Deutsche Bank AG (DBK) sold the first securities backed by bonds tied to U.S. energy-saving projects in a deal that follows a federal agency’s objections to the underlying homeowner borrowing.
The Western Riverside Council of Governments in California issued the underlying notes, according to a presale report by Kroll Bond Rating Agency, which planned to grant AA grades to the securities sold today. The offering totaled $103.8 million and carried a 4.75 percent coupon, according to a person with knowledge of the sale, who asked not to be named because the information wasn’t public.
The debt is backed by liens on homes created as consumers are given funds for work such as weather sealing, insulation upgrades or solar-panel installations, called Property Assessed Clean Energy assessments. The notes might incur losses if the overseer of government-backed mortgage guarantors Fannie Mae and Freddie Mac decides to challenge the priority status of the liens in federal court, Kroll said.
The credit grader “views this risk as remote,” analysts Brian Ford, Lenny Giltman, Anthony Nocera and Andrew Giudici wrote in the Feb. 27 report.
Pace programs, which cover the initial costs of the improvements, started in 2008, while legislation enabling their use was passed in 31 states by 2013, according to PACENow, a Pleasantville, New York-based advocacy group.