Renewable energy sources have increasingly become a focal point of U.S. regulatory and financial institutions as well as trade associations and legislatures. One main source of interest in this regard is programs that have been established by local and state governments to encourage homeowners to become more energy efficient through the use of Property Assessed Clean Energy (“PACE”) loans. PACE loan programs are designed to make it cheaper for homeowners to install solar panels or other energy improvements in their homes. Under these programs, which have been adopted in a number of states, local municipalities borrow money through the issuance of bonds and use the proceeds of the bond offering to make loans to homeowners to cover the upfront costs of energy efficiency improvements to their homes. The programs are voluntary, and each homeowner agrees to repay the loan over a period of up to 20 years through a special property tax assessment which attaches to the property. PACE loans were pioneered in Berkeley, California in 2008,1 and the liens securing PACE loans are normally senior to mortgages.
PACE loans and other renewable energy financial assets could be monetized through securitization. In securitizing these assets, a private company would act as the sponsor of the related securitization by aggregating PACE loans acquired from municipalities, engaging a loan servicer and then, ultimately, segregating the aggregated PACE loans into discrete pools of assets. Notes secured by the receivables from those pools would be marketed to third party investors. This Dechert OnPoint discusses some of the considerations that should be taken into account when securitizing PACE loans and the industry related discourse regarding these issues.
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