IFR: Citi sells first Green ABS bond of consumer loans

June 18, 2015

NEW YORK, June 18 (IFR) – The first real Green energy ABS bond that involves consumer loans directly, instead of solar panel leases or car purchases, was sold this week by Citigroup.

The small US$12.58m 2.3-year deal, called RF 2015-1A, is backed by residential energy efficiency loans created through a private-public partnership, called Warehouse for Energy Efficiency Loans (WHEEL).

The structure paves a new path for a Green product that has grown in popularity over the last year but is rarely funded via the securitization market.

In June, Toyota Motor Credit sold a US$777.375m trade which was its second-ever Green bond that used proceeds to entirely finance more eco-friendly cars from Toyota and Lexus. (Full Story)

SolarCity structured the first solar securitization backed by solar panel leases that sidestepped worries about repaying tax credits if the underlying collateral goes bad last July. (Full Story)

And last October, the HERO Funding vehicle sold an ABS that was backed by bonds from two Property Assessed Clean Energy (PACE) programs in California, a municipal initiative to spur renewable and energy-efficient home and building projects.

The difficulty of structuring around tax credits and the opposition by the Federal Housing Finance Agency to Property Assessed Clean Energy (PACE) have been major obstacles to growth in the solar panel and PACE bond sector.

So have the costs associated with financing residential energy-saving installations.

This week’s deal, which was issued by Renew Financial, adds a new dimension and helps in the maturation of this product.

WHEEL is backed by loans to borrowers with high credit scores, who can take out as much as US$20,000 under WHEEL to install energy saving appliances, water heaters, roofing and insulation at rates of under 10%.

“We think it’s the first step in what we are convinced is many,” said Marshal Salant, Citi’s global head of alternative energy finance, in a telephone interview. Citigroup, which provides warehouse funding for WHEEL, arranged the debut trade.

Calvert Investment Management, a big fan of Green Bonds, bought the entirety of the deal. The single A rated tranche was backed by loans with a maximum maturity of 10 years and priced at a spread of Swaps plus 250bp and a 3.5% coupon.

“We are looking for these sort of stories in terms of investments,” said Vishal Khandaju, a portfolio manager at Calvert.

Vince Passione, CEO of LendKey, which offers a similar type of loan to the WHEEL program, thinks the ABS market can help build momentum for energy efficiency loans.

“Until now, most consumers aren’t aware that these loans exist,” Passione said.

Although the Green Bond market saw record issuance last year and now stands at US$71.5bn, according to a Bank of America Merrill Lynch report published on Thursday, much of the supply has been driven by corporates doing vanilla bonds.

Dutch state-owned grid firm TenneT sold a two-part EUR1bn issue for investments in transmission cables for German offshore wind farms in May, which offered 0.875% and 1.75% interest, while Morgan Stanley issued a 2.2% US$500m 3.5 year issue earlier this month.

Originally published on International Financing Review