Deutsche Bank AG (DBK) sold the first securities backed by bonds tied to U.S. energy-saving projects in a deal that follows a federal agency’s objections to the underlying homeowner borrowing.  The AA grade offering is estimated to total $103.8 million and carried a 4.75 percent coupon. The debt is backed by liens on homes created as consumers are given funds for work such as weather sealing, insulation upgrades or solar-panel installations, called Property Assessed Clean Energy (PACE) assessments. The notes might incur losses if the overseer of government-backed mortgage guarantors Fannie Mae and Freddie Mac decides to challenge the priority status of the liens in federal court, Kroll said.  Pace programs, which cover the initial costs of the improvements, started in 2008, while legislation enabling their use was passed in 31 states by 2013, according to PACENow, a Pleasantville, New York-based advocacy group.

With the liens that are similar to tax assessments said to rank more senior than mortgages, giving them a greater right to foreclosure proceeds, the Federal Housing Finance Agency (FHFA) told Fannie Mae (FNMA) and Freddie Mac in 2010 to avoid guaranteeing new loans on properties with them. Last year, after facing opposition from California’s attorney general, the FHFA defeated a court challenge to the directive. Investor protections in today’s securitization include more assessments serving as collateral than the amount of notes sold, a reserve fund and interest rates on the underlying bonds that exceed those of the securities by almost 3 percentage points, according to Kroll’s report.