The PACE industry, which is on track for explosive growth next year, saw some movement last week with the pricing of Renew Financial’s Golder Bear deal mid-week, followed shortly by Ygrene’s $184m offering on Friday afternoon.
Sole lead Deutsche Bank priced the $179.482m ‘A’ notes at 165bp over interpolated swaps, while the $4.995m ‘B’ notes priced to yield 5.25%. The deal is backed by 7,761 PACE liens on 6,762 residential and commercial properties located across 38 counties in California and five counties in Florida. The residuals on the transaction were retained by Ygrene.
“The deal is indicative of a great asset class which has caught the attention of a broad investor base,” Ygrene CFO Michael Chan told GlobalCapital on Monday. “It’s our first publicly syndicated issuance so the book looked great and the pricing works really well for investors in that the yields are pretty good for the underlying credit quality,” Chan added.
Market participants told GlobalCapital that the thirst for yield has been a draw for recent PACE bonds, which have longer WALs and higher yields than traditional ABS products.
“It’s a good environment for PACE deals now. There are people who have money to put to work, and there’s not a lot of yield out there [so] PACE bonds, on a relative value, are very appealing,” said an ABS deal watcher, adding that the deal size may have also given both deals a pricing advantage.
“Both Ygrene and Renew got good pricing, but that’s also a function of their size. Both deals were under $200m and did not need many large orders to get the upper hand on pricing,” he added.
Liquidity booster
A PACE player also noted that the deal’s successful execution was indicative of growing investor familiarity with the asset class, even though this is the first public PACE deal with some commercial PACE collateral.
To date, there are no deals backed wholly by commercial PACE liens, though Ygrene did a debut private ABS transaction last year with a similar blended pool of residential and commercial PACE assets.
“Even though commercial PACE hasn’t really hit critical mass independent of residential PACE, it seems like market demand has ramped up enough for them to want to do a public deal now,” said the source.
An energy finance adviser agreed, adding that Ygrene’s unique collateral mix may have factored into its decision to issue a public deal only now.
“I’m not surprised it took them this long to do a public deal. ABS investors are still unfamiliar with commercial PACE collateral, but it seems like Ygrene’s origination levels — on both the residential and commercial sides — have grown more quickly than the company’s ability to scale," the adviser said. “That’s likely why Ygrene is not really a programmatic issuer like other PACE platforms just as yet.”
Chan said that Ygrene will become a programmatic issuer in the year ahead, and added that the company’s presence in the public securitization market will help boost liquidity for the sector — which would be another incentive for investors.
“[As] a new public syndicated issuer alongside Renovate America and Renew, this is a great situation for investors, because there’s deal diversity and this is going to improve the liquidity of the asset class — there’s going to be secondary trading at some point and this is conducive to that happening.”