DBRS Morningstar's Commercial Property Assessed Clean Energy ABS Sector Outlook: Stable Despite Coronavirus

Despite the ongoing impact of the Coronavirus Disease (COVID-19) on the U.S. economy and on borrowers’ ability and willingness to repay outstanding debts, DBRS Morningstar's outlook on the commercial property assessed clean energy (C-PACE) asset-backed securities sector is stable. We expect limited credit deterioration in C-PACE securitizations due to the seniority of amortizing PACE assessments and underlying low loan-to-value ratios.

Key highlights in the commentary are as follows:

-- We believe that increases in C-PACE assessment payment delinquencies will be limited. The combination of senior payment priority, low leverage resulting in relatively small loan payments, and non-acceleration of debt provide the borrower (property owner) with strong incentives to pay the PACE assessment.
-- We also believe the increased risk of construction delays on properties undergoing new construction or gut rehab should not translate into a significant increase in C-PACE assessment payment delinquencies.
-- There are also structural features of C-PACE securitizations that are beneficial to investors, including a typical one class note structure, whereby the ultimate payment of principal and interest mitigates liquidity concerns.