KBRA Places Ratings on E3 2019-1 Transaction on Watch Developing
8 Apr 2024 | New York
KBRA has placed the ratings of the Class A Notes and Class B Notes of E3 2019-1, LLC (E3 2019-1), a residential Property Assessment Clean Energy (PACE) transaction sponsored by FortiFi Financial Inc. (FortiFi or the Company) on Watch Developing. The watch placements are due to reporting issues that resulted in misallocation of payments which caused the Class A Note and Class B Note advance rates to rise above their target levels. To date the securities have received timely interest payments.
The table below displays the current capital structure and watch placements undertaken in this review.
In KBRA’s rating monitoring process, we became aware of reporting issues impacting the transaction. The Company reported in the January 2024 monthly report that it had misclassified and incorrectly allocated scheduled and unscheduled principal as interest in prior reporting periods resulting in the Class A and B Notes not receiving their full principal payments. Instead, principal payments were incorrectly classified as excess interest and were paid either to the class C noteholders, while that class was outstanding, or, following repayment of the Class C Notes, to the Company. As a result, the Class A and B Notes’ advance rates now exceed their target levels of 97% and 100%, respectively.
KBRA has been in dialogue with Fortifi and discussed the steps the Company has already taken to remediate the misclassification of collections issue to prevent it from recurring in the future. To remedy the overadvanced situation of the Class A and Class B Notes, starting with the January 2024 distribution, all scheduled and unscheduled principal received were paid to the class A noteholders. This will continue for future payment dates until the class A and class B advance rates are restored to their target levels. The company has indicated that it is exploring options to cure the issues to facilitate the advance rate returning to its target level.
KBRA will update or resolve the Watch Placement as we monitor the advance rate and evaluate any actions the company might take to have it return to its target level.
KBRA completed a surveillance review on the two other outstanding transactions sponsored by the Company, FortiFi 2021-1 and FortiFi 2023 (see FortiFi Comprehensive Surveillance Review). Although FortiFi 2021-1 had a similar misclassification issue, the Class A and Class B Notes are expected to reach their target advance rates on the interest payment date.
To access rating and relevant documents, click here.