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Deutsche Bank closes first residential energy efficiency retrofit bond securitization

Deutsche Bank has closed the first-ever securitization of loans for residential energy efficiency with a $104 million PACE bond in California. The bond helps fund upgrading home insulation and installation of solar panels.

Property-assessed clean energy (PACE) is an innovative mechanism for financing energy efficiency and renewable energy improvements on private property. PACE allow governments to fund the up-front cost of energy efficiency improvements on commercial and residential properties, which are paid back over time by the property owners. This allows a property owner to implement improvements without a large up-front cash payment. Improvements are repaid over 10 to 20 years through property assessments, which are secured by the property itself and paid as an addition to the owners’ property tax bills.

The 11 year, double-AA rated bond was priced at a fixed coupon of 4.75% and was extraordinarily well received by investors which included large US insurance companies and asset managers. Deutsche Bank acted as sole structuring agent and sole book runner. The deal is listed on Bloomberg, under ticker ‘HERO 2014-1A A Mtge’.

Michael Cheng, Director in CB&S Credit Solutions Group was the lead banker on the transaction. “This innovative energy efficiency deal demonstrates Deutsche Bank’s financial expertise and our commitment to sustainability. If more governments create similar on-bill financing mechanisms, this will help unlock investment that creates jobs, reduces energy costs and carbon emissions and improves energy security.”

Deutsche Bank’s Global Transaction Banking business has also taken on the role of trustee and paying agent for California PACE programs. Over the past two years, California’s PACE program has helped over 6,000 property owners to make energy efficient upgrades to their homes, which will reduce their annual energy consumption by over 67 gigawatts and reduce annual CO2 emissions by 17,000 tons.