DBRS Morningstar Finalizes Provisional Ratings on GoodGreen 2022-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following notes issued by GoodGreen 2022-1 (the Issuer or the Transaction):

-- $314,951,000 Class A rated AAA (sf)
-- $9,741,000 Class B rated AA (sf)
-- $19,160,000 Class C rated BBB (sf)

The ratings are based on DBRS Morningstar’s review of the following considerations:

-- The ongoing Coronavirus Disease (COVID-19) pandemic. The analysis incorporated the impact of the coronavirus pandemic as follows: The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns December 2021 Update,” published on December 9, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that recent pandemic-related developments, particularly the omicron variant with subsequent restrictions, combined with rising inflation pressures in some regions, may dampen near-term growth expectations in coming months. However, DBRS Morningstar expects the baseline projections will continue to point to an ongoing, gradual recovery.
-- Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement in the form of a subordinated note, liquidity reserve account, and excess spread.
-- Credit enhancement levels sufficient to support the DBRS Morningstar delinquency and loss severity assumptions under various stress scenarios.
-- The ability of the Transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For the Transaction, the ratings address the timely payment of interest on a semiannual basis and the payment of principal by the Scheduled Maturity.
-- The capabilities of Ygrene Energy Fund Inc. (Ygrene) with regard to originations and underwriting.
-- DBRS Morningstar performed an operational review of Ygrene and considers the Company to be an acceptable originator of property assessed clean energy (PACE) assessments.
-- The legal structure and presence of legal opinions that address the true sale of the assets to GoodGreen Funding 2022-1 LLC (the Depositor), the nonconsolidation of the Depositor with Ygrene, that the Issuer has a valid first-priority security interest in the PACE Asset Portfolio, and consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”
-- Review of legal considerations specific to PACE.
--Ygrene is subject to review by several regulatory agencies, including the Consumer Financial Protection Bureau and a number of local state agencies. Ygrene and/or its subsidiaries may, from time to time, become involved in reviews, audits, inquiries, investigations, and information-gathering requests from regulators and governmental agencies. For example, Ygrene received a Civil Investigative Demand from a regulatory agency requesting information relating to Ygrene’s advertising, marketing, origination, underwriting, or servicing of residential PACE assets. In addition, Ygrene has received a subpoena from the Securities and Exchange Commission as part of an investigation requesting documents related to prior issuances of notes under Ygrene’s GoodGreen program as well as documents related to the potential or actual rescission, cancellation or early payoff of PACE assets to homeowners in a PACE program due to allegations or complaints of fraud or misrepresentations.
-- Each of the Golden State Finance Authority and the County of Yolo had validation judgments issued by the California Superior Court that confirm that the PACE special tax liens and PACE Special Taxes are valid and enforceable obligations that conform to all federal and state laws. In addition, the judgments ruled that the PACE Assessments do not constitute a taking of private property without due process of law in violation of the Fifth and 14th Amendments to the U.S. Constitution or the California Constitution.
-- Green Corridor had a validation judgment issued by the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida, confirming that the PACE Assessments are valid and enforceable obligations that conform to all federal and state laws. The judgment also ruled that the PACE Assessments do not constitute a taking of private property without due process of law in violation of the Fifth and 14th Amendments to the U.S. Constitution or the Florida Constitution.
-- The Federal Housing Finance Agency (FHFA) has voiced concerns that residential PACE Assessments have a lien status superior to that of existing mortgages underwritten by Fannie Mae and Freddie Mac. DBRS Morningstar has reviewed the FHFA’s statements on the subject and notes that such statements do not challenge the validity of the PACE Assessment as a valid lien.
-- Servicing is performed by local county tax collection offices.
-- Commingling risks associated with the servicing of PACE Assessments by local county tax collection offices are mitigated by the protections afforded to special revenue collections under Chapter 9 of the U.S. Bankruptcy Code and certain structural features, including a County Reserve Account.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating U.S. Property Assessed Clean Energy (PACE) Securitizations (July 31, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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