the lowest coupon that we’ve achieved.
SR: Did you see any new buyers or new classes of buyers?
CB: We had the most investors to date for a single issuance. We had 19, including seven new investors. We also had an international account from Asia join the program. So all in all we are extremely pleased at how the deal went.
SR: Do you foresee more portions of the alternative energy industry utilizing green bond certification going forward?
CB: Good question, but one that’s hard for us to answer. We’re not as close to some aspects of the securitization market as the larger solar only companies. I would hope that they would consider obtaining green bond certification since their bonds are already climate aligned and would easily qualify. There’s definitely a lack of supply in the green bond market, and more regular supply would help meet the growing demand. Our deal was about 34 percent solar, so I think it can be said that the green bond label is very compatible with solar ABS.
SR: Are you on track to meet your goals for financings made to homeowners and then securitized during 2016?
CB: I’d say yes and yes, we’re on plan. I think we communicated to you earlier in the year that we would probably issue about a billion dollars this year across four transactions, and based on what we’ve issued to date, we’re right on plan.
SR: Who underwrote the deal?
CB: Morgan Stanley was the lead and Deutsche Bank was the co-lead. Mischler Financial was the co-manager on this deal. This is the first time that we’ve had a co-manager. They are a veteran-owned firm that did a very good job in marketing the deal to some fairly significant accounts. We are based in San Diego, which is a military town at heart, and we aspire do more with veterans where we can. So, we brought Mischler on and we were very happy we did.
SR: Who was your legal counsel on the deal?
CB: We’re represented by Kramer Levin, who have represented us on all of our deals. The underwriters have been represented on all the deals by Winston & Strawn.
SR: How long did the whole process take?
CB: We took the pool we had as of May 2 and the deal closed June 6. So that’s a fairly tight timeline. We got the deal done in about five weeks. In the general scheme of things that’s quick. A typical deal can take eight to 12 weeks, but now we’re a repeat issuer, so we know the process, what needs to be done, when it needs to be done, and who we need to market to. Plus, the rating agencies are familiar with our platform, and our documentation is pretty much fixed. It’s much easier doing a repeat issuance, especially when the structure is very similar to prior deals. This deal was helped because it was very much like our previous deals, except that it was bigger and there were financings from 31 counties instead of 28. If you have good processes and good data, you can get through it in about five weeks.
SR: Do you have to create new legal entities and move the assets into them?
CB: Yes. We have all the underlying municipal bonds, which are backed by all the individual assessment contracts, and then we transfer them into the securitization entity which is the issuer. Then, we issue the single class of securities from that entity. In this particular deal there were 24 underlying municipal bonds that contributed to the structure. There’s a lot of paper involved.
SR: Are you working on the next batch already?
CB: We are aggregating financings. We haven’t had to start the process of issuing new securities just yet, but we’ll be in the market again in Q3.
SR: That’s a factory you’ve got going there.
CB: That’s right. An efficient factory, thank goodness.