UK: The View From Global ABS 2016

Last Updated: 16 September 2016
Article by TMF Group

The renewable energy securitization market continues to grow in the US and Europe. TMF Group experts report from the 2016 Global ABS conference in Barcelona.

Green bonds gaining pace

Craig Braun of Renovate America joined the conference's Green Bonds/Renewable Energy Securitization panel. Renovate America originates Property Assessed Clean Energy (PACE) residential loans, swaps these loans into a municipal bond program with certain counties located in California and securitizes them through their HERO note program. Renovate HERO Trusts are the leading issuer of US PACE bond securitizations.

Renovate and the other panelists highlighted the growing interest in green bonds by investors. Green bonds enable capital-raising and investment for new and existing projects with environmental benefits, and meet the green bond designation criteria. Green bond investors are finding the securitization of consumer loans financing – the purchase and installation of rooftop solar panels – an attractive investment.

Along with the Renovate America program, Elizabeth Bellis Wolfe of Energy Programs Consortium (EPC) discussed financing residential energy efficiency loans. TMF Group's existing renewable energy experience in South America and Africa is beneficial as developers create new programs. Our experts can assist in developing operational and administrative solutions with financing and securitizing loans.

In Africa, we are seeing a number of investors seeking attractive yielding investments to finance off-grid micro solutions. Transactions are often structured using securitization-type technology. Repayments are generally collected and serviced via mobile 'money' technology.

South America

The renewal energy program carried out by the country's government has resulted in numerous wind and solar projects, to the point that at certain periods, most of the energy consumed in the country comes from renewable sources.

Most of the renewable energy projects are financed by international organisations; banks or development banks such as the IDB or CAF. These projects require local collateral agent services which TMF Group provides in most South American countries, particularly in Uruguay. The collateral is backstopping the guarantee of the developer/ borrower and secures the investors of the project.

Services that TMF Group provides as a local collateral and depositary agents include:

  • allocating revenue received from the project under the terms of the waterfall specified in the financing's underlying agency agreements
  • guarantee agent of the development contracts
  • guarantee agent of the PPA (Purchase Power Agreement)
  • in most projects, assets are pledged in favour of the collateral agent
  • the insurance agreements are pledged in favour of the agent
  • in some cases, as an additional guarantee, borrower shares are pledged in favour of the agent.

The advantage of these projects is that the state energy company has oversubscribed demand for energy, and is almost forced to buy additional power.

South Africa

TMF South Africa is extensively involved in the Renewable Energy Independent Power Producer Procurement Program (REIPPPP), providing corporate fiduciary services and independent directors and trustees to the related financing structures.

TMF South Africa's Commercial Director, Brendan Harmse attended inter alia the Global ABS covered bond discussion and participated in the RSA market securitisation panel. The RSA term and conduit market has been shrinking, with declining issuance largely due to bank issuers and investors not able to come to terms on price.

Investors are also preferring to invest in the banks' senior unsecured paper rather than in the higher-rated securitization paper, due to much better liquidity in this market. Hopefully the central bank, RSA National Treasury and market participants will sometime in future agree on ways to facilitate mechanisms to improve liquidity, so that more securitisation issuance could be stimulated.

During the RSA panel, Harmse also touched on securitization activity in other African markets. Kenya has securitization-enabling regulations formulated and managed by the Capital Markets Authority (CMA), but no deals have been issued to-date, despite increasing enquiries and interest to set up issuers. This is due to inter alia uncertainty around ring-fencing and bankruptcy remoteness of assets in the allowed issuing entity – namely a trust.

The CMA is working with various global advisors to resolve the legal and regulatory challenges. In Nigeria, proposed enabling regulations have been before the parliament since 2012 and are not yet finalised. Moody's mentioned that successful issuance has taken place in Morocco.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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