| Debt Ceiling
|
50,000,000 Dai
|
A 30mm Dai increase to the existing 20mm vault
|
| Stability Fee
|
7%
|
Up from 3.5% on the current Drop token. To accrue on a second by second basis consistent with the standard Maker stability fee mechanism
|
| Minimum Structure Subordination
|
20%
|
Facilitated by Centrifuge’s platform and the Drop/Tin tokens
|
| Eligible Collateral
|
Residential Mortgages
|
First-lien Business Purpose Mortgage Loans for non-owner occupied residential properties, secured by Mortgaged Properties
|
| Defaulted Pledged Assets
|
100% haircut
|
Immediately if unpaid upon maturity or if interest 60 days delinquent
|
| Termination Date
|
October 11, 2032
|
MakerDAO may request redemption through the Tinlake protocol at any time
|
# Executive Summary
New Silver is an online real estate lender with a primary focus on “fix-and-flip” real estate. The company specializes in short term mortgages for non-owner occupied residential properties. New Silver’s customers borrow from the company in order to purchase a residential property, renovate the existing home and sell it in a short time frame for a profit. As with regular mortgage lending, the loans are backed by the property and the borrower must invest their own capital alongside the lender.
For this transaction, New Silver’s special purpose vehicle, NS Pool LLC, will issue Drop (senior) and Tin (junior) tokens through the Centrifuge platform and use the proceeds to purchase a pool of mortgage loans, which will form the Trust Estate. For a more thorough description on the nature of New Silver’s business, please see the background, industry analysis, and asset originator analysis sections of the [original risk assessment](https://forum.makerdao.com/t/ns-drop-collateral-onboarding-risk-evaluation/5418).
The proposed transaction involves a restructuring of [New Silver’s existing vault](https://forum.makerdao.com/t/ns-drop-collateral-onboarding-risk-evaluation/5418) (RWA-002) which was initially launched in April 2021. This vault issues Dai against Drop Tokens, which are secured by all money, instruments and other property and rights subject to the lien and security interest of the Indenture (the “Trust Estate”).
The proposed transaction seeks to formalize the existing arrangement with New Silver via a similar [trust indenture](https://forum.makerdao.com/t/what-is-a-trust-indenture-what-is-an-indenture-trustee/14697) setup to that implemented in the November 2022 [BlockTower Credit](https://forum.makerdao.com/t/blocktower-credit-commercial-and-legal-risk-assessment-part-i/18790) transaction, and will be implemented by means of NS Drop Ltd, a proposed new subsidiary of the RWA Foundation. For more details, see _RWA Foundation_ below.
The proposed transaction represents a material improvement over the existing New Silver implementation. Some notable new features include:
* Third-party verification of underlying mortgage loan documents for each asset.
* Legally enforceable covenants.
* Third-party verification of each covenant for asset purchase eligibility.
* Additional covenants and concentration limitations.
* Third-party approval for all activity in the Exchange Agent account.
* Account Control Agreements over the Collateral Accounts.
* Defined underlying asset default criteria and Tinlake haircuts.
* Defined asset eligibility criteria.
* Additional Events of Default and remedies for Tokenholders.
* Reduced ambiguity via the use of NS Drop Ltd in the Cayman Islands.
* Online access to loan servicing information for NS Drop Ltd.
Ankura Trust Company will play two roles in connection with the Transactions: (i) Indenture Trustee, pursuant to the Indenture and (ii) Verification Agent, pursuant to the Verification Agent agreement. FCI Lender Services will play the role of Servicer and will be responsible for the collection of payments and the enforcement of specific lenders’ rights.
The Transactions present a number of risks including risks relating to the DROP Tokens, the underlying assets, NS Pool LLC and the Asset Manager. For more see _Risks_ below.
# Key Definitions
| Asset Manager
|
New Silver Lending LLC, a Delaware limited liability company.
|
| Blockchain Servicer
|
Centrifuge Protocol.
|
| Collection Account
|
The account of NS Pool LLC where collections made by Servicer pursuant to the Indenture are deposited.
|
| DROP Tokens
|
The senior tokens.
|
| Events of Default
|
A specific set of circumstances that allow the Tokenholders to demand immediate payment of the principal amount of the Tokens and any unpaid interest. See Events of Default and Remedies below.
|
| Exchange Agent
|
New Silver Lending LLC, a Delaware limited liability company
|
| Exchange Agent Account
|
The account of NS Pool LLC with the Exchange Agent for the conversion of DAI into U.S. Dollars and U.S. Dollars into DAI.
|
| Indenture Trustee
|
Ankura Trust Company, a New Hampshire limited liability company and chartered non-depository trust company.
|
| Issuer
|
NS Pool LLC, a limited liability company under the laws of the State of Delaware.
|
| NS Drop Ltd
|
An exempted company with limited liability under the laws of the Cayman Islands and a wholly owned subsidiary of RWAF.
|
| NS Pool LLC
|
Issuer of the Tokens.
|
| Pledged Assets
|
The mortgage loans owned by NS Pool LLC and any additional eligible mortgage loans acquired by NS Pool LLC pursuant to the Mortgage Loan Purchase Agreement.
|
| RWAF
|
RWA Foundation, an exempted limited guarantee foundation company incorporated in the Cayman Islands with limited liability.
|
| Secured Parties
|
The Indenture Trustee and Tokenholders.
|
| Servicer
|
FCI Lender Services, Inc., a California corporation
|
| TIN Tokens
|
Tokens that are subordinated in priority of redemption and right of payment to the DROP Tokens. Will be subject to reductions in payments of interest and principal resulting from nonpayment of the underlying assets to the full extent of their value before the DROP Tokens may be subject to any such reduction in payments of interest and principal thereon.
|
| Tokens
|
Collectively, the DROP Tokens and the TIN Tokens.
|
| Tokenholders
|
Holders of DROP and/or TIN tokens.
|
| Tokenholder Representative
|
NS Drop Ltd.
|
| Transactions
|
Capital deployment and return of capital as defined in The Transactions and Flow of Funds below.
|
| Trust Estate
|
All money, instruments and other property and rights subject to (or intended to be subject to) the lien and security interest of the Indenture for the benefit of the Secured Parties, including, without limitation, the Pledged Assets, the Collateral Accounts and all other property and interests granted to the Indenture Trustee, including all proceeds thereof.
|
| Verification Agent
|
Ankura Trust Company, a New Hampshire limited liability company and chartered non-depository trust company.
|
# Documents
_Public Documents_
* [Asset Management Agreement](https://gateway.pinata.cloud/ipfs/QmaAqrmzxgCTBkCQxDQ8yNDUQx6THZ5BV2ai3y58keh6b9)
* [Exchange Agent Agreement](https://gateway.pinata.cloud/ipfs/QmQ12a32Dv6BqPKRkosEh3z1aNdkUexcFfu35ShLXmdP6Q)
* [DROP Subscription Agreement](https://gateway.pinata.cloud/ipfs/QmPUKyQcJrPMsWDnj9VsUzMzp8MuVPZvgDCLt4ZRzrKkB7)
* [Indenture](https://gateway.pinata.cloud/ipfs/QmVyC2iu2CHQghodcWyK2794RJKXBHSepGYHLEGrfDtKWz)
* [Mortgage Loan Purchase Agreement](https://gateway.pinata.cloud/ipfs/QmbKa689tnnrfCdT2CRRjzzbbC9gRkvYfmJ4jayXdVnY8P)
* [NS Drop Ltd - Articles of Association](https://gateway.pinata.cloud/ipfs/QmT1hBcRUtLwKMzRQuXxfL8VdkvTXzPkvo1L4HP5x9nDQp)
* [Pledge and Collateral Assignment](https://gateway.pinata.cloud/ipfs/QmPRuK4tnNPfpoBxB9zQQDeVDKW9sozB3RaCtiEqFerTNo)
* [Tokenholder Representative Appointment Letter](https://gateway.pinata.cloud/ipfs/QmXrLjEB86nLvPxL4VeYD7gzhKWzaHQjwVd7E7dZFNs2vH)
* [UCC Financing Statements](https://gateway.pinata.cloud/ipfs/QmeFbxz285LYzUWTXiMDx6z2v99rtf1AXGrWz2Cfs8qVUe)
* [Verification Agent Agreement](https://gateway.pinata.cloud/ipfs/QmdmQX3ZFQLTFTj1P4v67FSoNnYp4xXxMUMFhpSseqkR9r)
_Confidential Documents_
* Deposit Account Control Agreements
* Servicing Agreement
* Servicer Direction Letter
_Instruction Sets_
* [Ratification of Revised Setup](https://gateway.pinata.cloud/ipfs/QmZCV9bkYCgwwQYYpspXb1rAjx9nnNKaVRY5q6vHTs8PoB)
# Transaction Parties
**NS Drop Ltd**
If Maker Governance approves this proposal, NS Drop Ltd will be formed as part of the implementation of the Transactions. It is anticipated that the RWA Foundation will form NS Drop Ltd as a wholly owned subsidiary of the RWA Foundation. NS Drop Ltd will be incorporated as an exempted company with limited liability under the laws of the Cayman Islands and will be governed pursuant to its memorandum and articles of association.
RWAF is a Cayman Islands Foundation Company limited by guarantee that was formed in September 2021. The entity’s first major transaction was the [Huntingdon Valley Bank (HVB)](https://forum.makerdao.com/t/huntingdon-valley-bank-hvb-rwa-collateral-onboarding-risk-assessment/15828) transaction, where RWAF sponsored the creation of the RWA Master Participation Trust which is responsible for purchasing loan participations from HVB. Similar to James Asset (PTC) Limited and TACO Foundation, RWAF serves as an entity through which Maker Governance can conduct activity in the “real world.”
The RWAF Supervisor votes at general meetings of the foundation. The director functions as any corporate director and its powers and authorities may be limited by the Memorandum and Articles of Association. The Secretary serves as the corporate secretary for RWA Foundation.
Substantive decisions regarding the assets and the overall structure will be, to the extent not delegated to an independent third party in the agreements, made by the director at the direction of DAO resolutions.
_Tokenholder Representative_
In addition to being the signatory on relevant documents, NS Drop Ltd will also serve as the Tokenholder Representative under the Indenture. As the Tokenholder Representative, NS Drop Ltd will have the authority to instruct the Indenture Trustee on specific matters as directed by Maker Governance via DAO resolutions.
**New Silver**
_About the Asset Manager_
Founded in 2018,[ New Silver Lending LLC](https://newsilver.com/) is a technology enabled non-bank lender primarily focused on providing commercial purpose, real estate-backed financing for the United States “fix and flip” sector with a concentration on single-family residential assets. New Silver’s proprietary technology speeds up loan origination and underwriting, while using data science to reduce risk. Fix and flip loans allow real estate investors to finance both the purchase and the construction, or in some cases, refinance an existing investment property with sufficient equity. At the time of issuance, New Silver operates in 41 states, with the top 3 states being Florida, Connecticut and Massachusetts. New Silver is licensed as a CFL Lender with the California Department of Financial Protection and Innovation.
New Silver was the first, and is one of the largest real world (RWA) vaults on Maker DAO, having securitized over 50mm DAI in aggregate volume with senior backing from MakerDAO. New Silver has over 2 years of history with MakerDAO with no defaults.
To date, the company originated over $175mm loans. The company currently manages ~$70mm in its active loan portfolio. As of the date of issuance, the management team is confident in the continued growth on the single family residential market in the United States, which is continuing to face a historical shortage of over 2mm units. Millions of real estate investors are contributing to closing this gap. Their core business is buying, renovating, and reselling or renting property, and New Silver enables efficient and scalable operations for these small businesses.
_About the Issuer_
NS Pool LLC is a limited liability company under the laws of the State of Delaware and a subsidiary of New Silver Lending LLC. NS Pool LLC was formed specifically for holding the Trust Estate and functioning as the Issuer with respect to the Tokens.
_Key Team Members_
Kirill Bensonoff - Co-founder and CEO. Kirill is a technologist and a serial entrepreneur, having built and sold successful companies in the enterprise IT space prior to New Silver. Kirill is responsible for overseeing the business direction and technology development.
Alex Shvayetsky - Co-founder and Chief Risk Officer. Alex’s career spans over 25 years in commercial real estate management and operations. Alex is responsible for overseeing risk and lending practices.
Alexey Shevchenko - CTO. Alexey holds a master’s degree in computer science and has been building software for over a decade. Alexey oversees the company's software engineering efforts.
Landon Mizuguchi – CFO. Landon advises the team on planning, analysis, and related matters. Landon’s career has encompassed experience with firms such as PayPal (Strategic Finance), Goldman Sachs (Investment Banking) & EY (Transaction Advisory).
James Keegan - Loan Advisor Team Lead. James is an experienced banker, having previously been a commercial lender at DR Bank and at People’s United Bank. James oversees the loan advisory team.
John Coury - Head of Capital Markets. John has a wealth of experience in real estate capital markets, having spent his career in private equity houses such as Axiom Capital. John is responsible for helping the company raise capital.
_Fix and Flip Loans_
Proceeds of this offering will be used to finance commercial purpose, fix and flip loans (also referred to as bridge or ground up loans, collectively, the “Underlying Assets”). Fix and flip loans allow real estate investors to finance both the purchase and the construction, or in some cases, refinance an existing investment property with sufficient equity.
When a borrower submits a loan request via New Silver’s online platform, New Silver makes use of its proprietary technology and data to underwrite the loan in real time, and offers the borrower conditional approval, terms and rates on its web platform. Upon acceptance by the borrower, New Silver orders a third-party appraisal of the property, or performs an in-house valuation using third-party analytics software. The valuation confirms both as-is and after-rehab values. Furthermore, New Silver collects and reviews due diligence information on the borrower and borrowing entity. Upon final approval, a real estate closing with a partner attorney or settlement agent is initiated. The closing company reviews the title and puts together the closing package as required by state regulations.
The loan is always in a first priority position, senior to all other lenders. In most cases, the total loan amount is split into an upfront purchase and a construction reserve. The purchase amount is used to finance the purchase of the property and is advanced at the closing. The construction reserve is held in escrow by the Asset Manager, and is used to reimburse the construction costs.
Underlying Assets are managed by the Asset Manager, and serviced by Servicer. Asset Manager is responsible for management of the construction loan draw process, collections of past due payments, loan workouts, default proceedings, extensions, and other items as specified in the asset management agreement. Loan servicing includes payment collections, payoff requests and calculations, and other items as described in the servicing agreement. An important part of asset management is the management of construction reserves. When a borrower completes a certain amount of construction work, they submit a draw request to the Asset Manager. Asset Manager verifies that the work has been completed using a third-party inspection service. Upon verification, the Asset Manager reimburses the borrower directly for part of the construction that was completed. This process is repeated until all of the construction funds have been disbursed.
At loan maturity or loan refinance, the loan is paid off in full (principal and any outstanding interest).
**Ankura Trust Company**
Ankura will play two roles in connection with the Transactions: (i) Indenture Trustee, pursuant to the Indenture and (ii) Verification Agent, pursuant to the Verification Agent agreement.
As Indenture Trustee, Ankura has certain duties, rights and powers under the Indenture that it must exercise when certain events occur. For example, if Ankura becomes aware of an Event of Default (see _Events of Default and Remedies_ below), it must promptly notify the Tokenholders and follow the courses of action outlined in the Indenture to protect their interests.
As Verification Agent, Ankura will be responsible for performing pre-funding diligence for each new mortgage loan that New Silver originates and seeks to add to the Trust Estate.
As outlined in the procedures listed in Schedule 1 of the Verification Agent agreement, Ankura will review a Loan File containing electronic copies of certain documents provided by NS Pool LLC or Asset Manager for each new mortgage loan. Following review of the Loan File, Ankura will deliver the Verification Agent Confirmation Report to NS Pool LLC and Tokenholder Representative no later than 1 business day prior to the funding.
Finally, Ankura shall possess approval power with respect to withdrawals made by NS Pool LLC from the Exchange Agent Account.
**FCI Lender Services**
_Servicing Agreement_
Pursuant to the Servicing Agreement and Servicer Direction Letter, FCI Lender Services will act as Servicer in connection with the Transactions. In this role, FCI is responsible for the collection of scheduled payments on all loans. FCI is also responsible for the enforcement of specific lenders’ rights of processing demands, supporting foreclosures, and preparing, executing and recording reconveyances or releases.
In the Servicing Agreement, the FCI represents and warrants that it holds all required and applicable federal, state and/or local licenses, certificates and other permits as may be necessary to conduct the activities required by its engagement and that its performance of such services will not conflict with or violate any applicable agreement, law or regulation applicable to it.
_Servicer Direction Letter_
Under the Servicer Direction Letter:
* FCI acknowledges that NS Pool LLC has pledged its interests in the mortgage loans serviced under the Servicing Agreement to the Indenture Trustee. As a result, FCI also grants a first priority security interest to the Indenture Trustee in the mortgage loan payments it receives and holds in its segregated trust account. Once such funds have cleared, they are deposited daily per the Servicing Agreement into the Collection Account.
* The Indenture Trustee has the right to perform due diligence with respect to FCI at any time for the purpose of verifying compliance with the Servicer Direction Letter and to confirm FCI’s ability to service the mortgage loans.
* FCI will provide NS Pool LLC and Indenture Trustee with loan servicing information via its online portal.
* Upon receipt of a notice of Event of Default under the Indenture from the Indenture Trustee, FCI will follow the instructions of the Indenture Trustee with respect to the mortgage loans, including but not limited to instructions regarding to what account collections should be delivered to.
* The Indenture Trustee has the power to replace the FCI if there is an Event of Default under the Indenture or FCI is found to have breached the Servicing Agreement.
_Asset Manager Agreement_
Pursuant to the Asset Management Agreement, the Asset Manager will be responsible for assisting the Servicer with the performance of certain loan monitoring and administration activities.
According to Section 1 of the Asset Management Agreement, the Asset Manager will assist the Servicer with:
* Facilitating extensions or other modifications of payment terms upon the Servicer’s request.
* Assisting Servicer with payoff requests upon Servicer’s written request.
* Administering construction holdback amounts relating to each mortgage loan with Construction Holdback Amounts (the “Construction Holdback Loan”) in accordance with the Loan Purchase Agreement.
* Tracking and reporting on defaults and cross-defaults applicable to any of the mortgage loans.
The Asset Manager is required to assist with these actions because the Servicer acts as a contractor, wherein the Servicer requires direction from a third party for certain actions.
Section 2 of the Asset Management Agreement provides a list of services that the Asset Manager cannot perform without consent from NS Pool LLC. These include:
* Holding itself out as servicer of the mortgage loans.
* Receiving or otherwise handling collections and/or proceeds on the mortgage loans;
* Making any disbursement of funds to any mortgagor;
* Instituting any enforcement or collection action against any mortgagor; or
* Responding to any legal notice or regulatory inquiry concerning the mortgage loans (except as required by law).
**Centrifuge Protocol**
In order to facilitate the Transactions, NS Pool LLC will partner with Centrifuge Protocol. Centrifuge provides infrastructure that facilitates the decentralized financing of real-world assets natively on-chain, creating a transparent market which allows borrowers and lenders to transact without intermediaries.
Asset pools on Centrifuge are fully collateralized and liquidity providers have legal recourse. Pools for assets on the protocol include mortgages, invoices, microlending and consumer finance. Centrifuge describes its mission as lowering the cost of borrowing for businesses around the world while providing DeFi users with a stable source of collateralized yield that is uncorrelated to volatile crypto markets.
Centrifuge Protocol utilizes smart contracts, [epochs](https://docs.centrifuge.io/learn/epoch/) and various systems and software in order to manage the investment and redemption process. For more information and technical details about Centrifuge, see their [website](https://docs.centrifuge.io/).
# The Transactions and Flow of Funds
For more detail surrounding the technical implementation of the transaction, see the [original technical assessment](https://forum.makerdao.com/t/ns2drp-ns-drop-mip22-token-smart-contract-domain-team-assessment/5517) and any updates provided by Dewiz.
**Capital Deployment**
The process for pulling Dai from the vault is as follows:
1. New Silver Lending LLC originates a mortgage loan on balance sheet and sends a package of loan documents to Ankura, including an assignment of mortgage to NS Pool LLC
2. Per Schedule 1 of the Verification Agent Agreement, Ankura verifies the required documents and confirms that the proposed loan meets the covenants as defined in the “Portfolio Criteria” of the indenture
3. New Silver mints an NFT on the Tinlake platform representing the loan to be acquired by NS Pool LLC
4. New Silver draws funds from the Maker vault (and/or other Drop/Tin token subscriptions) to the Exchange Agent and provides a Drop token to the designated address
5. Upon approval by Ankura, the Dai is converted to USD by the Exchange Agent and sent to New Silver Lending LLC, completing the sale of the mortgage loan to NS Pool LLC
**Return of Capital**
The process for returning Dai to the vault is as follows:
1. When NS Pool LLC receives interest or principal from a mortgage loan, it is deposited into the Collection Account by the Servicer
2. If the deposited proceeds represent a full principal payment of a mortgage loan, NS Pool LLC will send those proceeds to the Exchange Agent within 5 business days, unless there is an Event of Default under the Indenture.
3. For all other proceeds, on the 11th calendar day of January, April, July, and October, NS Pool LLC will send all available funds in the Collection Account to the Exchange Agent, unless there is an Event of Default under the Indenture.
4. Upon approval by Ankura, the USD in the Exchange Agent account is converted into Dai and distributed first to Drop holders who have requested redemption and second to Tin holders who have requested redemption, provided that the required Minimum Tin Percentage is met
5. Any remaining Dai balance is then used to pay down Maker’s Drop position
The steps described in Capital Deployment and Return of Capital above collectively constitute the “Transactions.”
**Liquidation**
In the event of normal operation, when no Event of Default has occurred, Drop tokens in the vault will be redeemed as Dai is received from the Centrifuge protocol as described above under the “Return of Capital” section.
In the event MakerDAO confirms via Governance poll its desire to liquidate all or a portion of its Drop token collateral, the vault will submit an order to redeem the designated Drop tokens with the Centrifuge protocol. When this occurs, all proceeds from interest and principal payments of the pool assets (after the payment of certain fees as described in the indenture) will be used to redeem the Drop tokens. After the redemption request is submitted and until the Drop tokens are fully redeemed, the issuance of new loans from the pool and any distributions to Tin token holders are prohibited.
If an Event of Default (as defined in the Indenture) occurs, the NS Drop Ltd will exercise certain rights and remedies under the Indenture as directed by Maker Governance. For more information, see _Events of Default and Remedies_ below.
# Portfolio Eligibility Criteria and Covenants
The Indenture and Verification Agent Agreement requires that the Verification Agent confirm compliance with the Portfolio Criteria prior to NS Pool LLC accepting a given asset as collateral. An Event of Default is triggered if any of the portfolio criteria are violated.
The below criteria must be satisfied both prior to and immediately after giving effect to an acquisition of a mortgage loan. In the event any of the below criteria with respect to the mortgage loan portfolio is not in compliance prior to such an acquisition (which situation could occur upon the prepayment or maturity of existing mortgage loans), the degree of compliance with such criteria shall be maintained or improved after giving effect to such acquisition.
| Criteria
|
Proposed Threshold
|
2021 Threshold
|
| Maximum Single Loan Exposure
|
Lesser of 10% of the Portfolio or $1,000,000
|
10% of the Portfolio
|
| Maximum Single Loan Exceptions
|
3 Loans > 2.5mm, 11 Loans > 1.0mm
|
N/A
|
| Maximum Single Borrower Exposure
|
10% of Portfolio if FICO < 650, otherwise 25%
|
10% of Portfolio if FICO < 650, otherwise 25%
|
| Minimum Borrower FICO Score
|
625
|
N/A
|
| Maximum Single State Exposure
|
30% of Portfolio
|
30% of Portfolio
|
| Maximum Weighted Average Loan-to-Cost Ratio
|
87.5%
|
N/A
|
| Maximum Single Loan-to-Cost Ratio
|
90%
|
90%
|
| Maximum Weighted Average Loan-to-After-Rehab-Value Ratio
|
75%
|
N/A*
|
| Maximum Single Loan-to-After-Rehab-Value Ratio
|
80%
|
N/A
|
| Maximum High Loan-to-After-Rehab-Value Exposure
|
15% of Portfolio >75% LARV
|
N/A**
|
| Maximum Delinquent Loans at Time of Purchase
|
0%
|
N/A
|
| Maximum Extended Loans at Time of Purchase
|
0%
|
N/A
|
| Maximum Loan Term
|
24 months
|
24 months
|
| Minimum Co-Investor Ratio
|
N/A
|
25%
|
\* The 2021 transaction had a maximum weighted average loan-to-value ratio (not loan-to-after-rehab-value) of 85%
** The 2021 transaction had a maximum high loan-to-value ratio (not loan-to-after-rehab-value) soft covenant of 15% of Portfolio > 85% LTV
# Events of Default and Remedies
_Events of Default_
Article V of the Indenture contains a list of what qualifies as Events of Default with respect to the Transactions. Such Events of Default are a specific set of circumstances that allow the Tokenholders to demand immediate payment of the principal amount of the Tokens and any unpaid interest. When triggered, Events of Default give Tokenholders the right to take certain actions, such as accelerating the debt or taking legal action.
Section 5.01 of the Indenture contains a list of 18 Events Default, which broadly fall into the following categories:
1. Non-payment: NS Pool LLC fails to make a payment of principal, interest or fees and expenses when they become due.
2. Breach of other obligations: NS Pool LLC or Asset Manager fails to comply with covenants (e.g. Portfolio Criteria) or other agreements signed in connection with the Transactions.
3. Collateral: the Indenture Trustee does not have a first priority perfected security interest in any of the collateral;
4. Bankruptcy: NS Pool LLC files for bankruptcy, or bankruptcy proceedings are initiated against it.
5. Insolvency: NS Pool LLC becomes insolvent or is unable to pay its debts as they come due.
6. Regulatory: NS Pool LLC or the Trust Estate being required to be registered as an “investment company” under the Investment Company Act.
7. Technical: a failure of Centrifuge or the loss of the DAI peg.
8. Merger or consolidation: NS Pool LLC merges or consolidates with another entity without meeting certain conditions set forth in the indenture.
_Acceleration, Rescission and Annulment_
As mentioned above, if an Event of Default occurs and is ongoing, the Indenture Trustee can declare the principal of the Tokens to be due and payable, meaning the total amount of such Tokens, along with any accrued and unpaid interest, will become due immediately (“Acceleration”).
Under Section 5.02(b) of the Indenture, the Tokenholder Representative can rescind or annul the declaration of Acceleration and its consequences at any time after it has been made, so long as this occurs before a judgment or decree for payment has been obtained by the Indenture Trustee.
Recission or annulment can only occur under certain conditions, and these conditions are met when NS Pool LLC has paid or deposited with the Indenture Trustee an amount sufficient to pay:
* The total outstanding principal of such Tokens, any accrued and unpaid interest, and all other amounts due if the Event of Default causing such acceleration had not occurred.
* Lawful interest on delinquent interest on the principal amount of the DROP Tokens at the DROP Token rate.
* All unpaid fees and expenses.
In addition to the foregoing, the Tokenholder Representative must determine that all Events of Default, other than the nonpayment of the principal amount of the Tokens that has become due solely due to such Acceleration, have either been cured or waived.
_Remedies_
Section 5.04 of the Indenture outlines the potential remedies and the priority of payments if an Event of Default occurs and continues. If an Event of Default has occurred and is ongoing, the Indenture Trustee, upon written direction by the Tokenholder Representative, can take one or more of the following actions:
* Begin legal proceedings for the collection of all amounts currently payable on the Tokens or under the Indenture, enforce any obtained judgment, and collect due monies from NS Pool LLC.
* Initiate proceedings periodically for the complete or partial foreclosure of the Indenture concerning the Trust Estate.
* Utilize any remedies of a secured party under the relevant UCC and take any other appropriate measures to protect and enforce the rights and remedies of the Indenture Trustee and the Tokenholders.
At the direction of the Tokenholder Representative, the Indenture Trustee can liquidate the Trust Estate following an Event of Default. Without such instruction, the Indenture Trustee is required to maintain possession of the Trust Estate and apply the proceeds in accordance with 5.04(b) of the Indenture as if there had been no declaration of Acceleration.
Such preservation of the Trust Estate is the default position, given that an orderly unwinding of the Trust Estate will maximize recovery for Tokenholders. However, the ultimate decision will depend on the particular facts and circumstances which is why the Tokenholder Representative has the authority to order the liquidation of the Trust estate under the Indenture.
# Real Estate Market Update
Beginning in Q1 2020, residential real estate prices in the United States began a sharp and sustained move higher. This was driven by a variety of factors, including low interest rates, stimulative policy from the Federal Reserve and Federal Government, limited supply of new construction, and rapidly changing consumer preference. When the New Silver transaction was launched in April of 2021, the housing market was still experiencing tailwinds from these factors and home prices continued to rise an additional 23% before peaking in June 2022, marking a total increase of 45% since December 2019, according to the S&P/Case-Shiller U.S. National Home Price Index.
