DBRS Morningstar Confirms Ratings on 13 HERO Funding, LLC Transactions

DBRS, Inc. (DBRS Morningstar) confirmed 24 outstanding ratings across 13 HERO transactions from Renovate America, Inc. (Renovate). Performance trends are such that credit enhancement levels are sufficient to cover DBRS Morningstar’s expected delinquencies and losses at their current respective rating levels.

-- HERO Funding Trust 2015-3, Class A Notes rated AAA (sf)
-- HERO Funding Trust 2016-1, Class A Notes rated AAA (sf)
-- HERO Funding Trust 2016-2, Class A Notes rated AAA (sf)
-- HERO Funding 2016-3, Class A1 Notes rated AAA (sf)
-- HERO Funding 2016-3, Class A2 Notes rated AAA (sf)
-- HERO Funding 2016-4, Class A1 Notes rated AAA (sf)
-- HERO Funding 2016-4, Class A2 Notes rated AAA (sf)
-- HERO Funding II 2016-3B, Class B Notes rated BBB (sf)
-- HERO Funding II 2016-4B, Class B Notes rated BBB (sf)
-- HERO Residual Funding 2016-1R (Cayman), Class A-1 Notes rated BBB (high) (sf)
-- HERO Residual Funding 2016-1R (Cayman), Class A-2 Notes rated BBB (sf)
-- HERO Funding 2017-1, Class A1 Notes rated AAA (sf)
-- HERO Funding 2017-1, Class A2 Notes rated AAA (sf)
-- HERO Funding 2017-1, Class B Notes rated BBB (sf)
-- HERO Funding 2017-2, Class A1 Notes rated AAA (sf)
-- HERO Funding 2017-2, Class A2 Notes rated AAA (sf)
-- HERO Funding 2017-2, Class B Notes rated BBB (sf)
-- HERO Funding 2017-3, Class A1 Notes rated AAA (sf)
-- HERO Funding 2017-3, Class A2 Notes rated AAA (sf)
-- HERO Funding 2017-3, Class B Notes rated BBB (sf)
-- HERO Funding 2018-1, Class A2 Notes rated AAA (sf)
-- HERO Funding 2018-1, Class B Notes rated BBB (sf)
-- HERO Funding 2020-1, Class A Notes, Series 1 rated AAA (sf)
-- HERO Funding 2020-1, Class B Notes, Series 1 rated BBB (sf)

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

-- The impact of the Coronavirus Disease (COVID-19) as follows:
-- The transaction’s analytical inputs consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios: July Update,” published on July 22, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which were last updated on July 22, 2020, and are reflected in DBRS Morningstar’s rating analysis.

-- The assumptions consider the moderate macroeconomic scenario outlined in the commentary (the moderate scenario serving as the primary anchor for current ratings). The moderate scenario assumes some success in containment within Q2 2020 and a gradual relaxation of restrictions, enabling most economies to begin a gradual recovery in Q3 2020.

-- To account for the potential additional borrower stress, DBRS Morningstar applied adjustments consistent with the moderate scenario in its analysis of the asset portfolio’s probability of delinquency.

-- Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.

-- Credit enhancement is in the form of overcollateralization, reserves, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-expected delinquency and loss severity assumptions under various stress scenarios.

-- The ability of the transactions to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.

-- The capabilities of Renovate with regard to originations and underwriting.

-- Review of legal considerations specific to property assessed clean energy (PACE), including validity in all relevant jurisdictions.

-- The capabilities of local county tax collection offices regarding their servicing duties.

-- Protections afforded to special revenue collections under Chapter 9 of the U.S. Bankruptcy Code and certain structural features, including a County Reserve Account, to mitigate commingling risks associated with local county tax collection offices servicing the PACE assessments. This mitigates against county insolvencies. Further, if a county’s credit rating were to deteriorate, triggers in the transactions provide for the funding of reserve accounts.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 info@dbrsmorningstar.com.

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