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Refinancing

Refinance Actions

Both for Open-Term and Fixed-Term Loans, refinancing is defined as the revision of Loan terms, as per an agreement between the two parties involved with the Loan: the Borrower and Lender. The following actions can be performed in any permutation desired:
  • Increase principal: Increases principal, principalRequested, and drawableFunds by a given amount, requires additional funds to be added by the Lender
  • Decrease principal, only for Open Term Loans
  • Set collateralRequired
  • Set closingRate
  • Set endingPrincipal: Must be less than current principal on Loan
  • Set gracePeriod
  • Set noticePeriod
  • Set interestRate
  • Set lateFeeRate
  • Set lateInterestPremiumRate
  • Set paymentInterval
  • Set paymentsRemaining
Note that the Refinancer contract should never set the collateralAsset or fundsAsset and should never directly set drawableFunds, principal or collateral.

Refinance Procedure

In order to facilitate a refinance, an agreement must be reached on-chain between the Lender and Borrower. This is performed using two functions:

proposeNewTerms()

This function is called by the Borrower for Fixed-Term Loans and by the Lender on Open-Term ones, passing in the smart contract address of the Refinancer contract, as well as an array of ABI-encoded function calls.
For example:
bytes[] memory data = new bytes[](4);
data[0] = abi.encodeWithSignature("setCollateralRequired(uint256)", newCollateralRequired_);
data[1] = abi.encodeWithSignature("setEndingPrincipal(uint256)", newEndingPrincipal_);
data[2] = abi.encodeWithSignature("setInterestRate(uint256)", newInterestRate_);
data[3] = abi.encodeWithSignature("increasePrincipal(uint256)", principalIncrease_);
loan.proposeNewTerms(address(refinancer), data);
This function will take the hash of these changes and the Refinancer smart contract address (keccak256(abi.encode(refinancer_, calls_))), and save it into storage in the Loan.

acceptNewTerms()

This function is called the other party, the Lender, through the Loan Manager, in Fixed-Term and the Borrower in Open-Term. In the call, the same parameters are passed to agree to the terms, the smart contract address of the Refinancer and the array of ABI-encoded function calls.
This function calculates the hash again (keccak256(abi.encode(refinancer_, calls_))) and compares it with the hash that was added to storage when proposeNewTerms() was called.
If the hashes match, the function calls are executed in a for loop as delegatecalls to the Refinancer contract, manipulating storage in the context of the Loan:
for (uint256 i; i < calls_.length; ++i) {
( bool success, ) = refinancer_.delegatecall(calls_[i]);
require(success, "MLI:ANT:FAILED");
}
Once all of these execute successfully, the collateral ratio is checked to make sure it is maintained, after which the refinance is considered complete.