MIP6 Collateral Onboarding Application: MD Irradiance LLC: Construction Period-only Loans to Late-Stage US Solar Projects

Submission by MD Irradiance LLC for Construction Period-only Loans to Late-Stage US Solar Projects.

Executive Summary

  • 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.

Questions can be directed to Leke Agiri at [email protected] and/or Christian Petersen (@christiancdpetersen / [email protected]).

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
  • Tenaska
  • Sunpower
  • 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.

See above.

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.

Not applicable.

5. Link any available audits of the project. Both procedural and smart contract focused audits.

Not applicable.

6. Link to any active communities relating to your project.

Not applicable.

7. How is the applying collateral type currently used?

Not applicable.

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?

Not applicable.

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.

Not applicable.

12. (Optional) List any possible oracle data sources for the proposed Collateral type.

Not applicable.

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).

See above.

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.

See above

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.

7 Likes

Should there be an external financial auditing process to verify the auditing and monitoring of the progress of this project? As an example, assuming there is a situation when the budget for construction work is exceeded and the final cost of construction is not known, or if here was a significant shift in the timing of the completion of construction, and the Maker Community needed to verify such.

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@christiancdpetersen If Maker was a commercial bank - would this pass routine best practice checks?

As part of MDI’s initial due diligence, MDI will review and validate the assumptions built into the proposed construction budget. As part of the conditions to 1st disbursement, the Borrower will provide a construction budget and schedule of disbursements that match the expenditures under the construction budget. Typically MDI will engage an independent engineer. The independent engineer will be able to assist in construction monitoring vs expenditures.

In terms of conflicts of interest, I am prepared to fully recuse myself from the RWA Core Unit - where I have been assisting on a part-time basis since April.
At the same time and given current resources, I recognize that my transactional legal background and experience may be helpful for the CU itself on a going forward basis (on matters unrelated to this application). I can assure the community that I will be fully open and transparent in all cases.

In terms of the commercial opportunity, I believe that this application creates an opportunity for Maker to onboard high-quality solar loans during the safest part of the project life cycle. A credit worthy guarantor of the Construction Loan, together with line-of-sight to the permanent take-out financing and the tax equity investment, substantially mitigates payment risks. At present, solar financing in the US has become competitive and commoditized. This presents a perfect opportunity for Maker to compete in a relatively structured environment.

4 Likes

This proposed transaction sounds very interesting.

I suggest that Maker/RWA/Christian address any perceived conflicts of interest early.

One common standard applied would be “How would this look if it appeared in the front page of the Wall Street Journal (or similar publication outside the US)”?

1 Like

Given the clear conflict of interest with a member of the RWA Core Unit reviewing and potentially recommending the adoption of his own MIP, I think recusal is 100% necessary. No offense, but this is an instance where were it to end up on the WSJ’s front page, it would look bad.

Thanks for the expression of interest in your submission, @christiancdpetersen. I think this submission sheds light on a few internal governance related questions of how the community wants/should move forward. While the vision articulated by The case for Clean Money will require a lot of entrepreneurship, and entrepreneurship should not be discouraged, particularly with regards to clean/sustainable initiatives, it opens up a few grey areas in the relation between CUs, applicants and MKR tokenholders.

Here is just a suite of questions I think Maker should try to articulate:

  1. Was there a “garden leave” period between a CU contribution and the applicant participation in a credit request (i.e. MIP6)? What should that “garden” period be, if any?
  2. In what capacity was the applicant for credit involved in a CU: facilitator, full-time, part-time contributor, grantee?
  3. What role was the contributor involved in: task-oriented (directed) or designing the strategic directions of the CU and/or the protocol?
  4. Was the intention of becoming an applicant or arranging a credit application explicitly stated before a contributor became part of the application process? Which parties should be informed of such intention?
  5. Is there any ownership or beneficiaries (direct or indirect interest) in the application project amongst the members of the CU that will assess/vet the project for MKR tokenholders? What upfront disclosures should be made?
  6. Should the same CU where the applicant contributed to assess the project? If not, are there alternative CUs or Maker counterparts that need to play a closer oversight role in the specific application?
  7. How will Maker ensure independence/objectivity of assessment where an ex-member of a CU submits a credit application?
  8. Should applicants or interested parties be allowed to continue contributing or providing services to the CUs that will assess their application? What about services to the wider protocol?

@christiancdpetersen, please do not take the above governance questions as personal or specific to the project presented. They are really not. You’ve made invaluable contributions to the CU and to Maker at large in numerous areas: thought leadership, project finance, legal counselling and others. We all thank you for that.

However, I think it is time the protocol to take “checks and balances” seriously if it wishes to be considered a serious player to fulfil the immense vision for a clean money outlined by @rune. In my view, we should not aim to build finance 2.0 on the basis of what could look like finance 0.5 from a governance standpoint. Whoever has worked in banking, or in any financial regulation project, knows how those things can be frowned upon. The moment to start setting some precedents is now that we’re “small” rather than in one or two years time where hundreds of millions (or billions) of RWA collateral will be “gobbled” by Maker and potentially a few CUs of “public servants” will be in place.

While we are small, we’ve got the privilege to self-regulate. When we become systemically important, if we don’t do our homework, it will be done to us. No one wants the army of compliance people within Maker (up to 20% of banking personnel).

This is about setting a precedence. When ex-participants in the protocol (e.g. RWA Co) were about to start a “business” journey and work with the protocol on the “sell” side the intentions were explicitly stated and a period between leaving Maker and becoming “an applicant” happened. So there were no surprises.

In my view the conduction of the articulated questions (and others) should be done by an independent council with consultation to the CU team. All to ensure independence of reasoning.

4 Likes

Therein lies the problem, eh? We keep losing Core Unit talent to business opportunities that offer more upside, instead of having to put up with folks like me–who whine about compensations/budgets lel. We had many Talented community members that have now left and started their own bizz, like Greg of RWA Inc., and now @christiancdpetersen – who is 1 of 2 people in the community who truly understand Project Finance inside and out. How do we retain talent and how do we attract new talent when the business opportunities in DeFi are currently endless?

You have constructed some very good questions William–I’m not sure if the community wants to follow traditional Human Resources requirements (but I could be wrong) and I don’t have the right answers – but if an HR Department is “not a thing” for DAOs, than maybe a MIP might mitigate some of these concerns. To a great extent, #5 and #6 are very compliant. Very interesting.

And yes, best to implement these guidelines before Maker goes from 0 to 1.

Well, I don’t think Christian has to step down from the RWA Committee; he simply should recuse himself from any analysis related to his MIP. Otherwise, we as a community are choosing to ignore blatant conflicts of interest. I don’t think recusal is too much to request, a similar situation in the real world would demand it as well. Imagine working for a state agency that reviewed grants and then having the opportunity to decide whether or not to give yourself a grant. That wouldn’t fly.

Anyway, this is a relatively easy solve (recusal) but could serve as a learning opportunity: perhaps the community needs a flexible policy on dealing with conflicts of interest like this?

On your question re retaining people generally, the DAO has to pay competitive salaries. If it doesn’t do that, many of the people who contribute through CUs will find opportunities elsewhere and it may be difficult to attract new blood.

5 Likes

So @christiancdpetersen will not work nor decide (except to the extends of its MKR token) on his own MIP6. This is not up for debate and was solved in the first post.

The question is to know if @christiancdpetersen can continue to work for the RWF CU and if the RWF CU is able to assess a MIP6 that is coming from its ranks. I think the first one is good for MakerDAO and the second one, maybe @collateral-core-unit is an option.

@ElProgreso I suggested @christiancdpetersen to propose a Core Unit doing exactly (well more broadly project finance) the same thing (MD Irradiance LLC going through a CU mipset instead (or in addiction?) of a MIP6). This is a recent idea to decentralize RWA.

4 Likes

This is a very good idea. Project finance is really a niche comparing to other types of ABS or RWA investments. It makes complete sense to have a separate specialised group dealing with them.

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Thanks to the Maker community for comments on the MD Irradiance MIP6 application. I am the co-owner of MDI and co-applicant for this application. The commonality of feedback so far for this application is the gating issue around Conflict of Interest (COI) that we at MDI thoroughly evaluated at the onset of developing this application and do share the sentiment for the necessity of a prudent, objective, and independent review process.

Over my career in the energy, banking and consulting industries, the existence or perception of conflict of interest is typically a derivative of and is amplified by obscurity or secrecy of related parties in any material events, pursuant to the evaluation of the set of facts at the time of the events. This has not been the case as MDI, in its first posting, clearly indicated that Mr. Christian Petersen would not participate in any matters involving the MDI MIP6 application. It is very clear that the up-front disclosure in the first instance is the very opposite of obscurity and secrecy.

Christian introduced me to Maker, DAI and the Real World Asset opportunity because he knew of my existing relationships and work with solar developers throughout the US. We jointly prepared the MIP6 because I had identified a safe, secure, market opportunity in late-stage solar projects and we could, working together, onboard these high quality assets to support Maker’s objectives. Christian brought, in addition to a career in project development and project finance, an understanding of the community’s preferences. It is this understanding that resulted in a thoughtful MIP6 application, the adoption of the Delaware trust structure, and the focus on short-term, high-quality loans, with strong borrowers.

In the open and transparent platform of the Forum, I believe that the perceived conflict issue has been more than adequately addressed. I would please ask for consideration of the substance of the MIP6 application - which I believe should meet the Maker community’s objectives.

I look forward to the opportunity to learn from and work with Maker. Please feel free to reach out with any questions. Thanks.

4 Likes