VAL-111 Defaults only apply FL to cover the loan principal (#113)

contracts/controllers/interfaces/IPoolController.sol

@@ -51,11 +51,7 @@ interface IPoolController {
     /**
      * @dev Emitted when first loss capital is used to cover loan defaults
      */
-    event FirstLossApplied(
-        address indexed loan,
-        uint256 amount,
-        uint256 outstandingLoss
-    );
+    event FirstLossApplied(address indexed loan, uint256 amount);
 
     function admin() external view returns (address);
 

contracts/libraries/PoolLib.sol

@@ -53,11 +53,7 @@ library PoolLib {
     /**
      * @dev See IPool
      */
-    event FirstLossApplied(
-        address indexed loan,
-        uint256 amount,
-        uint256 outstandingLosses
-    );
+    event FirstLossApplied(address indexed loan, uint256 amount);
 
     /**
      * @dev See IPool for event definition
@@ -358,24 +354,15 @@ library PoolLib {
             address(firstLossVault)
         );
 
-        // TODO - handle open-term loans where principal may
-        // not be fully oustanding.
-        uint256 outstandingLoanDebt = ILoan(loan).outstandingPrincipal() +
-            ILoan(loan).paymentsRemaining() *
-            ILoan(loan).payment();
-
+        uint256 outstandingLoanDebt = ILoan(loan).outstandingPrincipal();
         uint256 firstLossRequired = firstLossBalance >= outstandingLoanDebt
             ? outstandingLoanDebt
             : firstLossBalance;
 
         FirstLossVault(firstLossVault).withdraw(firstLossRequired, pool);
 
         emit LoanDefaulted(loan);
-        emit FirstLossApplied(
-            loan,
-            firstLossRequired,
-            outstandingLoanDebt.sub(firstLossRequired)
-        );
+        emit FirstLossApplied(loan, firstLossRequired);
     }
 
     /*//////////////////////////////////////////////////////////////

test/controllers/PoolController.test.ts

@@ -42,6 +42,14 @@ describe("PoolController", () => {
       serviceConfiguration
     );
 
+    const { loan: openTermLoan } = await deployLoan(
+      pool.address,
+      borrower.address,
+      liquidityAsset.address,
+      serviceConfiguration,
+      { loanType: 1 }
+    );
+
     return {
       operator,
       poolAdmin,
@@ -54,7 +62,8 @@ describe("PoolController", () => {
       liquidityAsset,
       collateralAsset,
       poolController,
-      withdrawController
+      withdrawController,
+      openTermLoan
     };
   }
 
@@ -718,13 +727,7 @@ describe("PoolController", () => {
       const outstandingLoanPrincipalsBefore = (await pool.accountings())
         .outstandingLoanPrincipals;
       const firstLossAvailable = await poolController.firstLossBalance();
-
-      // Expected loan outstanding stand = principal + numberPayments * payments
-      const loanPaymentsRemaining = await loan.paymentsRemaining();
-      const loanPaymentAmount = await loan.payment();
-      const loanOustandingDebt = loanPrincipal.add(
-        loanPaymentsRemaining.mul(loanPaymentAmount)
-      );
+      const loanOustandingDebt = loanPrincipal;
 
       // Confirm that first loss is NOT enough to cover the outstanding loan debt
       expect(firstLossAvailable).to.be.lessThan(loanOustandingDebt);
@@ -735,11 +738,7 @@ describe("PoolController", () => {
         .to.emit(poolController, "LoanDefaulted")
         .withArgs(loan.address)
         .to.emit(poolController, "FirstLossApplied")
-        .withArgs(
-          loan.address,
-          firstLossAvailable,
-          loanOustandingDebt.sub(firstLossAvailable)
-        );
+        .withArgs(loan.address, firstLossAvailable);
 
       // Check accountings after
       // Pool accountings should be updated
@@ -756,6 +755,55 @@ describe("PoolController", () => {
       );
     });
 
+    it("defaults only supply first loss to cover outstanding loan principal", async () => {
+      const {
+        pool,
+        poolAdmin,
+        liquidityAsset,
+        openTermLoan,
+        borrower,
+        otherAccount,
+        poolController
+      } = await loadFixture(loadPoolFixture);
+      await activatePool(pool, poolAdmin, liquidityAsset);
+
+      // Deposit to pool and fund loan
+      await depositToPool(pool, otherAccount, liquidityAsset, 1_000_000);
+      await fundLoan(openTermLoan, poolController, poolAdmin);
+
+      await openTermLoan.connect(borrower).drawdown(500_000); // drawdown half
+
+      // Deposit enough FL to cover full loan principal
+      await liquidityAsset.mint(poolAdmin.address, 900_000);
+      await liquidityAsset
+        .connect(poolAdmin)
+        .approve(poolController.address, 900_000);
+      await poolController
+        .connect(poolAdmin)
+        .depositFirstLoss(900_000, poolAdmin.address);
+
+      expect(await poolController.firstLossBalance()).to.equal(1_000_000);
+
+      // Trigger default
+      const txn = await poolController
+        .connect(poolAdmin)
+        .defaultLoan(openTermLoan.address);
+
+      // Check that 500k moved from vault to pool
+      await expect(txn)
+        .to.changeTokenBalance(
+          liquidityAsset,
+          await pool.firstLossVault(),
+          -500_000
+        )
+        .to.changeTokenBalance(liquidityAsset, pool.address, +500_000);
+
+      await expect(txn).to.emit(poolController, "FirstLossApplied").withArgs(
+        openTermLoan.address,
+        500_000 // outstanding principal
+      );
+    });
+
     it("Allows defaults even if pool is closed", async () => {
       const {
         collateralAsset,

test/scenarios/pool/accounting/fixed-term-defaulted.test.ts → test/scenarios/pool/fixed-term-defaulted.test.ts

@@ -5,13 +5,13 @@ import {
   deployPool,
   activatePool,
   DEFAULT_POOL_SETTINGS
-} from "../../../support/pool";
+} from "../../support/pool";
 import {
   DEFAULT_LOAN_SETTINGS,
   deployLoan,
   fundLoan
-} from "../../../support/loan";
-import { deployMockERC20 } from "../../../support/erc20";
+} from "../../support/loan";
+import { deployMockERC20 } from "../../support/erc20";
 
 describe("Fixed Term Defaulted Loan Scenario", () => {
   const INPUTS = {

test/scenarios/pool/accounting/fixed-term-matured.test.ts → test/scenarios/pool/fixed-term-matured.test.ts

@@ -5,13 +5,13 @@ import {
   deployPool,
   activatePool,
   DEFAULT_POOL_SETTINGS
-} from "../../../support/pool";
+} from "../../support/pool";
 import {
   DEFAULT_LOAN_SETTINGS,
   deployLoan,
   fundLoan
-} from "../../../support/loan";
-import { deployMockERC20 } from "../../../support/erc20";
+} from "../../support/loan";
+import { deployMockERC20 } from "../../support/erc20";
 
 describe("Fixed Term Matured Loan Scenario", () => {
   const INPUTS = {

test/scenarios/pool/accounting/open-term-defaulted.test.ts → test/scenarios/pool/open-term-defaulted.test.ts

@@ -5,13 +5,13 @@ import {
   deployPool,
   activatePool,
   DEFAULT_POOL_SETTINGS
-} from "../../../support/pool";
+} from "../../support/pool";
 import {
   DEFAULT_LOAN_SETTINGS,
   deployLoan,
   fundLoan
-} from "../../../support/loan";
-import { deployMockERC20 } from "../../../support/erc20";
+} from "../../support/loan";
+import { deployMockERC20 } from "../../support/erc20";
 
 describe("Open Term Defaulted Loan Scenario", () => {
   const INPUTS = {
@@ -94,7 +94,9 @@ describe("Open Term Defaulted Loan Scenario", () => {
 
     // default loan
     await loan.connect(borrower).drawdown((await loan.principal()).div(2)); // drawdown half
-    await poolController.connect(poolAdmin).defaultLoan(loan.address);
+    const txn = await poolController
+      .connect(poolAdmin)
+      .defaultLoan(loan.address);
 
     // check that outstanding principal goes down to 500k
     expect((await pool.accountings()).outstandingLoanPrincipals).to.equal(

test/scenarios/pool/accounting/open-term-matured.test.ts → test/scenarios/pool/open-term-matured.test.ts

@@ -5,13 +5,13 @@ import {
   deployPool,
   activatePool,
   DEFAULT_POOL_SETTINGS
-} from "../../../support/pool";
+} from "../../support/pool";
 import {
   DEFAULT_LOAN_SETTINGS,
   deployLoan,
   fundLoan
-} from "../../../support/loan";
-import { deployMockERC20 } from "../../../support/erc20";
+} from "../../support/loan";
+import { deployMockERC20 } from "../../support/erc20";
 
 describe("Open Term Matured Loan Scenario", () => {
   const INPUTS = {