Kroll Bond Rating Agency Assigns Preliminary Ratings to HERO Funding 2016-4 Class A Notes

NEW YORK--()--Kroll Bond Rating Agency (KBRA) assigns a preliminary rating of AA(sf) to HERO Funding 2016-4 (“HERO 2016-4) Class A1 Notes and Class A2 Notes (together, the “Class A Notes”). The notes are newly issued asset-backed securities backed by a portfolio of Property Assessed Clean Energy (PACE) bonds.

The notes are secured by an Initial PACE Bond Portfolio and a Subsequent PACE Bond Portfolio (together, the “PACE Bond Portfolio”), each consisting of limited obligation improvement bonds (each, a “PACE Bond”) issued by the Western Riverside Council of Governments (“WRCOG”), San Bernardino Associated Governments (“SANBAG”) and the County of Los Angeles, California (“LA County”, and together with WRCOG and SANBAG, the “PACE Bond Issuers”). The Initial PACE Bond Portfolio comprises 139 PACE Bonds with an aggregate principal balance of approximately $204.7 million and is secured by 9,008 PACE assessments levied against 8,697 residential properties (“PACE Assessments”) in 36 California counties. The average PACE Assessment is approximately $22,723 with an average annual payment of approximately $2,979. The Subsequent PACE Bond Portfolio is expected to consist of PACE Bonds with an aggregate principal balance of $87.7 million. The transaction benefits from credit enhancement in the form of excess spread, overcollateralization, and a liquidity reserve.

KBRA analyzed HERO 2016-4 using the General Rating Methodology for Asset-Backed Securities published on July 30, 2012. PACE assessments fall within Category 1: Financial Assets. The key determinants considered in the rating outcome are: a structural and legal analysis of the transaction; the treatment of PACE assessments as senior tax liens; and the creditworthiness of the Counties acting as servicer.

KBRA believes the transaction benefits from sufficient credit enhancement and a structure that accelerates principal payments to the rated notes upon weakening asset performance. In addition, KBRA views the eligibility requirements, especially the low LTV of the PACE assessment, as a positive credit consideration for this transaction.

Class           Rating           Initial Principal Balance
Class A1 Notes           AA(sf)           $183,634,000
Class A2 Notes           AA(sf)           $100,000,000

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

Contacts

Kroll Bond Rating Agency
Analytical:
Cecil Smart, Jr., 646-731-2381
csmart@kbra.com
or
Anthony Nocera, 646-731-2350
anocera@kbra.com
or
Lenny Giltman, 646-731-2378
lgiltman@kbra.com
or
Usman Khan, 646-731-2488
ukhan@kbra.com

Contacts

Kroll Bond Rating Agency
Analytical:
Cecil Smart, Jr., 646-731-2381
csmart@kbra.com
or
Anthony Nocera, 646-731-2350
anocera@kbra.com
or
Lenny Giltman, 646-731-2378
lgiltman@kbra.com
or
Usman Khan, 646-731-2488
ukhan@kbra.com