Bonds Backed by Homeowner Energy-Efficiency Loans Seen Expanding

Renovate America Inc., a closely held company that works with municipalities to let homeowners use property liens to borrow cheaply for energy-efficiency improvements, is expecting more sales of a new type of bond tied to the financing.

“We expect to do additional securitizations next year,” J.P. McNeill, chief executive officer at Renovate America, said in a telephone interview.

New York hedge fund 400 Capital Management LLC, with more than $1 billion of assets under management, helped bring the first $233 million of securities into the market this year, including $129 million of notes last month that helped finance 6,858 projects that will save homeowners 6.7 million kilowatt-hours in energy and 4 million gallons of water annually, according to an e-mailed statement today.

The debt is backed by liens called Property Assessed Clean Energy assessments, which are similar to property taxes, created as consumers are given funds for work such as solar-panel installations, better windows and artificial turf. Renovate America calls its product the Home Energy Renovation Opportunity, or Hero, program.

Renovate America’s partnership with 400 Capital has allowed “institutional capital to support these initiatives,” Chris Hentemann, the hedge fund’s managing partner, said in the statement.

Next Deals

Renovate America, which works with more than 200 cities and counties in California, plans to “take the lead” more on the next deals, holding liens until acquiring a large enough amount to package them into bonds itself, McNeill said. 400 Capital, which managed those roles along with investing in the junior portions of the debut transactions, will still be involved, he said.

“We’ve got a very good relationship with them that we’ve worked on for almost two years now,” McNeill said.

Pace programs started in 2008, while legislation enabling their use was passed in 31 states by 2013, according to PACENow, an advocacy group. San Diego-based Renovate America would like to work with cities and counties outside of California, McNeill said. He said it’s managed about 95 percent of the residential Pace borrowing over the past two years.

While the regulator of Fannie Mae and Freddie Mac has expressed concern that Pace liens could hurt the government-backed firms, Renovate America would like to work with mortgage lenders and guarantors to support work done to improve properties and save homeowners money, McNeill said.

“To the extent that we can lower the total operating costs of the housing stock, then the mortgage community will benefit, everyone will benefit,” he said.