There is strong capital markets interest in securitizing renewable energy loans, and property assessed clean energy loans associated with commercial properties will probably be one of the first types securitized, according to a Kroll Bond Ratings Agency Inc. report.
The report notes that although “no rated transaction has yet been completed,” capital markets in renewable energy loans is “considerable,” and KBRA analysts believe PACE loans “possess strong credit characteristics that make them highly suitable for securitization.”
KRBA notes that there is legislation in 27 states allowing for PACE loans—which are designed to allow local governments to finance renewable energy and energy efficiency updates on privately owned residential, commercial industrial and agricultural properties. The loans allow property owners to finance eligible projects and repay loans through a special tax assessment on their property tax bill over a long-term period, typically 15-20 years.
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He noted that while there also is a senior claim on the lien on the commercial side of the market as well, “some programs require the consent of the mortgage lender, which would take some of the risk out of it.” Also commercial lenders generally grant their consent as the loans tend to be or are limited to a relatively small percentage of the value of the property. He added that in a delinquency or default situation, borrowers don’t have to repay entire loan, only what is in arrears.
In addition to PACE loans, renewable energy loans the cap markets have shown interest in securitizing have included solar power-related financing secured by leases rather than liens, Nocera said.
