letter-to-halcyon-re-material-change-notice.docx

1009-00005 · Skybridge Fintech Ltd · Correspondence

letter-to-halcyon-re-material-change-notice.docx DOCUMENT Funds

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CALDERWOOD & HARKNESS LLP Counselors at Law 425 Lexington Avenue New York, New York 10017 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com

April 28, 2024

VIA EMAIL AND OVERNIGHT COURIER

Rebecca Thornton, Managing Director Jonathan Kramer, Head of ABS Origination Halcyon Securities LLC 200 Vesey Street, 42nd Floor New York, New York 10281

Re: SkyLend Receivables Trust 2024-1 — Response to Material-Change Notice dated April 26, 2024 Halcyon Deal Reference: HLC-ABS-2024-017 C&H Matter No.: 1009-00005

Dear Ms. Thornton and Mr. Kramer:

I. Introduction and Purpose

Calderwood & Harkness LLP writes on behalf of its client, Skybridge Fintech Ltd., a Delaware corporation ("SBF"), in its capacity as originator and sponsor in connection with the proposed securitization of consumer receivables through SkyLend Receivables Trust 2024-1 (the "Trust"), a Delaware statutory trust. We appreciate the seriousness with which Halcyon Securities LLC ("Halcyon") has approached the matters described below, and we write to provide a prompt and detailed response on behalf of SBF.

This letter responds to the formal notice dated April 26, 2024 (the "Material-Change Notice"), delivered by Halcyon to SBF pursuant to Section 6(a) of the Preliminary Purchase Agreement dated February 20, 2024 (the "PPA"), among the Trust, SBF, SkyLend Funding LLC (the "Depositor"), and Halcyon, as initial purchaser. The Material-Change Notice was received by SBF's General Counsel, Tomás Reyes, via electronic mail at 6:14 p.m. Eastern Time on April 26, 2024, and a conforming hard copy was received by overnight courier at SBF's Wilmington offices on the morning of April 27, 2024.

As set forth in the Material-Change Notice, Halcyon invoked its force-majeure and material-change termination rights under the PPA, suspended marketing of the offering of $170,000,000 aggregate principal amount of SkyLend Receivables Trust 2024-1 Class A Asset-Backed Notes (the "Class A Notes") and $22,000,000 aggregate principal amount of SkyLend Receivables Trust 2024-1 Class B Asset-Backed Notes (the "Class B Notes" and, together with the Class A Notes, the "Notes"), and cited findings reported by Broadleaf Analytics Group LLC ("Broadleaf") regarding discrepancies in certain static-pool performance data contained in the Preliminary Offering Memorandum dated April 5, 2024 (the "Preliminary OM"). The combined aggregate offering amount for the Notes is $192,000,000, and the transaction had been progressing through the customary pre-pricing timeline prior to the events described herein.

SBF acknowledges receipt of the Material-Change Notice and provides this response to describe, in detail, the actions SBF has undertaken and is continuing to undertake in response to the identified discrepancy, to set forth SBF's understanding of the root cause of the discrepancy, and to outline SBF's proposed path forward. SBF provides this letter in a spirit of transparency and cooperation, while also preserving all of its rights and remedies under the PPA, applicable agreements, and law.

II. Acknowledgment of the Servicing-Data Discrepancy

SBF acknowledges that on April 22, 2024, Broadleaf Analytics Group LLC, the independent third-party due diligence provider engaged by Halcyon in connection with the offering of the Notes, identified material discrepancies between certain static-pool performance data set forth in the Preliminary OM and the actual underlying loan-tape records for the receivables pool (the "Data Discrepancy"). Broadleaf's findings were the product of a re-underwriting exercise conducted pursuant to Broadleaf's engagement letter with Halcyon dated March 4, 2024, and represent a significant and troubling deviation from the performance metrics presented to market participants.

SBF was notified of Broadleaf's findings on April 23, 2024, via correspondence from Halcyon and its outside counsel, Whitfield, Drummond & Paige LLP ("WDP"). The notification was transmitted by email from Harrison Whitfield III of WDP to Tomás Reyes and was accompanied by a summary memorandum prepared by Broadleaf (the "Broadleaf Memo"). SBF's management team convened an emergency meeting on the same date to review the substance of the notification and to commence an internal investigation.

SBF takes the Data Discrepancy seriously and does not dispute that the findings raise significant concerns that must be addressed before any offering of the Notes may proceed. The integrity of the data presented in the Preliminary OM is foundational to the transaction, and SBF recognizes that any discrepancy of the nature and magnitude described herein has the potential to affect investor confidence, rating-agency assessments, and the structural assumptions underlying the Notes.

Specifically, SBF understands that Broadleaf's re-underwriting of a stratified random sample of approximately 1,500 loans (approximately 6.5% of the proposed pool by loan count) revealed the following:

(a) Delinquency Rate Discrepancy. The 30+ day past-due delinquency rate as of the March 31, 2024 cut-off date was 5.47% based on correct payment application, as compared to the 3.21% rate reflected in the Preliminary OM. This represents a difference of 2.26 percentage points, or an approximately 70.4% relative increase over the reported figure. A discrepancy of this magnitude is material by any reasonable standard and would affect, among other things, the excess-spread and credit-enhancement analysis presented to the rating agencies and prospective investors.

(b) Cumulative Net Loss Discrepancy. Cumulative net losses for the 2022 origination vintage were 6.89% based on correct payment application, as compared to the 4.12% rate reflected in the Preliminary OM. This represents a difference of 2.77 percentage points, or an approximately 67.2% relative increase over the reported figure. The 2022 vintage is a key reference point for the Trust because it represents the most seasoned vintage in SBF's origination history and serves as a benchmark for loss-curve projections utilized in both the Meridian and Carrollton rating models.

(c) Scope of Affected Loans. The discrepancy affected approximately 14,600 loans, representing approximately 63.2% of the proposed pool of approximately 23,100 receivables. The broad scope of the affected loan population indicates that the error was systemic rather than isolated and that its impact extends across substantially all segments of the receivables pool.

SBF notes that these findings, if confirmed upon completion of SBF's own remediation process, represent a serious deviation from the performance narrative presented in the Preliminary OM and in related investor-facing materials. SBF is committed to a full and transparent accounting of the Data Discrepancy and to the prompt correction of all affected data.

III. Root Cause Identification — Clearview Loan Servicing, Inc.

SBF's preliminary internal investigation, commenced on April 24, 2024, and conducted under the supervision of SBF's General Counsel and outside counsel, has identified the root cause of the Data Discrepancy as an error in the payment-application waterfall logic implemented by Clearview Loan Servicing, Inc. ("Clearview"), the third-party servicer of SBF's receivables portfolio. Clearview services the receivables pursuant to the Master Servicing Agreement dated October 1, 2022, by and between SBF and Clearview (the "MSA"), Servicing Account No. CLS-SBF-2022-0041. The MSA was entered into in connection with the commencement of SBF's consumer lending program and governs the servicing of all receivables originated by SBF that are subject to the Clearview servicing relationship.

In June 2023, Clearview migrated its servicing platform from its legacy system, known internally as "LoanTrax," to a new cloud-based servicing platform designated as "ClearCore." The ClearCore platform was developed by Clearview as a next-generation servicing solution intended to replace LoanTrax across Clearview's entire servicing portfolio. SBF was notified of the planned migration in advance and received written assurances from Clearview's senior management that the migration would be conducted in a manner consistent with Clearview's obligations under the MSA and would not result in any disruption to servicing operations or data integrity.

During the ClearCore migration, an error was introduced in the payment-application waterfall logic applicable to SBF's receivables. Under Section 4.03 of the MSA, partial payments received from obligors are required to be applied in the following priority order: first, to accrued and unpaid interest; second, to fees (including late fees and other charges); and third, to outstanding principal. This waterfall is standard in consumer-receivable servicing and is a critical component of accurate delinquency and loss reporting, because the order in which payments are applied directly determines whether a given loan is classified as current, delinquent, or in default.

The ClearCore system, as configured following the June 2023 migration, erroneously applied partial payments to principal before interest. The practical effect of this misconfiguration was to overstate the principal reduction on affected accounts, thereby causing those accounts to appear more current than they actually were when measured against the contractual payment-application waterfall. Loans that should have been classified as 30+ days past due under correct payment application were instead reported as current, and loans that should have been classified as defaulted were reported as merely delinquent. The cumulative effect of this error, compounding over the approximately ten-month period from the June 2023 migration through the March 31, 2024 cut-off date, resulted in the material understatement of delinquency rates and cumulative net losses that was identified by Broadleaf.

SBF's investigation has further revealed that the error was not detected by Clearview's post-migration validation procedures. SBF understands, based on preliminary communications with Clearview, that Clearview's validation process at the time of the ClearCore migration consisted of a comparison of aggregate portfolio-level balances and counts between LoanTrax and ClearCore, but did not include loan-level verification of payment-application waterfall outcomes. This gap in Clearview's validation methodology allowed the waterfall misconfiguration to persist undetected.

SBF further acknowledges that its own quarterly data-reconciliation process, which involves a comparison of servicer-reported data against SBF's internal origination records, did not detect the error. SBF's reconciliation process is designed to verify loan counts, aggregate balances, and weighted-average coupon rates, but does not independently re-apply payments at the loan level. SBF recognizes that this limitation in its own quality-assurance process is a matter that warrants review and enhancement going forward, and SBF is evaluating improvements to its data-governance framework in consultation with outside advisors.

The erroneous data generated by the ClearCore misconfiguration was incorporated into the static-pool performance tables set forth in the Preliminary OM, including Tables SP-1 through SP-4 (delinquency and loss experience by origination vintage) and the accompanying narrative discussion in the "Static Pool Information" section. The same erroneous data was presented to Meridian Credit Ratings, Inc. ("Meridian") and Carrollton Ratings Group LLC ("Carrollton") during the rating-agency presentations conducted on April 8, 2024, at the offices of Halcyon, and was included in the rating-agency data packages delivered on April 4, 2024. The data was also presented to approximately 28 institutional investors during the investor roadshow conducted April 15–19, 2024, in New York, Boston, and Chicago, through the use of the Preliminary OM and the investor presentation dated April 12, 2024.

IV. Clearview's Preliminary Response

On April 24, 2024, immediately following the commencement of SBF's internal investigation, SBF's General Counsel, Tomás Reyes, contacted Clearview Loan Servicing, Inc. to notify Clearview of Broadleaf's findings and to demand an immediate explanation and corrective action. Clearview, through its Vice President of Operations, Meredith Sloane, provided a preliminary response on the same date by telephone, followed by a written communication transmitted by email at approximately 8:47 p.m. Eastern Time.

Clearview has acknowledged that the ClearCore migration introduced a payment-waterfall configuration error affecting the application of partial payments on SBF's receivables. In its preliminary response, Clearview characterized the error as a "configuration mapping issue" arising from the translation of LoanTrax waterfall rules into the ClearCore platform architecture. Clearview has stated that it is conducting its own internal review to determine the full scope of affected accounts and the precise timeframe during which the erroneous payment application was operative. Clearview has indicated that its preliminary findings are consistent with SBF's understanding that the error was introduced in June 2023 and persisted through the present, but Clearview has not yet confirmed the exact date on which the misconfiguration became effective or provided a definitive account-level impact assessment.

As of the date of this letter, Clearview has not yet provided a complete remediation plan or a timeline for re-processing affected loan-level data to conform to the contractual payment-application waterfall set forth in Section 4.03 of the MSA. SBF has communicated to Clearview, in the strongest terms, that the delivery of a corrected loan tape and a comprehensive remediation plan is a matter of the utmost urgency, and SBF has established daily status-call protocols with Clearview's senior management to monitor progress.

SBF has demanded that Clearview provide, on an expedited basis, the following:

(a) a comprehensive root-cause analysis, including the specific ClearCore configuration parameters that gave rise to the waterfall error, the date on which the error was introduced, and the internal-control failures that permitted the error to persist undetected;

(b) a fully corrected loan tape reflecting the re-application of all payments received since the date of the ClearCore migration in accordance with the contractual waterfall under Section 4.03 of the MSA, with corrected delinquency classifications, loss figures, and account statuses for all affected receivables;

(c) a remediation plan setting forth the steps Clearview will take to correct the ClearCore configuration, prevent recurrence of the error, and ensure the ongoing accuracy of servicer-reported data; and

(d) a certification by a senior officer of Clearview as to the accuracy and completeness of the corrected data.

SBF notes that Clearview's obligations under the MSA include specific representations regarding the accuracy of servicer-reported data, including the representation set forth in Section 5.01(f) of the MSA that all data and reports delivered by Clearview to SBF shall be true, correct, and complete in all material respects. SBF further notes that the MSA contains indemnification provisions in Section 9.02 addressing losses, costs, expenses, and damages arising from the servicer's breach of its representations, warranties, and covenants, including any breach of the data-accuracy representations. SBF expressly reserves all of its rights and remedies against Clearview under the MSA and applicable law, including without limitation its rights to seek indemnification, to terminate the MSA for cause, and to pursue any and all other remedies available at law or in equity. SBF's ongoing communications with Clearview are without prejudice to these rights.

V. SBF's Ongoing Remediation Efforts

SBF has acted promptly and in good faith to investigate and remediate the Data Discrepancy. The following is a summary of the key remediation steps that SBF has undertaken and continues to pursue:

Cross-Functional Remediation Team. SBF has assembled a cross-functional team, led by its Chief Financial Officer, Danielle Prescott, and its General Counsel, Tomás Reyes, to oversee all aspects of the investigation and remediation. The team includes representatives from SBF's finance, operations, compliance, and data-analytics functions. The team has been meeting daily since April 24, 2024, and is providing regular updates to SBF's Chief Executive Officer, Arun Mehta, and to SBF's Board of Directors.

Engagement of Outside Counsel. SBF has engaged Calderwood & Harkness LLP to advise on the legal implications of the Data Discrepancy, including potential securities-law considerations arising from the distribution of the Preliminary OM and investor-presentation materials containing inaccurate data, SBF's contractual obligations under the PPA and related transaction documents, and the assessment and preservation of SBF's claims against Clearview and any other responsible parties. Calderwood & Harkness is coordinating closely with SBF's internal legal team and with SBF's other professional advisors to ensure a comprehensive and well-coordinated response.

Corrected Loan Tape and Data Reconciliation. SBF is working diligently to obtain a fully corrected loan tape from Clearview. Upon receipt of the corrected loan tape, SBF will engage in a comprehensive reconciliation of the static-pool performance data, including a loan-by-loan comparison of original payment-application records, ClearCore-generated records, and corrected records. SBF intends to engage an independent third-party data-analytics firm to verify the accuracy of the corrected data, and SBF welcomes Broadleaf's participation in this verification process should Halcyon deem it appropriate.

Prerequisites to Resumption of Marketing. SBF acknowledges that any resumption of marketing efforts with respect to the Notes would require, at a minimum, satisfaction of each of the following conditions:

(a) corrected and independently verified pool-level and static-pool performance data reflecting the application of payments in accordance with the contractual waterfall;

(b) a supplemented or revised Preliminary OM reflecting accurate and complete data, reviewed and approved by all relevant parties and their respective counsel;

(c) refreshed rating-agency analysis by Meridian Credit Ratings, Inc. (Gregory Fontaine, Lead Analyst) and Carrollton Ratings Group LLC (Teresa Kobayashi, Lead Analyst), including re-evaluation of preliminary ratings in light of corrected performance data and any resulting changes to loss expectations, credit-enhancement levels, or structural features of the Notes; and

(d) Halcyon's satisfaction, in its reasonable judgment, that the corrected information is accurate and complete and that the transaction can proceed on terms acceptable to Halcyon and prospective investors.

SBF recognizes that the timeline for completing these steps is uncertain at this juncture and will depend, in significant part, on the speed with which Clearview delivers a corrected loan tape and remediation plan. SBF is committed to providing Halcyon with regular updates on the status of the remediation effort and to facilitating Halcyon's and Broadleaf's access to all relevant data and personnel as the process unfolds.

VI. Response to Suspension of Marketing

SBF understands Halcyon's decision to suspend marketing of the Notes pending resolution of the Data Discrepancy, and SBF acknowledges that this decision is prudent and appropriate under the circumstances. SBF does not object to the suspension at this time, as SBF agrees that no further distribution of the Preliminary OM, the investor presentation, or any other marketing materials should occur until the Data Discrepancy has been fully remediated and all relevant materials have been updated to reflect accurate and complete information. SBF has taken its own internal steps to ensure that no SBF personnel distribute or reference the Preliminary OM or related materials in connection with the offering during the pendency of the remediation process.

SBF notes, however, that the characterization of the Data Discrepancy in the Material-Change Notice as a basis for termination of the PPA on force-majeure grounds requires further analysis and, in SBF's view, raises questions regarding the applicability of the force-majeure provision to the facts at hand. Section 8(c) of the PPA defines "Force Majeure Event" by reference to events beyond the reasonable control of the parties, including, among other things, acts of God, natural disasters, war, terrorism, governmental actions, and market disruptions of a systemic nature. The Data Discrepancy originated from a configuration error introduced by a third-party servicer during a platform migration — an event that, while unforeseeable from SBF's perspective, is fundamentally operational in nature and does not constitute an event of the type typically contemplated by force-majeure provisions in purchase agreements of this kind.

SBF does not concede that Halcyon has grounds for termination of the PPA under the force-majeure clause at this time. SBF reserves its rights to contest any invocation of the force-majeure provision and to assert its own position regarding the applicable termination provisions of the PPA, including the material-change provision in Section 6(a), the conditions to closing in Section 5, and the allocation of rights and obligations upon any termination of the PPA under any provision thereof.

Notwithstanding the foregoing, SBF emphasizes that its primary objective at this time is not to litigate the legal characterization of the suspension or the scope of the parties' respective termination rights, but rather to work constructively and cooperatively with Halcyon, Broadleaf, WDP, and all other relevant parties to remediate the Data Discrepancy as expeditiously as possible and to determine whether the transaction can be brought to a successful conclusion. SBF is prepared to cooperate fully with Halcyon and Broadleaf in any additional due-diligence review that Halcyon deems necessary, including providing access to SBF's origination records, servicing files, internal communications, and data-reconciliation workpapers. SBF will make its personnel, including members of the remediation team, available for calls and meetings at Halcyon's convenience.

VII. Reservation of Rights

Without limiting the generality of any other reservation of rights set forth in this letter, SBF expressly reserves all of its rights and remedies under the PPA, the MSA, and applicable law, including without limitation:

(a) All rights under the termination provisions of the PPA, including with respect to the allocation of expenses incurred in connection with the preparation and marketing of the offering, the scope and applicability of any expense-reimbursement obligation under Section 7(b) of the PPA, and the determination of whether any termination of the PPA is "for cause" or otherwise within the scope of the parties' respective rights.

(b) All rights to seek indemnification from Clearview Loan Servicing, Inc. under Section 9.02 of the MSA for all losses, costs, liabilities, expenses, and damages arising from or related to Clearview's breach of its data-accuracy representations, its failure to implement the contractual payment-application waterfall in accordance with Section 4.03 of the MSA, and any other breach of its obligations under the MSA.

(c) All rights to seek contribution or indemnification from any other party whose acts or omissions may have contributed to the Data Discrepancy or to the inclusion of inaccurate information in the Preliminary OM or related materials.

(d) Any and all other rights and remedies available to SBF at law or in equity, whether arising under contract, statute, tort, or otherwise, whether now existing or hereafter arising.

Nothing in this letter shall be deemed a waiver of any right, remedy, claim, or defense of SBF, whether now existing or hereafter arising. SBF's failure to assert any particular right or remedy in this letter shall not be construed as a waiver thereof, and no course of dealing, delay, or forbearance on the part of SBF shall operate as a waiver of or otherwise affect any of SBF's rights hereunder or under applicable agreements and law.

This letter is written without prejudice to SBF's position and is not intended to constitute, and shall not be construed as, an admission of liability, fault, or wrongdoing on the part of SBF. SBF's acknowledgment of the Data Discrepancy and its description of the root cause identified to date are provided for informational purposes and in furtherance of the parties' shared interest in resolving the matters described herein, and shall not be used or cited as evidence of any admission by SBF in any proceeding or context.

VIII. Request for Continued Dialogue

SBF values the relationship it has built with Halcyon over the course of the SkyLend Receivables Trust 2024-1 transaction and recognizes that the events described in this letter have placed that relationship under significant strain. SBF is committed to addressing the Data Discrepancy with the urgency, transparency, and professionalism that the situation demands.

To that end, SBF proposes that the parties and their respective counsel schedule a call at the earliest mutual convenience to discuss the path forward in a structured and productive manner. SBF suggests that the agenda for such a call include, at a minimum, the following topics:

(a) the expected timeline for delivery of Clearview's corrected loan tape and remediation plan;

(b) the process for independent verification of corrected data, including Broadleaf's role in that process;

(c) the feasibility and timing of reviving the transaction, including the potential need for revised structural terms, updated credit-enhancement levels, or modified pricing guidance;

(d) the allocation of responsibility for costs and expenses incurred to date in connection with the preparation, marketing, and due diligence of the offering; and

(e) any other matters that Halcyon or its counsel believes should be addressed at this stage.

SBF remains committed to its securitization program and to working constructively with Halcyon to determine whether the SkyLend Receivables Trust 2024-1 transaction can be remediated and brought to a successful conclusion on a reasonable timeline. SBF believes that the interests of both parties are best served by open communication and a collaborative approach to the remediation process, and SBF stands ready to engage in that process without delay.

We are available to discuss this letter and the matters described herein at your convenience. Please do not hesitate to contact me directly at (212) 558-4217 or at tlangston@calderwoodharkness.com, or to contact my colleague Linda Osei at (212) 558-4302 or at losei@calderwoodharkness.com.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Theodore Langston Partner

On behalf of Skybridge Fintech Ltd.

cc (via email):

Tomás Reyes, General Counsel, Skybridge Fintech Ltd., 1400 Market Street, Suite 1210, Wilmington, DE 19801

Danielle Prescott, Chief Financial Officer, Skybridge Fintech Ltd.

Arun Mehta, Chief Executive Officer, Skybridge Fintech Ltd.

Harrison Whitfield III, Whitfield, Drummond & Paige LLP, 51 West 52nd Street, New York, NY 10019

Linda Osei, Calderwood & Harkness LLP

Patrick Gallagher, Calderwood & Harkness LLP

CALDERWOOD & HARKNESS LLP Counselors at Law 425 Lexington Avenue New York, New York 10017 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
April 28, 2024
VIA EMAIL AND OVERNIGHT COURIER
Rebecca Thornton, Managing Director Jonathan Kramer, Head of ABS Origination Halcyon Securities LLC 200 Vesey Street, 42nd Floor New York, New York 10281
Re: SkyLend Receivables Trust 2024-1 — Response to Material-Change Notice dated April 26, 2024 Halcyon Deal Reference: HLC-ABS-2024-017 C&H Matter No.: 1009-00005
Dear Ms. Thornton and Mr. Kramer:
I. Introduction and Purpose
Calderwood & Harkness LLP writes on behalf of its client, Skybridge Fintech Ltd., a Delaware corporation ("SBF"), in its capacity as originator and sponsor in connection with the proposed securitization of consumer receivables through SkyLend Receivables Trust 2024-1 (the "Trust"), a Delaware statutory trust. We appreciate the seriousness with which Halcyon Securities LLC ("Halcyon") has approached the matters described below, and we write to provide a prompt and detailed response on behalf of SBF.
This letter responds to the formal notice dated April 26, 2024 (the "Material-Change Notice"), delivered by Halcyon to SBF pursuant to Section 6(a) of the Preliminary Purchase Agreement dated February 20, 2024 (the "PPA"), among the Trust, SBF, SkyLend Funding LLC (the "Depositor"), and Halcyon, as initial purchaser. The Material-Change Notice was received by SBF's General Counsel, Tomás Reyes, via electronic mail at 6:14 p.m. Eastern Time on April 26, 2024, and a conforming hard copy was received by overnight courier at SBF's Wilmington offices on the morning of April 27, 2024.
As set forth in the Material-Change Notice, Halcyon invoked its force-majeure and material-change termination rights under the PPA, suspended marketing of the offering of $170,000,000 aggregate principal amount of SkyLend Receivables Trust 2024-1 Class A Asset-Backed Notes (the "Class A Notes") and $22,000,000 aggregate principal amount of SkyLend Receivables Trust 2024-1 Class B Asset-Backed Notes (the "Class B Notes" and, together with the Class A Notes, the "Notes"), and cited findings reported by Broadleaf Analytics Group LLC ("Broadleaf") regarding discrepancies in certain static-pool performance data contained in the Preliminary Offering Memorandum dated April 5, 2024 (the "Preliminary OM"). The combined aggregate offering amount for the Notes is $192,000,000, and the transaction had been progressing through the customary pre-pricing timeline prior to the events described herein.
SBF acknowledges receipt of the Material-Change Notice and provides this response to describe, in detail, the actions SBF has undertaken and is continuing to undertake in response to the identified discrepancy, to set forth SBF's understanding of the root cause of the discrepancy, and to outline SBF's proposed path forward. SBF provides this letter in a spirit of transparency and cooperation, while also preserving all of its rights and remedies under the PPA, applicable agreements, and law.
II. Acknowledgment of the Servicing-Data Discrepancy
SBF acknowledges that on April 22, 2024, Broadleaf Analytics Group LLC, the independent third-party due diligence provider engaged by Halcyon in connection with the offering of the Notes, identified material discrepancies between certain static-pool performance data set forth in the Preliminary OM and the actual underlying loan-tape records for the receivables pool (the "Data Discrepancy"). Broadleaf's findings were the product of a re-underwriting exercise conducted pursuant to Broadleaf's engagement letter with Halcyon dated March 4, 2024, and represent a significant and troubling deviation from the performance metrics presented to market participants.
SBF was notified of Broadleaf's findings on April 23, 2024, via correspondence from Halcyon and its outside counsel, Whitfield, Drummond & Paige LLP ("WDP"). The notification was transmitted by email from Harrison Whitfield III of WDP to Tomás Reyes and was accompanied by a summary memorandum prepared by Broadleaf (the "Broadleaf Memo"). SBF's management team convened an emergency meeting on the same date to review the substance of the notification and to commence an internal investigation.
SBF takes the Data Discrepancy seriously and does not dispute that the findings raise significant concerns that must be addressed before any offering of the Notes may proceed. The integrity of the data presented in the Preliminary OM is foundational to the transaction, and SBF recognizes that any discrepancy of the nature and magnitude described herein has the potential to affect investor confidence, rating-agency assessments, and the structural assumptions underlying the Notes.
Specifically, SBF understands that Broadleaf's re-underwriting of a stratified random sample of approximately 1,500 loans (approximately 6.5% of the proposed pool by loan count) revealed the following:
(a) Delinquency Rate Discrepancy. The 30+ day past-due delinquency rate as of the March 31, 2024 cut-off date was 5.47% based on correct payment application, as compared to the 3.21% rate reflected in the Preliminary OM. This represents a difference of 2.26 percentage points, or an approximately 70.4% relative increase over the reported figure. A discrepancy of this magnitude is material by any reasonable standard and would affect, among other things, the excess-spread and credit-enhancement analysis presented to the rating agencies and prospective investors.
(b) Cumulative Net Loss Discrepancy. Cumulative net losses for the 2022 origination vintage were 6.89% based on correct payment application, as compared to the 4.12% rate reflected in the Preliminary OM. This represents a difference of 2.77 percentage points, or an approximately 67.2% relative increase over the reported figure. The 2022 vintage is a key reference point for the Trust because it represents the most seasoned vintage in SBF's origination history and serves as a benchmark for loss-curve projections utilized in both the Meridian and Carrollton rating models.
(c) Scope of Affected Loans. The discrepancy affected approximately 14,600 loans, representing approximately 63.2% of the proposed pool of approximately 23,100 receivables. The broad scope of the affected loan population indicates that the error was systemic rather than isolated and that its impact extends across substantially all segments of the receivables pool.
SBF notes that these findings, if confirmed upon completion of SBF's own remediation process, represent a serious deviation from the performance narrative presented in the Preliminary OM and in related investor-facing materials. SBF is committed to a full and transparent accounting of the Data Discrepancy and to the prompt correction of all affected data.
III. Root Cause Identification — Clearview Loan Servicing, Inc.
SBF's preliminary internal investigation, commenced on April 24, 2024, and conducted under the supervision of SBF's General Counsel and outside counsel, has identified the root cause of the Data Discrepancy as an error in the payment-application waterfall logic implemented by Clearview Loan Servicing, Inc. ("Clearview"), the third-party servicer of SBF's receivables portfolio. Clearview services the receivables pursuant to the Master Servicing Agreement dated October 1, 2022, by and between SBF and Clearview (the "MSA"), Servicing Account No. CLS-SBF-2022-0041. The MSA was entered into in connection with the commencement of SBF's consumer lending program and governs the servicing of all receivables originated by SBF that are subject to the Clearview servicing relationship.
In June 2023, Clearview migrated its servicing platform from its legacy system, known internally as "LoanTrax," to a new cloud-based servicing platform designated as "ClearCore." The ClearCore platform was developed by Clearview as a next-generation servicing solution intended to replace LoanTrax across Clearview's entire servicing portfolio. SBF was notified of the planned migration in advance and received written assurances from Clearview's senior management that the migration would be conducted in a manner consistent with Clearview's obligations under the MSA and would not result in any disruption to servicing operations or data integrity.
During the ClearCore migration, an error was introduced in the payment-application waterfall logic applicable to SBF's receivables. Under Section 4.03 of the MSA, partial payments received from obligors are required to be applied in the following priority order: first, to accrued and unpaid interest; second, to fees (including late fees and other charges); and third, to outstanding principal. This waterfall is standard in consumer-receivable servicing and is a critical component of accurate delinquency and loss reporting, because the order in which payments are applied directly determines whether a given loan is classified as current, delinquent, or in default.
The ClearCore system, as configured following the June 2023 migration, erroneously applied partial payments to principal before interest. The practical effect of this misconfiguration was to overstate the principal reduction on affected accounts, thereby causing those accounts to appear more current than they actually were when measured against the contractual payment-application waterfall. Loans that should have been classified as 30+ days past due under correct payment application were instead reported as current, and loans that should have been classified as defaulted were reported as merely delinquent. The cumulative effect of this error, compounding over the approximately ten-month period from the June 2023 migration through the March 31, 2024 cut-off date, resulted in the material understatement of delinquency rates and cumulative net losses that was identified by Broadleaf.
SBF's investigation has further revealed that the error was not detected by Clearview's post-migration validation procedures. SBF understands, based on preliminary communications with Clearview, that Clearview's validation process at the time of the ClearCore migration consisted of a comparison of aggregate portfolio-level balances and counts between LoanTrax and ClearCore, but did not include loan-level verification of payment-application waterfall outcomes. This gap in Clearview's validation methodology allowed the waterfall misconfiguration to persist undetected.
SBF further acknowledges that its own quarterly data-reconciliation process, which involves a comparison of servicer-reported data against SBF's internal origination records, did not detect the error. SBF's reconciliation process is designed to verify loan counts, aggregate balances, and weighted-average coupon rates, but does not independently re-apply payments at the loan level. SBF recognizes that this limitation in its own quality-assurance process is a matter that warrants review and enhancement going forward, and SBF is evaluating improvements to its data-governance framework in consultation with outside advisors.
The erroneous data generated by the ClearCore misconfiguration was incorporated into the static-pool performance tables set forth in the Preliminary OM, including Tables SP-1 through SP-4 (delinquency and loss experience by origination vintage) and the accompanying narrative discussion in the "Static Pool Information" section. The same erroneous data was presented to Meridian Credit Ratings, Inc. ("Meridian") and Carrollton Ratings Group LLC ("Carrollton") during the rating-agency presentations conducted on April 8, 2024, at the offices of Halcyon, and was included in the rating-agency data packages delivered on April 4, 2024. The data was also presented to approximately 28 institutional investors during the investor roadshow conducted April 15–19, 2024, in New York, Boston, and Chicago, through the use of the Preliminary OM and the investor presentation dated April 12, 2024.
IV. Clearview's Preliminary Response
On April 24, 2024, immediately following the commencement of SBF's internal investigation, SBF's General Counsel, Tomás Reyes, contacted Clearview Loan Servicing, Inc. to notify Clearview of Broadleaf's findings and to demand an immediate explanation and corrective action. Clearview, through its Vice President of Operations, Meredith Sloane, provided a preliminary response on the same date by telephone, followed by a written communication transmitted by email at approximately 8:47 p.m. Eastern Time.
Clearview has acknowledged that the ClearCore migration introduced a payment-waterfall configuration error affecting the application of partial payments on SBF's receivables. In its preliminary response, Clearview characterized the error as a "configuration mapping issue" arising from the translation of LoanTrax waterfall rules into the ClearCore platform architecture. Clearview has stated that it is conducting its own internal review to determine the full scope of affected accounts and the precise timeframe during which the erroneous payment application was operative. Clearview has indicated that its preliminary findings are consistent with SBF's understanding that the error was introduced in June 2023 and persisted through the present, but Clearview has not yet confirmed the exact date on which the misconfiguration became effective or provided a definitive account-level impact assessment.
As of the date of this letter, Clearview has not yet provided a complete remediation plan or a timeline for re-processing affected loan-level data to conform to the contractual payment-application waterfall set forth in Section 4.03 of the MSA. SBF has communicated to Clearview, in the strongest terms, that the delivery of a corrected loan tape and a comprehensive remediation plan is a matter of the utmost urgency, and SBF has established daily status-call protocols with Clearview's senior management to monitor progress.
SBF has demanded that Clearview provide, on an expedited basis, the following:
(a) a comprehensive root-cause analysis, including the specific ClearCore configuration parameters that gave rise to the waterfall error, the date on which the error was introduced, and the internal-control failures that permitted the error to persist undetected;
(b) a fully corrected loan tape reflecting the re-application of all payments received since the date of the ClearCore migration in accordance with the contractual waterfall under Section 4.03 of the MSA, with corrected delinquency classifications, loss figures, and account statuses for all affected receivables;
(c) a remediation plan setting forth the steps Clearview will take to correct the ClearCore configuration, prevent recurrence of the error, and ensure the ongoing accuracy of servicer-reported data; and
(d) a certification by a senior officer of Clearview as to the accuracy and completeness of the corrected data.
SBF notes that Clearview's obligations under the MSA include specific representations regarding the accuracy of servicer-reported data, including the representation set forth in Section 5.01(f) of the MSA that all data and reports delivered by Clearview to SBF shall be true, correct, and complete in all material respects. SBF further notes that the MSA contains indemnification provisions in Section 9.02 addressing losses, costs, expenses, and damages arising from the servicer's breach of its representations, warranties, and covenants, including any breach of the data-accuracy representations. SBF expressly reserves all of its rights and remedies against Clearview under the MSA and applicable law, including without limitation its rights to seek indemnification, to terminate the MSA for cause, and to pursue any and all other remedies available at law or in equity. SBF's ongoing communications with Clearview are without prejudice to these rights.
V. SBF's Ongoing Remediation Efforts
SBF has acted promptly and in good faith to investigate and remediate the Data Discrepancy. The following is a summary of the key remediation steps that SBF has undertaken and continues to pursue:
Cross-Functional Remediation Team. SBF has assembled a cross-functional team, led by its Chief Financial Officer, Danielle Prescott, and its General Counsel, Tomás Reyes, to oversee all aspects of the investigation and remediation. The team includes representatives from SBF's finance, operations, compliance, and data-analytics functions. The team has been meeting daily since April 24, 2024, and is providing regular updates to SBF's Chief Executive Officer, Arun Mehta, and to SBF's Board of Directors.
Engagement of Outside Counsel. SBF has engaged Calderwood & Harkness LLP to advise on the legal implications of the Data Discrepancy, including potential securities-law considerations arising from the distribution of the Preliminary OM and investor-presentation materials containing inaccurate data, SBF's contractual obligations under the PPA and related transaction documents, and the assessment and preservation of SBF's claims against Clearview and any other responsible parties. Calderwood & Harkness is coordinating closely with SBF's internal legal team and with SBF's other professional advisors to ensure a comprehensive and well-coordinated response.
Corrected Loan Tape and Data Reconciliation. SBF is working diligently to obtain a fully corrected loan tape from Clearview. Upon receipt of the corrected loan tape, SBF will engage in a comprehensive reconciliation of the static-pool performance data, including a loan-by-loan comparison of original payment-application records, ClearCore-generated records, and corrected records. SBF intends to engage an independent third-party data-analytics firm to verify the accuracy of the corrected data, and SBF welcomes Broadleaf's participation in this verification process should Halcyon deem it appropriate.
Prerequisites to Resumption of Marketing. SBF acknowledges that any resumption of marketing efforts with respect to the Notes would require, at a minimum, satisfaction of each of the following conditions:
(a) corrected and independently verified pool-level and static-pool performance data reflecting the application of payments in accordance with the contractual waterfall;
(b) a supplemented or revised Preliminary OM reflecting accurate and complete data, reviewed and approved by all relevant parties and their respective counsel;
(c) refreshed rating-agency analysis by Meridian Credit Ratings, Inc. (Gregory Fontaine, Lead Analyst) and Carrollton Ratings Group LLC (Teresa Kobayashi, Lead Analyst), including re-evaluation of preliminary ratings in light of corrected performance data and any resulting changes to loss expectations, credit-enhancement levels, or structural features of the Notes; and
(d) Halcyon's satisfaction, in its reasonable judgment, that the corrected information is accurate and complete and that the transaction can proceed on terms acceptable to Halcyon and prospective investors.
SBF recognizes that the timeline for completing these steps is uncertain at this juncture and will depend, in significant part, on the speed with which Clearview delivers a corrected loan tape and remediation plan. SBF is committed to providing Halcyon with regular updates on the status of the remediation effort and to facilitating Halcyon's and Broadleaf's access to all relevant data and personnel as the process unfolds.
VI. Response to Suspension of Marketing
SBF understands Halcyon's decision to suspend marketing of the Notes pending resolution of the Data Discrepancy, and SBF acknowledges that this decision is prudent and appropriate under the circumstances. SBF does not object to the suspension at this time, as SBF agrees that no further distribution of the Preliminary OM, the investor presentation, or any other marketing materials should occur until the Data Discrepancy has been fully remediated and all relevant materials have been updated to reflect accurate and complete information. SBF has taken its own internal steps to ensure that no SBF personnel distribute or reference the Preliminary OM or related materials in connection with the offering during the pendency of the remediation process.
SBF notes, however, that the characterization of the Data Discrepancy in the Material-Change Notice as a basis for termination of the PPA on force-majeure grounds requires further analysis and, in SBF's view, raises questions regarding the applicability of the force-majeure provision to the facts at hand. Section 8(c) of the PPA defines "Force Majeure Event" by reference to events beyond the reasonable control of the parties, including, among other things, acts of God, natural disasters, war, terrorism, governmental actions, and market disruptions of a systemic nature. The Data Discrepancy originated from a configuration error introduced by a third-party servicer during a platform migration — an event that, while unforeseeable from SBF's perspective, is fundamentally operational in nature and does not constitute an event of the type typically contemplated by force-majeure provisions in purchase agreements of this kind.
SBF does not concede that Halcyon has grounds for termination of the PPA under the force-majeure clause at this time. SBF reserves its rights to contest any invocation of the force-majeure provision and to assert its own position regarding the applicable termination provisions of the PPA, including the material-change provision in Section 6(a), the conditions to closing in Section 5, and the allocation of rights and obligations upon any termination of the PPA under any provision thereof.
Notwithstanding the foregoing, SBF emphasizes that its primary objective at this time is not to litigate the legal characterization of the suspension or the scope of the parties' respective termination rights, but rather to work constructively and cooperatively with Halcyon, Broadleaf, WDP, and all other relevant parties to remediate the Data Discrepancy as expeditiously as possible and to determine whether the transaction can be brought to a successful conclusion. SBF is prepared to cooperate fully with Halcyon and Broadleaf in any additional due-diligence review that Halcyon deems necessary, including providing access to SBF's origination records, servicing files, internal communications, and data-reconciliation workpapers. SBF will make its personnel, including members of the remediation team, available for calls and meetings at Halcyon's convenience.
VII. Reservation of Rights
Without limiting the generality of any other reservation of rights set forth in this letter, SBF expressly reserves all of its rights and remedies under the PPA, the MSA, and applicable law, including without limitation:
(a) All rights under the termination provisions of the PPA, including with respect to the allocation of expenses incurred in connection with the preparation and marketing of the offering, the scope and applicability of any expense-reimbursement obligation under Section 7(b) of the PPA, and the determination of whether any termination of the PPA is "for cause" or otherwise within the scope of the parties' respective rights.
(b) All rights to seek indemnification from Clearview Loan Servicing, Inc. under Section 9.02 of the MSA for all losses, costs, liabilities, expenses, and damages arising from or related to Clearview's breach of its data-accuracy representations, its failure to implement the contractual payment-application waterfall in accordance with Section 4.03 of the MSA, and any other breach of its obligations under the MSA.
(c) All rights to seek contribution or indemnification from any other party whose acts or omissions may have contributed to the Data Discrepancy or to the inclusion of inaccurate information in the Preliminary OM or related materials.
(d) Any and all other rights and remedies available to SBF at law or in equity, whether arising under contract, statute, tort, or otherwise, whether now existing or hereafter arising.
Nothing in this letter shall be deemed a waiver of any right, remedy, claim, or defense of SBF, whether now existing or hereafter arising. SBF's failure to assert any particular right or remedy in this letter shall not be construed as a waiver thereof, and no course of dealing, delay, or forbearance on the part of SBF shall operate as a waiver of or otherwise affect any of SBF's rights hereunder or under applicable agreements and law.
This letter is written without prejudice to SBF's position and is not intended to constitute, and shall not be construed as, an admission of liability, fault, or wrongdoing on the part of SBF. SBF's acknowledgment of the Data Discrepancy and its description of the root cause identified to date are provided for informational purposes and in furtherance of the parties' shared interest in resolving the matters described herein, and shall not be used or cited as evidence of any admission by SBF in any proceeding or context.
VIII. Request for Continued Dialogue
SBF values the relationship it has built with Halcyon over the course of the SkyLend Receivables Trust 2024-1 transaction and recognizes that the events described in this letter have placed that relationship under significant strain. SBF is committed to addressing the Data Discrepancy with the urgency, transparency, and professionalism that the situation demands.
To that end, SBF proposes that the parties and their respective counsel schedule a call at the earliest mutual convenience to discuss the path forward in a structured and productive manner. SBF suggests that the agenda for such a call include, at a minimum, the following topics:
(a) the expected timeline for delivery of Clearview's corrected loan tape and remediation plan;
(b) the process for independent verification of corrected data, including Broadleaf's role in that process;
(c) the feasibility and timing of reviving the transaction, including the potential need for revised structural terms, updated credit-enhancement levels, or modified pricing guidance;
(d) the allocation of responsibility for costs and expenses incurred to date in connection with the preparation, marketing, and due diligence of the offering; and
(e) any other matters that Halcyon or its counsel believes should be addressed at this stage.
SBF remains committed to its securitization program and to working constructively with Halcyon to determine whether the SkyLend Receivables Trust 2024-1 transaction can be remediated and brought to a successful conclusion on a reasonable timeline. SBF believes that the interests of both parties are best served by open communication and a collaborative approach to the remediation process, and SBF stands ready to engage in that process without delay.
We are available to discuss this letter and the matters described herein at your convenience. Please do not hesitate to contact me directly at (212) 558-4217 or at tlangston@calderwoodharkness.com, or to contact my colleague Linda Osei at (212) 558-4302 or at losei@calderwoodharkness.com.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Theodore Langston Partner
On behalf of Skybridge Fintech Ltd.
cc (via email):
Tomás Reyes, General Counsel, Skybridge Fintech Ltd., 1400 Market Street, Suite 1210, Wilmington, DE 19801
Danielle Prescott, Chief Financial Officer, Skybridge Fintech Ltd.
Arun Mehta, Chief Executive Officer, Skybridge Fintech Ltd.
Harrison Whitfield III, Whitfield, Drummond & Paige LLP, 51 West 52nd Street, New York, NY 10019
Linda Osei, Calderwood & Harkness LLP
Patrick Gallagher, Calderwood & Harkness LLP

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