Citi and Renew Financial issue first ever unsecured energy efficiency ABS

June 17, 2015

Environmental Finance – Citi and Renew Financial have issued the first ever asset-backed security (ABS) transaction comprised of unsecured consumer energy efficiency loans.

The $12.58 million issue was entirely purchased by Calvert Investment Management, a US-based responsible asset management firm.

Current WHEEL members:

  • Energy Programs Consortium, which is a non-profit joint venture made up of the National Association of State Energy Officials, representing the state energy policy directors and the National Association of Regulatory Utility Commissioners, representing the state public service commissioners;
  • The Pennsylvania Treasury Department;
  • Renew Financial, a national solar and energy efficiency lender started in 2008;
  • Citi;
  • AFC First Financial Corporation, a state and national solar and energy efficiency lender and first approved WHEEL lender; and
  • Kentucky Housing Corporation, a state affordable housing lender.

The deal securitises assets from the Warehouse for Energy Efficiency Loans (WHEEL) programme, a private-public partnership designed to help US consumers adopt energy efficient technologies.

The transaction creates a new asset class in the form of an ABS backed by pools of unsecured residential energy efficiency loans.

“Through this partnership, the private sector is joining forces with state and local governments, the US Department of Energy, and non-profit organisations to establish a new asset class for institutional investors, and to expand the availability and improve the terms of financing for residential energy efficiency improvements for US homeowners,” said Marshal Salant, global head of alternative energy finance at Citi.

WHEEL, established in 2006, builds on Pennsylvania’s successful Keystone Home Energy Loan Programme (HELP) and has recently expanded its membership to include Renew Financial and Citi (see box). Keystone HELP loans, originated by AFC First Financial Corporation, an energy efficiency lender, have been issued to 13,000 homeowners to help reduce their energy use to date.

Through the programme, homeowners in participating US states can borrow up to $20,000 at competitive rates to make a range of improvements to their home, such as installing energy efficient water heaters, roofing and insulation.

“Thanks to this timely partnership with Citi, millions of homeowners across the country will be able to make crucial energy efficiency improvements to their homes,” said Renew Financial CEO Cisco DeVries. “We are pleased to see this important partnership of leading finance and government agencies take root, as it will provide states and local jurisdictions financing to help homeowners reduce their energy use and utility bills.”

“We are excited to see WHEEL take this important step to ensure homeowners can take advantage of these vital programmes,” Pennsylvania Governor Tom Wolf said.

“The securitisation of the first round of unsecured energy efficiency loans represents a major milestone for state energy programmes,” said Mark Wolfe executive director of Energy Programmes Consortium. “We are well on our way to developing a national market for single family energy efficiency retrofits.”

Deutsche Bank last year carried structured what was believed to be the first energy efficiency ABS. Unlike Citi’s, its $104 million offering was secured under the Property Assessed Clean Energy (PACE) mechanism in California.

The PACE financing model allows municipal governments to lend capital for the improvement of residential or commercial energy efficiency or clean energy projects. Repayments by the property owner are made over a long period, typically 10 to 20 years, through an additional property tax.

Citi and Renew plan more issuances over the next few years to secure the secondary market for new ABS.

The deal is part of Citi’s goal to invest or lend $100 billion to finance activities that reduce the impacts of climate change.

Earlier this year, Citi announced a $100 million debt facility with another energy efficiency and solar lender Kilowatt Financial, in a move that was seen as a precursor to this ABS issuance. Citi has subsequently extended this facility by $125 million to $225 million. And last year, it created a $100 million debt warehouse facility with Kilowatt to finance consumer loans for energy efficiency upgrades, including heating, ventilation and air conditioning equipment, water heaters, windows, roofing and insulation.

ABS are still rare in the renewables and energy efficiency space, but have the potential for strong growth.

In 2013 SolarCity, the US rooftop solar instillation company, created what is believed to be the first solar ABS.

Similarly, Toyota launched a twice oversubscribed asset-backed green bond programme in March 2013 for $1.75 billion.

Goldman Sachs has also recently launched a $500 million asset-backed credit facility for solar in Japan.

Originally published in Environmental Finance