Coventry's PACE, solar efforts gain momentum

Coventry Structured Investments, a Los Angeles-based asset management firm specialising in niche debt and equity solutions, is set to purchase up to US$600m in residential solar loans under a forward-flow agreement with Almika Renewable Finance. The agreement reinforces Coventry’s prioritisation of renewables as key growth areas over the next six to 18 months, including the roll-out of its own C-PACE origination platform.

Almika, an energy provider operating in several states - including Texas, Arizona, South Carolina and Oklahoma - turned to Coventry for financing, due to a shift in market events resulting in them seeking new partners for its programme. “It was a mutually beneficial deal for all the parties involved,” says Derrick Hur, co-founder and managing principal of Coventry.

The deal also involved a family fund as an equity partner and East West Bank as a senior lender for part of the transaction. “The deal involved parties that were excited about the opportunity with Almika and worked collaboratively on a multi-party transaction, in order to align interests for the success and growth of the programme,” says Rasool Alizadeh, co-founder and managing principal of Coventry.

Prior to founding Coventry in 2022, Hur and Alizadeh gained extensive experience in rating agencies, capital markets and specialty finance through their roles at S&P, FortiFi Financial and Ygrene Energy Fund, among others, which enabled them to act as their own advisors in the deal.

Before finalising the agreement, they thoroughly reviewed Almika’s operations. "It's challenging to manage a loan product with multiple installers and contractors while safeguarding consumers," says Alizadeh.

Ensuring the quality and reliability of the contractors and installers involved was crucial to protecting consumers and maintaining loan repayments. “We helped to bring best market practices to Almika’s already high-quality standards before investing in the company,” explains Alizadeh.

As with any asset class, underwriting is a crucial component. “If assets are properly underwritten, the risk profile and credit become more predictable,” says Hur.

Coventry’s due diligence process involves deep dives into company backgrounds, financials and compliance. “We ensure companies meet regulatory requirements and conduct appropriate reviews to ensure this,” says Alizadeh.

Coventry is now looking to aggregate and securitise up to US$600m in assets acquired, aiming to establish a capital markets presence for itself and Almika. “We were impressed with Almika’s servicing platform and saw opportunities to buy assets and move servicing to it over time,” says Alizadeh.

Coventry’s founders believe the solar financing market remains underinvested - a conviction reinforced during their attendance at the RE+ conference in Anaheim, California, earlier this month. “We could see many companies with a lot of products and services at the conference, but they still had a lot of need for capital in order to efficiently grow their businesses to the next level,” says Alizadeh, noting the need for continued liquidity in the market.

While Coventry is US-based, the founders see opportunities beyond the region and plan to diversify in the future. Their strategy focuses on specialisation, which they see as a growing trend in the market.

“Specialised companies are thriving, as larger firms - with idle capital - are often constrained by rigid lending criteria. This opens up opportunities for firms like Coventry to step in and provide creative and adaptive solutions without taking on additional risk,” adds Alizadeh.

Over the next few years, Coventry plans to capitalise on this shift by focusing on niche sectors and bringing flexibility to the market. As interest rates stabilise and potential cuts are discussed, the founders highlight a renewed focus on hedging interest rate risk - with many market players now emphasising the importance of protection, after some faced significant losses from neglecting hedging during the previous low-rate period.

"We think you're going to see a lot more focus on interest rate risk. Even though we think we're going to be in a position of interest rates being cut, you never know what's going to happen and we view hedging as a cost to doing business,” says Hur.

Looking ahead, Coventry’s next big move is launching its own C-PACE origination platform, to compliment commercial real estate needs during a period of substantial refinancing ahead of them. With volatility in valuations and senior lenders requiring additional equity or mezzanine capital, the firm sees a major opportunity for C-PACE to be an alternative solution for this gap.

“We've seen a lot of opportunity potentially in that space, and we already have a couple hundred-million-dollar pipeline being built for ourselves,” says Alizadeh.

The platform has already been soft-launched and approved in four states, and it will allow Coventry to manage costs more efficiently by handling underwriting in-house. In the next six to 18 months, the company plans to focus heavily on C-PACE and residential solar loans, prioritising renewables as key growth areas.

Marta Canini