DBRS Finalizes Provisional Ratings on HERO Residual Funding 2016-1R (Cayman)

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following notes (the Notes) issued by HERO Residual Funding 2016-1R (Cayman) (the Issuer):

-- $89,000,000 Series 2016-1R, Class A-1 Notes rated BBB (high) (sf)
-- $36,000,000 Series 2016-1R, Class A-2 Notes rated BBB (sf)

The ratings are based on DBRS’s review of the following analytical considerations:
-- Transaction capital structure, proposed ratings and form and sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the rating addresses the payment of timely interest on a semi-annual basis and the payment of principal by the Scheduled Maturity.
-- The legal structure and presence of legal opinions that address the true sale of the Collateral to the Transferor, the non-consolidation of the Transferor with the sellers of the Residual Certificates, that the Issuer has a valid and perfected security interest in the Residual Certificates and the consistency with DBRS’s “Legal Criteria for U.S. Structured Finance” methodology.
-- Review of legal considerations specific to property-assessed clean energy (PACE).
-- Servicing is performed by local county tax collection offices.

The Transaction collateral (the Collateral) consists of the Residual Certificates issued by HERO Funding Trust 2015-1, HERO Funding Trust 2015-2, HERO Funding Trust 2015-3, HERO Funding Trust 2016-1 and HERO Funding Trust 2016-2 (the Underlying Transactions).

The Underlying Transactions are backed by $1,008 million of PACE bonds (the PACE Bonds) issued by three PACE Bond Issuers: Western Riverside Council of Governments, San Bernardino Associated Governments and County of Los Angeles, California (LA County). The PACE Bonds are secured by a pool of 44,912 PACE Assessments levied against residential properties in 31 California counties. LA County is the largest county, representing 26.93% of the Assessments. The Assessments have an average balance of approximately $22,459, a weighted-average (WA) annual interest rate of 8.06% and a WA original term of 14.97 years.

The source of repayment for the Notes is collections realized on the Residual Certificates. Such amounts represent collections in excess of transaction fees, expenses and debt service of the rated notes issued in the Underlying Transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating U.S. Property Assessed Clean Energy (PACE) Securitizations and Rating U.S. Structured Finance Transactions, which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

Please see the attached appendix for additional information regarding sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.