DBRS Finalizes Provisional Ratings on HERO Funding 2017-1

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following notes (the Notes) issued by HERO Funding 2017-1:

-- $125,474,000 Series 2017-1, Class A1 Notes rated AA (sf)
-- $107,000,000 Series 2017-1, Class A2 Notes rated AA (sf)
-- $36,000,000 Series 2017-1, Class B Notes rated BBB (sf)

The rating is 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 capabilities of Renovate America, Inc. with regard to originations and underwriting.
-- The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the non-consolidation of the Depositor with the Transferor, that the trust has a valid first-priority security interest in the Collateral and matters relating to Cayman Islands law 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 Notes are secured by approximately (1) $191.7 million of PACE bonds (PACE Bonds) issued by the three PACE Bond Issuers: Western Riverside Council of Governments, San Bernardino Associated Governments and County of Los Angeles, California and (2) up to $47.9 million of PACE Bonds to be acquired post-closing. Initial credit enhancement for the Class A1 and A2 Notes will consist of 3.00% overcollateralization (OC) in the PACE Bond Portfolio. There is also a liquidity reserve account, which is not funded at closing, but will gradually build up to 2.00% of the PACE Bond Portfolio Target Balance. Additional credit support is provided from excess spread available in the structure.

Credit enhancement for the Class B Notes consists of primarily Class A excess spread and the Class A OC (i.e., the 3% of principal collections not allocated to Class A).

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

The principal methodologies are Rating U.S. Property Assessed Clean Energy (PACE) Securitizations and Rating U.S. Structured Finance Transactions, which can be found on dbrs.com 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.