Contract analysis

I. Executive Summary You have asked us to analyze Skybridge Fintech Ltd.'s ("SBF" or the "Company") indemnification rights and potential damages claims against Clearview Loan Servicing, Inc. ("Clearview") arising from the servicing-data discrepancy discovered on April 22, 2024. The discrepancy was identified by Broadleaf Analytics Group LLC ("Broadleaf") during loan-level re-underwriting of the proposed SkyLend Recei

II. Background and Factual Summary A. The Parties Skybridge Fintech Ltd. SBF is a Delaware corporation headquartered at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801 (EIN: 84-3291076). The Company operates the "SkyLend" direct-to-consumer digital lending platform, through which it originates unsecured consumer installment loans ranging from $1,000 to $25,000 with terms of 12 to 60 months. SBF's fiscal ye

Section 4.03 — Payment-Application Waterfall. Section 4.03 specifies the order in which Clearview is required to apply borrower payments to the serviced receivables. Pursuant to Section 4.03, all payments received from borrowers must be applied in the following priority: first, to accrued and unpaid interest; second, to outstanding fees (including late fees, returned-payment fees, and other charges); and third, to ou

Section 5.01 — Data-Accuracy Representations and Warranties. Section 5.01 contains Clearview's representations and warranties that all servicing data, reports, and loan-tape information provided to SBF will be accurate, complete, and prepared in accordance with the servicing standards and the terms of the MSA. These representations and warranties are deemed to be made as of the date of delivery of each monthly servic

Section 5.04 — Monthly Reporting Obligations. Section 5.04 requires Clearview to deliver to SBF, no later than the tenth (10th) business day of each calendar month, a comprehensive servicing report containing, among other data points, loan-level payment-status information, delinquency stratifications, loss and recovery data, and static-pool performance tables.

Section 6.01 — Prudent Servicer Standard. Section 6.01 requires Clearview to service the receivables with the same degree of care, skill, and diligence as a prudent servicer would exercise in servicing comparable consumer installment loans, taking into account the terms of the MSA, the interests of SBF, and applicable law.

Section 9.02 — Indemnification by Servicer. Section 9.02 sets forth Clearview's indemnification obligations, which are discussed in detail in Section IV of this memorandum.

Section 10.03 — Limitation of Liability. Section 10.03, to the extent it contains limitations on Clearview's aggregate liability or exclusions of certain categories of damages, is discussed in Section IV.C below.

Section 11.02 — Governing Law. Section 11.02 provides that the MSA shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict-of-laws principles. On March 18, 2024, SBF and Clearview executed Amendment No. 1 to the MSA ("Amendment No. 1"). Amendment No. 1 was entered into in anticipation of the SRT 2024-1 securitization and served three principal purposes: (i

III. Legal Analysis: Clearview's Breach of the MSA Based on the foregoing facts, we conclude that Clearview has breached multiple provisions of the MSA. Each breach is analyzed below. A. Breach of §4.03 — Payment-Application Waterfall

Section 4.03 of the MSA unambiguously requires Clearview to apply borrower payments in the following order of priority: (1) accrued and unpaid interest, (2) fees, and (3) outstanding principal. This waterfall priority is a fundamental component of the servicing arrangement because the order in which payments are applied determines the reported delinquency status of each loan and, in the aggregate, the reported portfo

Section 5.01 of the MSA contains Clearview's representations and warranties that all servicing data, reports, and loan-tape information provided to SBF will be accurate, complete, and prepared in accordance with the servicing standards and the terms of the MSA. These representations and warranties are deemed to be made as of the date of delivery of each monthly servicing report and loan-level data tape, meaning that

Section 6.01 of the MSA requires Clearview to service the receivables with the same degree of care, skill, and diligence as a prudent servicer would exercise in servicing comparable consumer installment loans. This standard is well-established in the loan-servicing industry and imposes on Clearview a duty to maintain reasonable internal controls, quality-assurance procedures, and operational safeguards to ensure the

IV. Indemnification Under §9.02 of the MSA A. Text and Scope of §9.02

Section 9.02 of the MSA provides the contractual basis for SBF's indemnification claims against Clearview. The provision states that Clearview shall indemnify, defend, and hold harmless SBF and its affiliates, officers, directors, employees, and agents (collectively, the "SBF Indemnified Parties") from and against any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable attorneys' f

V. Damages Analysis A. Direct Damages — Sunk Transaction Costs SBF's primary category of damages consists of the transaction costs incurred in connection with the SRT 2024-1 securitization that were forfeited as a direct result of the termination caused by the servicing-data discrepancy. These costs were incurred in reliance on the accuracy of Clearview's servicing data and would not have been forfeited but for the C

VI. Causation Analysis A. But-For Causation A threshold requirement for SBF's indemnification claim is the establishment of but-for causation — that is, that SBF's damages would not have occurred "but for" Clearview's breach. The causal chain in this matter is direct, unbroken, and well-documented. But for Clearview's payment-waterfall error in the ClearCore system, the following sequence of events would not have occ

1. The servicing data provided by Clearview to SBF would have accurately reflected the contractual payment-application waterfall, and the reported delinquency and loss metrics would have corresponded to the actual performance of the portfolio.

2. The Preliminary OM prepared by Calderwood & Harkness and delivered to investors would have contained correct static-pool performance tables, delinquency stratifications, and cumulative net loss data.

3. Broadleaf Analytics' loan-level re-underwriting would not have flagged discrepancies between the servicing data and the actual loan-level payment histories, because no discrepancies would have existed.

4. Meridian Credit Ratings would not have withdrawn its preliminary ratings, and Carrollton Ratings Group would not have placed its expected ratings on "developing" watch.

5. Halcyon Securities would not have suspended marketing or delivered a force-majeure / material-change notice.

6. The SBF board of directors would not have voted to terminate the transaction.

7. The sunk transaction costs of $1,779,150 would not have been forfeited; rather, these costs would have been absorbed into the overall transaction expenses at closing. The causal chain is straightforward: ClearCore payment-waterfall error → inaccurate servicing tapes and reports → incorrect static-pool data in the Preliminary OM → investor and rating-agency reliance on incorrect data → Broadleaf discovery of discre

VII. Clearview's Potential Defenses While SBF's indemnification claims are strong, Clearview will likely assert several defenses. We analyze each below and assess its likely impact on SBF's recovery. A. SBF's Quarterly Data-Reconciliation Obligations The Defense. Clearview will likely argue that SBF had an independent obligation under the MSA to perform quarterly reconciliation of servicing data against its own recor