[Agenda/Discussion] RWA Collateral Call: Maker Representative - Wednesday, October 7 16:00 UTC

Time in your local-timezone format:

2020-10-07T16:00:00Z

Dial In Details

Zoom Call

Passcode: RWA-WG
Numeric Passcode: 966885

Intro

Welcome to another real-world asset collateral onboarding call, where we’ll try to move things forward in our quest to bridge the real world with the crypto-universe. Open for anyone to join.

After the interest raised by @mrabino1’s Forum Post (link here), we’re holding a call where the role will be presented more in-depth, and anyone interested will be able to ask questions.

Agenda

Intro

by @SebVentures (support: @juanjuan )

Presentation: Matthew Rabinowitz, 6s Capital

Open discussion and Q&A

See you there!

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Hi guys, I have a call here at the same time, will try to get in if we can solve it quicky.

I have a couple of questions in case I don´t get to hop in, apologies if this was already discussed previously

  1. Will we have access to the financial statements of the final clients in order to determine the credit risk? Could those projects be collateralized or partially collateralized by the client?

  2. At the end of the process it all sums up to the project´s market value being greater than the debt, how do we ensure that there is no agreement between developer, client & the construction management firm to inflate the projects cost (mainly land value) cash in on the difference & walk away? We would need separate construction management firms to estimate the final value of the project. I don´t want to sound harsh just looking it as the very worst case scenario (no intention to offend anyone)

  3. What are our tax implications in the US? Just by being in delaware are we exempted from taxes when loaning out for operations outside of delaware?

  4. In the security agreement we have the rights to the assets, most of the assets in themselves are related to the loans issued and are subject to the question 2. Will there be capital contributions (cash) from lendco 1 from which we can deduct in case of liquidation assuming the market value of the project is below the debt and the 70/30 ratio?

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It really depends on who “we” are in this context? Will a Maker Representative (that has executed an NDA), the answer is yes. Without an NDA, the answer is no (unless the tenant is a publicly traded company). That said, the role of the Maker Representative isn’t to evaluate risk, per se. It is to be the informational proxy between LendCo and the DAO. However your point is well taken that members of the risk team, may and probably should also execute an NDA to be able to review financial statements.

By the client, I assume you mean the tenant. Assuming so, no, they will not collateralize the transaction more than with their lease.

All transactions require LendCo to rely on an independent appraisal (from firms like BBG) explicitly to avoid that scenario. And if somehow that did happen, LendCo would immediately start litigation against the principals for fraud (which is a felony).

The tax implications for LendCo are straight forward. It has to pay tax on its income w/ in the Untied States. For the Trust, it is a work-in-progress where we are planning to utilize an off-shore structure for tax optimization.

It doesnt matter which State it is in.

Correct. That is the reason why LendCo has an equity requirement per transaction. The maker facility in basically lending at 70% (in the case of construction) and getting first position on the security interest.

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Hey Matt–as an example of how I understand a Commercial Loan would work with a traditional bank–in order for me to get a Commercial Property Loan, I would need to provide documents such as recent years tax returns - both personal and business, most recent bank statements, operating statements, property leases, property income and expense statements, etc.

Is LendCo. collecting these docs and then you’ll forward them to the Maker Rep. to review–or, this will not be necessary as you (the Loan Officer of LendCo.) will review & approve–put the final closing docs together, and then present the closing docs at the “closing” sort-of-speak?

I hope that makes sense.

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Definitely LendCo is collecting all of that… and I am reviewing it. The question about if a Maker Representative wants to review is more a question of “why not”… and also being constrained by the underlying objective of oversight and ensuring compliance with the underlying credit agreement.

In that context, a valid counter-point would be, does a Maker Representative “need” to see the personal financial statement of the principal of a borrowco (not the company the person) to see that the credit agreement requirements (between LendCo and the Trust) were met? The answer is probably not, since it is LendCo’s discretion what guarantees (personal vs completion) are in place between borrowco and lendco. Just having the PFS is more than sufficient to demonstrate that LendCo is collecting relevant data. What would matter that a Maker Representative should care about is that a loan agreement also included the guarantee, not specifically the private data thereof…

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RWA Collateral Call Summary : Maker Representative

October 7th, 2020

Agenda

  • 00:00: Intro with Juan Guillén
  • 01:45: 6s/MKR - Maker Representative with Matthew Rabinowitz
  • 13:10: Q&A and Discussion about Maker Representative for 6S

Video

https://youtu.be/6UiF3gB215M

Introduction

Juan Guillén

Agenda and Preamble

00:00

  • Hi everyone! Welcome to another call of the RWA working group.
  • In this case, I’m joined by Matthew Rabinowitz and of course Sébastien Derivaux and, at this point, 11 more participants willing to bridge the fascinating world of crypto with the RWA. Hopefully we can get things moving today.
  • Today, we have Matthew Rabinowitz, who is going to be speaking about the Maker Representative. He posted a very interesting forum thread. Basically, he wants to find one or ideally more Maker Representatives that can serve us as a bridge.
  • Discussions about collateral happen in the Forum.

6S/Maker: Maker representative

Matthew Rabinowitz

Presentation

01:45










Discussion

Closing Comment

Juan Guillén

Outro

57:20

  • I hate to cut you and the whole conversation, but we have the collateral call with tBTC and Balancer next, so if you guys want to join us over there you are more than welcome!
  • Let’s keep the conversation going in the forum. I feel like we are making a lot of progress so let’s keep this going and if we need to have another of these calls to clear doubts, let’s do it. Thanks everyone for presenting and your participation. See you on the other side!

Credits

  • Gala Guillén produced this summary.
  • Everyone who spoke and presented on the call, listed in the headers.

Hey guys, just saw the maker representative call uploaded. I think the process is very neat and we are now in the process of having proper assurance that everything is properly done.Before I start I want to make one thing clear, I always prepare for the worst and hope for the best, having said that, the whole process is in principle very clear & assuring.

One issue that I want to disclose is related to audits, I was a former auditor so one key factor for an audit to be signed is a management representation letter (suggest for everyone interested to check one out) basically it operates as a disclaimer for the auditor and is signed by the client were it states that, among other things, accounting estimates were performed diligently by top management, in order to have back up evidence of the estimates of appraisals (for example) they will request the appraisal report, check it´s effectively signed, read on it & move on unless there is something very clear that it is wrong (they could eventually request their own appraisal and charge it to the client too), the purpose of an audit is not to detect fraud (because if it were they would basically have to redo the entire accounting processes which can´t happen, you must be able as an audit firm to reach a conclusion with the less amount of hours invested by your personnel).

I emphasize on this point because I´ve been an auditor and I´ve been audited and although audit reports assure that the company complies (if it´s a clean report) with the accounting norms, accounting standards & management accounting for decision making do not always come hand in hand.

Perhaps there was no need to disclose this but I wanted to make it clear just in case that the general knowledge of an audit is that “ok, the report is clean, everything is perfect” it may well be or it may not, it´s not an audit´s purpose to determine that. Also an audit does not cover loan to ratio requirements by maker, what they state are if the financial statements are fairly represented and for loans they will likely check if there are indications that they could be subject to an impairment analysis, not that it complies with our own requirements. A particular analysis of loan to equity would fall under the category of an agreed upon procedure, I really like this product for this use since it basically is a focused analysis on a particular item of the balance sheet or business process like, for example loan to equity requirements for approval purposes and they do not need to be performed at year end, same goes for loan disbursement against construction progress. Lastly ref appraisals they are subject to market conditions, @mrabino1 could we request a quarterly review of the appraisals? It doesn´t have to be extensive, perhaps a quarterly update from the construction firm if there are material deviations would suffice, this would also help any potential claim of impairment analysis of the loans that could (or not) be presented by auditors.

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Thanks for your input, @mario .

As we move from more abstract concepts towards a more concrete and tangible path, we will benefit from this type of knowledge and experience.

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