Second PACE issuer eyes Europe as asset class gains traction
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Second PACE issuer eyes Europe as asset class gains traction

Commercial and Residential Property Assessed Clean Energy (PACE) issuer Ygrene Energy Fund is looking sell ABS to European investors, amid the sector’s fast growth in the US.

The Santa Rosa-based company is understood to be in talks with syndicate banks and legal counsel to discuss marketing US and European risk retention compliant deals to European investors in 2017, according to people with knowledge of the matter.

It would make Ygrene the second issuer, after residential PACE originator Renovate America, to tap European investors. Renovate America previously told GlobalCapital that it may market its first European risk retention compliant deal as early as the first quarter of next year.

Sustainalytics, a global provider of environmental social and governance research and ratings, was the second opinion provider for Ygrene’s green bond, as it prepares its first public offering, which will be backed by a blended pool of commercial and residential PACE liens.

Elsewhere, participants on a Monday PACE panel noted the influx of buy-and hold investors such as asset managers, pension funds and insurance companies into securitized PACE offerings. ABS issuance for the sector has swelled to nearly $1bn year to date.

“We’ve seen the three main residential PACE originators — Ygrene, Renovate America and Renew Financial — really just explosively grow over the past few years,” said Ray Hugel, an associate at Macquarie Group, noting that investor demand for the bonds is now coming from across the pond, as seen in the latest Renovate America deal, which was priced earlier in September.

“Each time a PACE securitization happens, investor demand just keeps growing and growing. The deals are well oversubscribed, pricing just keeps getting tighter and Renovate America’s securitization from the first quarter is yielding 4%, while the top tranche of the transaction that priced on Friday is yielding around 3%,” Hugel added.

The panellists also floated the idea of a PACE securitization backed purely by commercial PACE collateral. Mansoor Ghori, CEO of Petros PACE Finance, noted that lengthy sales cycles and lender consent are some of the setbacks to ramping up sufficient volume for a commercial PACE transaction.

“When we first started, our sale cycles took us nine to 12 months. The underwriting is rigorous and a lot of times we’re waiting on information from the borrower, which [delays] the process,” said Ghori. “Lender consent can take anywhere from a week to a couple of months, so we’re also waiting for that to be resolved.”

Ygrene CEO Stacey Lawson, whose company has securitized some commercial liens in private transactions, noted that despite these setbacks, there could be potential for improved liquidity for this segment of PACE.

“We have done deals with blended pools where we feather in our small balance commercial [collateral]. It actually compares better to residential collateral than it does the big ticket commercial stuff [and] we can underwrite that much faster,” said Lawson.

“There are interested buy-and-hold investors out there. Sometimes they are banks, or investors that just like the yield on the asset. There is a large spectrum of potential liquidity and I hope we’ll get to see a commercial PACE securitization in the near-term,” she added.

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