Submission by MD Irradiance LLC for Construction Period-only Loans to Late-Stage US Solar Projects.
Opportunity to access secure, high-quality projects with immediate scaling potential
Guaranteed and fully-collateralized construction loans to late-stage solar projects in the United States
Construction loan terms of 6 to 12 months repaid in full at commercial operation/placement into service
No feasibility, pre-development or operational risks
Construction loans made to solar projects being developed by sponsors/project developers with no less than $150 million in assets
Experienced project development and project finance team to manage life-cycle of the construction loan
Adopting 6S model with Delaware statutory trustee
1. Who is the interested party for this collateral application?
MD Irradiance LLC (“MDI”) is the interested party for this collateral application. MDI is a Delaware limited liability company. The controlling members of MDI are Leke Agiri and Christian Petersen (@christiancdpetersen).
Leke is an experienced finance professional in the energy industry with demonstrated technical and business acumen in corporate and asset transactions, financial planning/analysis, investment appraisal, portfolio evaluation, and asset commercialization. Leke’s experience includes acting as a Senior Project Finance Advisor for Pine Gate Renewables; Manager, Finance for the $15 billion project financing of the Mozambique LNG project at Anadarko Petroleum, Pre-Commercialization Coordinator - International Business Services at Anadarko Petroleum and Business Development Analyst - Corporate Development at Anadarko Petroleum. Leke has a M.B.A. from Rice University and a B.S. from the University of Virginia.
Christian is an experienced legal professional leading the structuring, negotiating and execution of international project development and finance transactions for over 20 years. Christian worked as an associate and then partner at international law firms in Washington, DC, Hong Kong and Tokyo, Japan for 15 years. From 2012 to 2020, Christian led the legal function for LNG marketing, shipping and project finance for the $25 billion Anadarko Petroleum Corporation-led (now TOTAL Energies) Mozambique LNG project. Christian supported the sale of 11 million tonnes per annum of LNG from the Mozambique LNG project and led the structuring of the $15 billion project financing with multiple export-credit agencies, international financial institutions, and the African Development Bank. Christian holds a J.D. from Boston University, a M.A. from UCLA, and a B.A. from UC Santa Barbara.
MDI will engage independent consultants, contractors, and local counsel as necessary to provide technical, legal and administrative support from time to time.
Messrs. Petersen and Agiri established MDI to facilitate Maker DAO’s contribution to the acceleration of the transition to clean energy in the United States, specifically through low-cost solar projects. MDI’s team has extensive project finance, financial analysis, project modeling, corporate development, and legal/contracting experience. From this, MDI will leverage Maker DAO’s low cost of capital and requirement for strong quality projects to support solar power generation development in the United States. MDI’s exclusive focus will be to support the Maker protocol’s contribution to low-cost solar projects. In this role, MDI will seek to promote the Maker-presence in the solar development and financing sector.
While the traditional solar financing market in the United States is very competitive and, in large part commoditized, MDI will build upon existing commercial relationships with high-quality solar developers and its members’ project development and finance experience to generate tangible benefits for the Maker protocol.
For independence and objectivity purposes, Christian will recuse himself from any decisions and discussions on this proposal in the Real World Asset core unit while this application is pending and after its approval.
2. Provide a brief high-level overview of the project, with a focus on the applying collateral token.
MDI proposes a dollar denominated revolving credit facility (“Revolving Credit Facility”) to finance the construction of utility scale solar projects in the United States.
MDI will adopt a modified 6S Delaware statutory trust transaction structure. MDI will establish the transaction structure. MDI will establish a new foundation company in the Cayman Islands and a new Delaware statutory trust. MDI intends to build upon the path established and tested by 6S. The proposed structure is as below:
Subject to the Maker community’s approval, MDI proposes a committee of Maker community approved persons to direct the Trustee on certain key commercial matters in respect of administration of the Revolving Credit Facility.
MDI will make construction loans to established developers of late-stage, high-quality solar projects in the United States. This is arguably the safest and most secure period during the life-cycle of a solar facility as it occurs after projects have completed the early-, mid-, and late-stage life-cycle activities and completes at the transition to “Commercial Operation Date” (“COD”) or “Placement into Service” (“PIS”). MDI will not make loans to related persons.
As late-stage projects, each of the solar projects will have completed site acquisition and/or leasing, feasibility reports, zoning and permitting, engineering design, as well as the execution of the key agreements, including the Power Purchase Agreement (“PPA”), the engineering, procurement and construction contract (“EPC”) and the operational related agreements.
The solar project will be ready to issue the notice to proceed to the EPC contractor at the time of 1st disbursement under the MDI construction loan.
The diagram below illustrates where MDI will be lending in the life-cycle of the development and operation of a solar facility.
MDI will target projects where the construction loan will be limited to the construction period (6 to 12 months). MDI loan proceeds will equal between 70% and 90% of the project’s budgeted construction costs (depending on market dynamics, the project and project developer). At this point of the project life-cycle, the project developer will have funded the early-, mid-, and late-stage activities.
The construction loan will be paid from a combination of a sponsor and tax equity and permanent term loan proceeds at Placement into Service/Commercial Operation Date. At the time of disbursement of the MDI loan, the project developer will have agreements in place or line-of-sight to a combination of tax and sponsor equity investors, and permanent term loan lenders.
The construction loans will have the following characteristics (“Construction Loan”):
MDI proposes to target experienced sponsors and/or project developers, including those listed below:
- Pine Gate Renewables
- NextEra Energy
- Recurrent Energy
- First Solar
- EcoPlexus, Inc.
Each of the proposed sponsors and/or project developers will have at least $150 million of assets on their balance sheet.
MDI proposes the following terms for the Revolving Credit Facility:
For purposes of the determination of MDI’s equity contribution and the LTV measurement for the Revolving Credit Facility, MDI proposes that the aggregate of the project collateral (pledged by the project to MDI and then MDI to the trust acting as the lender under the Revolving Credit Facility) and MDI’s assets (including the delayed payment of any fees and earnings) will adequately collateralize the Revolving Credit Facility. See the illustration below.
3. Provide a brief history of the project.
4. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.
5. Link any available audits of the project. Both procedural and smart contract focused audits.
6. Link to any active communities relating to your project.
7. How is the applying collateral type currently used?
8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?
MDI is organized in the State of Delaware. The location of MDI’s security interest over the underlying assets during the construction period will vary from Construction Loan to Construction Loan.
9. Where does exchange for the asset occur?
10. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.
As in the 6S case, we will provide the required legal opinions on the enforceability of the different structure segments and transactions.
11. (Optional) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.
12. (Optional) List any possible oracle data sources for the proposed Collateral type.
13. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.
MDI and Trustee.
Supplemental questions for real world assets
1. Provide (a) proposed legal structure for transaction including, type of legal entities, (offshore/onshore, form (trust, corporate, other)) and jurisdiction(s) of legal entities, and (b) likely funds flow (DAI => Fiat => DAI).
2. Provide details on the organizational structure of the interested party, beneficial ownership, governance/control, key personnel, capital/funding resources and past financial performance.
Messrs. Agiri and Petersen will leverage their expertise in project finance, project development, and the solar industry to originate, execute and service these construction loans. Mr. Agiri will lead the evaluation of the project economics and size/price of the construction loans. Mr. Petersen will lead the evaluation of project risks and the structuring of a bankable construction loan that aligns with market terms. Messrs. Agiri and Petersen will undertake the project due diligence and negotiate the transaction documents.
MDI is a Delaware limited liability company and the two existing members are Messrs. Agiri and Petersen. They recently formed MDI to pursue the opportunity described in this application. Given the high-level of activity in solar project financing throughout the US and the local, state, regional and federal impetus for a clean energy transition, MDI can be the mechanism for Maker to meaningfully contribute to expanded solar power in the US.
3. Provide detailed summary of the proposed economic terms of the transaction, including, without limitation, commitment term, principal amount, interest rate, frequency of principal and interest payments, disbursement schedule, equity amount, funding ratios (equity/debt pro rata, equity first, etc.), collateral security, coverage ratios, currency (if not DAI) and other material terms. The quality of the proposed economic terms will be a consideration for the prioritization process.
4. Identify in reasonable detail the risks associated with this collateral application and the underlying asset(s) and proposed mitigants (if any). The risk summary should address, without limitation and to the extent relevant, market risks, commercial risks (e.g., diversification, credit, etc.), interest rate risks, legal and regulatory risks, general industry risks, competition, etc.
MDI will source construction-only loans for late-stage solar projects. As a result, all of the risks associated with land acquisition, permitting, zoning, equipment procurement, offtake contracting, engineering, construction and procurement contracting, equity funding, refinancing at commercial operation, and the like will have been addressed.
Further, as the borrower will repay the construction loan upon achievement of COD/PIS of the solar facility, there will not be any on-going operational risks.
MDI will only have exposure to construction-related risks. The key construction-related risks and mitigants include:
Schedule delays: Delays in the construction of the solar facility result in a delay in revenue generation and the ability to repay the construction loan. Mitigant: The EPC contract will include delay related liquidated damages for non-excused delays. These delay liquidated damages will be applied against the outstanding Construction Loan. The guarantee from a credit worthy sponsor and/or project developer will cover repayment of the Construction Loan if the project does not achieve COD/PIS by an agreed date.
Cost-overruns: Increased costs during the construction process, including, as a result of, schedule delays, project company or contractor requested change orders, unanticipated equipment shortages, and labor issues, among others, may result in an increase in costs. Mitigant: The EPC contract will be a fixed price contract. The project company will not have the ability to make material increases to the project costs without MDI’s consent.
Force majeure: An event of force majeure may result in schedule delays and/or cost-overruns. Mitigant: The project company may assume some level of force majeure risk. The guarantee from a credit worthy sponsor and/or project developer will cover repayment of the Construction Loan.
Project Performance below Guaranteed Levels at COD/PIS: Project performance below the EPC guaranteed levels may delay the PIS and the project’s ability to access refinancing and/or investor equity on the terms originally negotiated. Mitigant: The guarantee from a credit worthy sponsor and/or project developer will cover repayment of the Construction Loan. Further, in the first instance, the EPC contractor will have an obligation to pay liquidated damages for such lower performance.
Sponsor / Project Developer Payment Risk: There is a risk that the sponsor or project developer does not make payment under the guarantee. Mitigant: MDI will only fund construction loans with experienced and adequately capitalized sponsors and project developers. As noted above, the sponsor or project developer needs have at least $150 million in assets. MDI will assess the financials and track-record of the sponsors and project developers before any commitments are made.
5. Outline the applicant’s underwriting guidelines/policies, origination strategy (marketing, sales, channels), servicing strategy (charge-offs, collections) and historical asset performance.
Through existing relationships and industry intelligence, MDI has identified high-quality solar project developers with strong demand for a pipeline of Construction Loans. Each of these solar project developers has a portfolio of existing solar projects in both construction and operation.
The proposed solar project developers have a track record of success/consistent project delivery and the financial, technical, project management, and project execution experience to mitigate the key construction related risks.
MDI will seek diversification and deploy the Revolving Credit Facility’s principal as Construction Loans to at least 2 projects. MDI will also target projects with attractive revenue constructs and projected cash flows in different U.S. electricity markets. Further, the separate electricity markets, different financial enhancements (e.g., reactive power revenues, capacity revenues, and renewable energy certificates), varied solar conditions, and weather risks (construction timelines) across the U.S. offer opportunities for diversity across projects.
The independent system operators (ISOs) and regional transmission operators (RTOs) are currently seeing a strong project development pipeline.
6. Outline the applicant’s risk monitoring and operations guidelines/policies (e.g. charge-offs, collection, recovery provisions, data collection and technology, etc).
The disbursement conditions, representations and warranties, disbursement and affirmative information covenants, including the provision of financial statements, evidence of equity contributions, evidence of expenditures made from the Construction Loan, material notices and other material project documents, monthly construction reports, covenant compliance certificates will enable MDI to closely monitor the progress of construction and the ability of the relevant parties to the project to perform their obligations.
7. Describe the regulatory regime applicable to the underlying asset (if any) and the applicant’s legal and compliance program.
Each solar facility will be subject to the regulations of the Federal Energy Regulatory Commission for solar facilities and applicable state law.
8. Identify any 3rd party persons likely to be relied upon to implement the transaction (legal, accounting, servicers, trustees, etc.)
MDI will retain experienced solar finance counsel and technical and other advisors to assist with the negotiation, execution and closing of the Construction Loans. MDI will manage the day-to-day administration of the Construction Loans, including certifying to the Trustee as to whether the project borrower has satisfied conditions precedent to disbursement.
MDI will engage an independent broker to manage the Dai/Dollar and Dollar/Dai conversions. As in the 6S transaction, MDI will structure the cash flows to limit any leakages.