Contract analysis

From: Rebecca Tran <rtran@ridgelinecm.com> To: Douglas Carmichael <dcarmichael@calderwoodharkness.com> Cc: Julian Weatherstone <jweatherstone@ridgelinecm.com> Date: Wed, 02 Nov 2022 05:47:00 -0000 Subject: QRF 2022-1 — Roadshow Concluded / Indicative Pricing Summary

I wanted to reach out promptly now that the virtual investor roadshow for Quorum Receivables Funding 2022-1 LLC has concluded. The roadshow commenced on October 24 and ran through today, November 2. Over the course of eight business days, we engaged with a broad cross-section of qualified institutional buyers across the ABS landscape.

I'll cut to the key takeaway: we received indications of interest from a sufficient number of accounts to cover the offering (Rule 144A / Regulation S), but indicative pricing came in materially wider than our initial guidance across all three tranches. Below is a summary of where we stand.

| Tranche | Size | Initial Guidance | Indicative Pricing | Differential | |---|---|---|---|---| | Class A Notes | $375,000,000 | SOFR + 125 bps | SOFR + 168 bps | +43 bps wider | | Class B Notes | $75,000,000 | SOFR + 210 bps | SOFR + 285 bps | +75 bps wider | | Class C Notes | $35,000,000 | SOFR + 375 bps | SOFR + 450 bps | +75 bps wider |

At these indicative levels, the implied all-in weighted average cost of funds breaks down as follows:

- Class A (75.0% of capital structure): 75.0% × 168 bps = 126.00 bps - Class B (15.0% of capital structure): 15.0% × 285 bps = 42.75 bps - Class C (7.0% of capital structure): 7.0% × 450 bps = 31.50 bps - **Weighted Average: approximately SOFR + 200 bps**

As you are aware, this exceeds QIH's board-approved cost-of-funds hurdle of SOFR + 175 bps by approximately 25 basis points. We recognize that is a meaningful gap and want to be transparent about the dynamics driving it.

The broader ABS market has experienced significant spread widening since this transaction was initially structured in June/July. At the time of deal structuring, comparable AAA-rated insurance premium finance ABS were trading in the range of SOFR + 95–110 bps. Current comparable levels in the secondary market are approximately SOFR + 160–175 bps — a move of 60–70 bps at the senior tranche alone.

This widening is attributable to well-documented macro conditions: the continued pace of rate increases, broad risk-off sentiment across fixed income, and meaningfully reduced dealer balance sheet capacity heading into year-end. These are market-wide headwinds, not credit-specific concerns with Quorum or the receivables pool.

I want to emphasize that point clearly: **investor feedback on the collateral quality was constructive.** The historical net loss rate of 0.42% and the low 60+ day delinquency rate of 0.87% were viewed favorably by virtually every account we spoke with. The preliminary ratings from Brindoval (AAA(cr) / A(cr) / BBB(cr)) and Pinnacle (Aaa(p) / A1(p) / Baa2(p)) were well received and consistent with expectations. The is

A few additional observations from the book:

- **Class A:** Demand was adequate but price-sensitive. Investors consistently anchored to the wider end of recent new-issue comparables, and several larger real money accounts indicated that SOFR + 165–170 was the minimum clearing level given where secondary paper is offered.

- **Class B and Class C:** Demand was more limited. Several mezzanine-focused accounts indicated they would need further spread concession beyond current indicative levels to participate at meaningful size. The subordinate tranches are bearing the brunt of the risk-off posture we are seeing across the market.

- A handful of accounts suggested they could potentially participate at modestly tighter levels on a smaller overall deal size. However, our team's view is that resizing would not meaningfully close the gap to the hurdle rate — the spread widening is driven by macro technicals, not supply-demand imbalance specific to this deal's size.

Given the gap between indicative pricing and the board-approved hurdle, I believe we need an internal alignment discussion before making any execution decisions. I would suggest a call with QIH treasury and the Calderwood & Harkness team to evaluate the available paths forward, which as we see them include:

1. **Proceed at current levels** — accepting execution at approximately SOFR + 200 bps weighted average, which would require a re-approval given the breach of the 175 bps hurdle.

2. **Delay and relaunch** — holding the transaction and monitoring market conditions for a more favorable execution window, likely Q1 2023 at the earliest given year-end dynamics.

3. **Explore structural modifications** — for example, increasing overcollateralization levels or reducing the total deal size to potentially tighten pricing. I should note candidly that our team's view is that structural adjustments would have limited impact on spread levels in the current macro environment. The widening is not driven by structural concerns.

I would propose we schedule a call for early next week — the week of November 7 — to discuss and align on a path forward. Please let me know your availability and we will coordinate.

One timing note: we can hold the investor book open for a limited period, but indications will go stale if we do not act within approximately 7–10 business days. Several of the larger accounts were explicit that their pricing indications are subject to market conditions at the time of execution.

We understand this is not the outcome any of us were targeting, and the Ridgeline team remains fully committed to getting this transaction done at economics that work for Quorum. The credit story here is strong, and when market conditions normalize, we believe this deal will be well received.

I will be compiling the detailed investor-by-investor feedback notes and will share those with the group separately in the next few days.

Please don't hesitate to reach out with any questions in the interim.

**Rebecca Tran** Managing Director Insurance Finance ABS Ridgeline Capital Markets LLC 383 Madison Avenue, 14th Floor New York, NY 10179 Tel: (212) 551-4238 Mobile: (917) 628-0194 rtran@ridgelinecm.com