NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a preliminary rating of AA (sf) to HERO Funding 2018-1 (“HERO 2018-1) 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 Class A1 Notes and Class A2 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 and special assessment revenue bonds (each, a “PACE Bond”) issued by the Western Riverside Council of Governments, the County of Los Angeles, California, California Statewide Communities Development Authority and Missouri Clean Energy District. The Initial PACE Bond Portfolio comprises 168 PACE Bonds with an aggregate principal balance of approximately $154.9 million and is secured by 6,547 PACE assessments levied against 6,332 residential properties (“PACE Assessments”) in 55 counties with 43 in California and 12 in Missouri. The average PACE Assessment is approximately $23,658 with an average annual payment of approximately $2,590. The Subsequent PACE Bond Portfolio is expected to consist of PACE Bonds with an aggregate principal balance of $38.7 million. The transaction benefits from credit enhancement in the form of excess spread, overcollateralization, and a liquidity reserve.
KBRA analyzed HERO 2018-1 using the Global General Rating Methodology for Asset-Backed Securities published on November 28, 2017. 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.
Initial Principal Balance
|Class A1 Notes||AA (sf)||$0|
|Class A2 Notes||AA (sf)||$187,800,000|
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Representations & Warranties Disclosure
All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report available here.
Related Publications: (available at www.kbra.com)
About KBRA and KBRA Europe
KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.