1009-00005 · Skybridge Fintech Ltd · Diligence

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MEMORANDUM

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

From: Theodore Langston, Partner, and Simone Laroche, Associate, Calderwood & Harkness LLP

To: Deal File — SkyLend Receivables Trust 2024-1

Date: March 28, 2024

Re: Payment Waterfall Mechanics, Overcollateralization Triggers, Early-Amortization Events, and Reserve-Account Analysis under the Draft Indenture dated March 4, 2024

Matter No.: 1009-00005

Client: Skybridge Fintech Ltd.

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I. Purpose and Scope

This memorandum provides an internal analysis of the payment waterfall mechanics under the draft Indenture dated March 4, 2024 (the "Indenture"), between SkyLend Receivables Trust 2024-1 (the "Trust" or "SRT 2024-1"), as issuer, and Atlantic Fiduciary Services, Inc. ("AFS"), as indenture trustee, paying agent, note registrar, and custodian. The analysis is intended to assist the Calderwood & Harkness LLP ("C&H") deal team in evaluating the structural integrity and internal consistency of the waterfall provisions, identifying areas of potential concern, and preparing for upcoming rating-agency presentations and counterparty negotiations.

In addition to the Indenture waterfall itself, this memorandum addresses the interaction between the Indenture waterfall and the servicing-level payment-application waterfall set forth in the Sale and Servicing Agreement dated March 11, 2024 (the "Sale and Servicing Agreement" or "SSA"), among SkyLend Funding LLC (the "Depositor"), SRT 2024-1 (the "Issuer"), Skybridge Fintech Ltd. ("SBF" or the "Servicer"), and Clearview Loan Servicing, Inc. ("Clearview" or the "Sub-Servicer"), as well as the Master Servicing Agreement dated October 1, 2022 (the "Master Servicing Agreement" or "MSA"), between SBF and Clearview. The interaction between these two levels of payment-application priority — the loan-level waterfall and the Trust-level waterfall — is a critical structural component of the transaction, and any inconsistency or misapplication at either level could have material consequences for noteholders and other transaction participants.

This memorandum is prepared solely for internal C&H use and deal-team reference in connection with (i) the rating-agency presentations scheduled for April 8, 2024, to Meridian Credit Ratings, Inc. ("Meridian") and Carrollton Ratings Group LLC ("Carrollton"), and (ii) C&H's review of and response to the redline comments dated March 22, 2024, submitted by Whitfield, Drummond & Paige LLP ("WDP") on behalf of Halcyon Securities LLC ("Halcyon"), the initial purchaser. This memorandum does not constitute legal advice to any party other than the client identified herein, is protected by the attorney work-product doctrine, and should not be disclosed to any third party without the prior written consent of the undersigned.

The proposed offering that is the subject of this analysis consists of a Rule 144A / Regulation S private placement of $170,000,000 aggregate principal amount of Class A Asset-Backed Notes (the "Class A Notes") and $22,000,000 aggregate principal amount of Class B Asset-Backed Notes (the "Class B Notes" and, together with the Class A Notes, the "Notes"), plus $8,000,000 of subordinated residual interest (the "Residual Interest") retained by SBF through SkyLend Funding LLC, for an aggregate deal size of $200,000,000. The Notes will be secured by a pool of unsecured consumer installment loans originated by SBF through its proprietary SkyLend digital lending platform.

II. Transaction Overview and Capital Structure

A. Parties and Structure Summary

Set forth below is a summary of the principal parties to the transaction and their respective roles, together with relevant organizational and contact information:

Originator / Sponsor / Servicer: Skybridge Fintech Ltd. ("SBF"), a Delaware corporation with its principal executive offices at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801. SBF's employer identification number is 84-3291076. SBF serves as the originator of the receivables, the sponsor of the securitization program, and the servicer of the receivables pool under the Sale and Servicing Agreement. In its capacity as servicer, SBF has delegated certain day-to-day servicing functions to Clearview pursuant to the Master Servicing Agreement, while retaining overall supervisory responsibility for the servicing of the receivables and oversight of the sub-servicer's performance.

Depositor: SkyLend Funding LLC ("SkyLend Funding" or the "Depositor"), a single-member Delaware limited liability company, the sole member of which is SBF. SkyLend Funding was formed on January 30, 2024, for the specific purpose of acquiring the receivables from SBF and depositing them into the Trust. Its employer identification number is 93-4187620. Danielle Prescott serves as manager of SkyLend Funding. SkyLend Funding has no employees, no material assets other than the receivables acquired from SBF and deposited into the Trust, and no liabilities other than those arising under the Receivables Purchase Agreement and the Sale and Servicing Agreement. SkyLend Funding is intended to be a bankruptcy-remote, special-purpose entity.

Issuer: SkyLend Receivables Trust 2024-1 ("SRT 2024-1" or the "Trust"), a Delaware statutory trust formed on February 14, 2024, pursuant to a Trust Agreement between the Depositor and Keymark Trust Company, N.A., as owner trustee. The Trust's employer identification number is 93-4201855. The Trust's sole purpose is to acquire the receivables from the Depositor, issue the Notes and the Residual Interest, and perform its obligations under the Indenture, the Sale and Servicing Agreement, and related transaction documents.

Owner Trustee: Keymark Trust Company, N.A. ("Keymark"), a national banking association. The primary contact for Keymark in connection with this transaction is Elaine Marchetti. Keymark's annual fee for serving as owner trustee is $7,500, payable in equal monthly installments from Available Funds in accordance with the Indenture waterfall.

Indenture Trustee / Paying Agent / Note Registrar / Custodian: Atlantic Fiduciary Services, Inc. ("AFS"), a Delaware corporation. AFS will serve in multiple fiduciary and administrative capacities under the Indenture. The primary contact for AFS in connection with this transaction is David Moynihan. AFS's fees are as follows: an acceptance fee of $15,000 (payable at closing) plus an annual fee of $12,500 (payable in equal monthly installments from Available Funds in accordance with the Indenture waterfall). In addition, AFS is entitled to reimbursement of reasonable out-of-pocket expenses incurred in the performance of its duties, subject to the caps and limitations set forth in the Indenture.

Sub-Servicer: Clearview Loan Servicing, Inc. ("Clearview"), an Ohio corporation. Clearview performs day-to-day servicing of the receivables pursuant to the Master Servicing Agreement, as supplemented by Amendment No. 1 dated March 18, 2024, and as further incorporated into the Sale and Servicing Agreement. The primary contact for Clearview in connection with this transaction is Meredith Sloane. Clearview's servicing account number for the SBF account is CLS-SBF-2022-0041. Clearview's sub-servicing fee is 0.50% per annum of the outstanding pool balance, which is estimated at approximately $1,000,000 in the first year of the transaction (based on an initial pool balance of $200,000,000). This fee constitutes the entirety of the "servicing fee" deducted from Available Funds off the top of the Indenture waterfall.

Initial Purchaser: Halcyon Securities LLC ("Halcyon"), a registered broker-dealer. Halcyon's deal reference for this transaction is HLC-ABS-2024-017. The primary contact for Halcyon in connection with this transaction is Rebecca Thornton. The underwriting discount is 1.00% of the aggregate principal amount of the Notes, equal to $2,000,000 (calculated as 1.00% × $200,000,000). The underwriting discount is payable from the proceeds of the offering at closing and is not a component of the ongoing waterfall.

Underwriter's Counsel: Whitfield, Drummond & Paige LLP ("WDP"), representing Halcyon. The primary attorneys at WDP working on this transaction are Harrison Whitfield III and Priya Subramanian. WDP submitted its initial redline comments on the draft Indenture on March 22, 2024, and those comments are discussed in the relevant sections of this memorandum.

B. Capital Structure

The capital structure of the transaction, as contemplated by the draft Indenture and the Preliminary Offering Memorandum, is as follows:

The Class A Notes represent 85% of the aggregate principal amount of the offering and are the senior tranche in the capital structure, entitled to first priority in both interest and principal distributions under the Indenture waterfall. The Class B Notes represent 11% of the aggregate principal amount and are the mezzanine tranche, subordinate to the Class A Notes in both interest and principal priority. The Residual Interest represents the remaining 4% of the aggregate principal amount and is retained by SBF through SkyLend Funding LLC. The Residual Interest is unrated and represents the "first loss" position in the capital structure.

The CUSIP prefix allocated for this transaction is 87165Q. Individual CUSIP numbers for the Class A Notes and Class B Notes will be assigned upon finalization of the offering terms and pricing.

The expected ratings reflect preliminary indications from both Meridian and Carrollton based on the information provided to date. Final ratings are contingent upon the rating agencies' completion of their respective analyses, including the April 8, 2024 presentations and review of final transaction documents. It should be noted that Meridian's expected rating of Aaa(sf) on the Class A Notes is one notch higher than Carrollton's expected rating of AA+(sf). This divergence reflects differences in the two agencies' proprietary loss-modeling methodologies and their respective assessments of the SBF/Clearview servicing platform. The deal team should be prepared to address this divergence during the rating-agency presentations.

C. Collateral Pool Summary (Proposed Cut-Off Date: March 31, 2024)

The collateral pool underlying the transaction consists of unsecured consumer installment loans originated through SBF's proprietary SkyLend digital lending platform. The following summary statistics are based on the preliminary pool data as of the anticipated cut-off date of March 31, 2024, subject to final pool selection and verification:

• Number of Loans: Approximately 23,100 unsecured consumer installment loans

• Aggregate Outstanding Principal Balance: $213,750,000 (gross, pre-selection). The final pool will be selected from this larger pool to achieve the target pool balance of $200,000,000. Selection criteria will include the eligibility requirements set forth in the Receivables Purchase Agreement (the "RPA") and the Sale and Servicing Agreement, including minimum FICO score, maximum single-obligor concentration, geographic diversification requirements, and delinquency exclusion standards.

• Weighted Average Coupon (WAC): 14.82%

• Weighted Average Remaining Term: 38.4 months

• Weighted Average FICO at Origination: 698

• Loan Size Range: $1,000 to $25,000; terms ranging from 12 to 60 months

• Maximum Single-Obligor Concentration: 0.15% of the pool ($300,000)

• Geographic Concentration Limit: No single state may exceed 20% of the aggregate pool balance

• 30+ Day Delinquency (as of Cut-Off): 3.21% (per Clearview servicing data as reported in its most recent monthly servicing report)

• Cumulative Net Losses, 2022 Vintage Static Pool: 4.12% (per Clearview servicing data as reported in the historical performance tables provided to the rating agencies)

The weighted average FICO score of 698 positions the pool in the "near-prime" segment of the consumer credit spectrum. This is consistent with SBF's stated underwriting guidelines, which target borrowers with FICO scores generally ranging from 660 to 740. The WAC of 14.82% reflects the elevated coupon rates associated with near-prime unsecured consumer lending, and this coupon generates the excess spread that is the primary driver of the transaction's credit-enhancement mechanics.

The 30+ day delinquency rate of 3.21% as of the proposed cut-off date warrants careful monitoring. While this level is within the range typically observed for pools with similar credit characteristics, it is worth noting that the pool has not yet been subjected to the full seasoning period during which delinquency rates typically peak. The deal team should ensure that the historical performance tables presented to the rating agencies include sufficiently granular vintage-level data to allow the agencies to model expected loss curves with reasonable precision.

III. Loan-Level Payment-Application Waterfall (Servicing Level)

A. Contractual Payment-Application Priority

The loan-level payment-application waterfall governs how individual borrower payments received by the sub-servicer are applied at the loan level. This waterfall is set forth in Section 4.03 of the Master Servicing Agreement dated October 1, 2022, between SBF and Clearview, as confirmed and incorporated by Amendment No. 1 to the Master Servicing Agreement executed on March 18, 2024, and further incorporated by reference into the Sale and Servicing Agreement. The Amendment No. 1 was executed to confirm that the payment-application provisions of the MSA apply to the receivables that are the subject of the SRT 2024-1 securitization and to clarify certain reporting obligations of Clearview in connection with the securitization.

Pursuant to Section 4.03 of the Master Servicing Agreement, each payment received from a borrower is applied in the following order of priority:

1. First, to accrued and unpaid interest;

2. Second, to fees (including late fees, returned-payment fees, and other charges assessed under the applicable loan agreement); and

3. Third, to principal (reducing the outstanding principal balance of the loan).

This payment-application waterfall governs the manner in which individual borrower payments received by Clearview, as sub-servicer, are applied at the loan level before collections are aggregated and remitted to the Trust's collection account. It is critically important to distinguish this loan-level payment-application waterfall from the Trust-level priority-of-payments waterfall set forth in the Indenture. The loan-level waterfall determines how each dollar received from a borrower is characterized — as an interest payment, a fee payment, or a principal payment — and this characterization is then carried forward into the Trust-level waterfall as the basis for computing Available Funds, excess spread, delinquency statistics, and other metrics.

The distinction between these two waterfalls cannot be overstated. The loan-level waterfall is a servicing-level function performed by Clearview on a loan-by-loan basis in the ordinary course of servicing. The Trust-level waterfall is an indenture-level function performed by AFS on a monthly basis in its capacity as indenture trustee. The inputs to the Trust-level waterfall are the outputs of the loan-level waterfall — that is, the aggregate collections remitted by Clearview to the Trust's collection account, classified by type (interest, fees, and principal), together with the servicing data reported by Clearview in its monthly servicer report.

B. Interaction with Servicing Reporting

The monthly servicing reports prepared by Clearview serve as the foundational data source for computing the delinquency, default, and loss statistics that drive the Trust-level waterfall calculations and the early-amortization trigger computations. These reports are delivered by Clearview to SBF (as servicer), AFS (as indenture trustee), and the rating agencies on or before the fifteenth (15th) calendar day of each month with respect to the preceding collection period.

The correct application of the Section 4.03 waterfall at the loan level is critical because it determines:

(i) Whether a loan is classified as current, delinquent, or in default. The delinquency status of a loan is determined by reference to whether interest and fees (applied first under the waterfall) have been brought current. If a borrower makes a partial payment, the payment is applied first to interest and fees; if the payment is insufficient to cover all accrued interest, the loan remains delinquent, even if the borrower has made some payment. Conversely, if payments were misapplied — for example, if principal were credited before interest — a loan that should be classified as delinquent might erroneously appear current.

(ii) The computation of cumulative net losses. Net losses are calculated based on the difference between the outstanding principal balance of a defaulted loan and the amount of principal recovered through liquidation or other collection efforts. If the payment-application waterfall is misapplied such that principal is credited prematurely (before all accrued interest has been satisfied), the reported principal balance of a loan may be lower than it should be, which would cause the net loss on that loan to appear smaller when the loan ultimately defaults.

(iii) The excess-spread and overcollateralization calculations at the Trust level. Excess spread is calculated based on, among other things, the gross portfolio yield (which depends on the amount of interest collected) and the net loss rate (which depends on the accurate computation of principal losses). Any misapplication at the loan level that distorts the classification of collections between interest and principal would propagate through to the excess-spread calculation, potentially overstating (or understating) the amount of excess spread available to build overcollateralization and protect noteholders.

The Sale and Servicing Agreement requires Clearview to apply collections in the contractual priority established by Section 4.03 of the Master Servicing Agreement and to certify its compliance with this requirement in each monthly servicer report. Specifically, Section 3.07(b) of the Sale and Servicing Agreement requires Clearview to include in each monthly servicer report a certification that all borrower payments received during the related collection period were applied in accordance with the payment-application waterfall set forth in Section 4.03 of the Master Servicing Agreement.

SBF, in its capacity as servicer under the Sale and Servicing Agreement, bears overall oversight responsibility for the sub-servicer's performance and is required to conduct quarterly data reconciliation against Clearview's sub-servicing records. This reconciliation process involves comparing Clearview's loan-level servicing data (including payment-application records, delinquency classifications, and loss calculations) against SBF's own records of loan origination, modification, and performance data. Any material discrepancies identified in the course of this quarterly reconciliation are required to be reported to AFS and resolved within thirty (30) days.

C. Significance for Trust-Level Waterfall

All amounts flowing into the Trust-level waterfall originate from the aggregation of loan-level collections as processed by Clearview. The Trust-level waterfall does not independently determine how borrower payments are characterized; rather, it accepts the characterizations (interest, fees, and principal) established at the loan level by Clearview's application of the Section 4.03 waterfall, and distributes the aggregate amounts in accordance with the priority of payments set forth in the Indenture.

This structural dependency means that any error in the loan-level payment application would propagate through to the Trust-level waterfall calculations, potentially affecting excess-spread estimates, overcollateralization levels, and early-amortization trigger computations. The magnitude of such an error would depend on its scope (i.e., whether the error affected a small number of loans or a large portion of the pool) and its direction (i.e., whether the error tended to overstate or understate delinquency and losses). In a worst-case scenario, systematic misapplication of the loan-level waterfall could cause the Trust-level waterfall to distribute amounts to subordinate claimants (including the residual interest holder) that should have been retained as credit enhancement, or could cause early-amortization triggers to fail to trip at the times when they would otherwise have been triggered.

The eligibility criteria schedule attached to the Receivables Purchase Agreement and the Sale and Servicing Agreement includes delinquency exclusion requirements — specifically, no loan that is 60 or more days delinquent as of the cut-off date may be included in the pool. The accuracy of these delinquency classifications at the time of pool selection depends entirely on Clearview's proper application of the Section 4.03 waterfall in the periods preceding the cut-off date.

IV. Trust-Level Priority of Payments (Indenture Waterfall)

A. Available Funds Definition

"Available Funds," as defined in Section 1.01 of the draft Indenture, means, for each payment period, the sum of all collections received on the receivables during the related collection period, including:

(a) scheduled principal and interest payments received from borrowers;

(b) prepayments (whether voluntary or involuntary) of principal on the receivables;

(d) net recoveries on defaulted receivables (i.e., amounts recovered after a receivable has been charged off as a net loss, net of collection costs);

(e) late fees, returned-payment fees, and other charges collected on the receivables;

(f) any amounts deposited into the collection account from the reserve account or the overcollateralization account in accordance with the Indenture; and

(g) investment earnings on amounts on deposit in the collection account, the reserve account, and the overcollateralization account during the related collection period;

less the servicing fee, which is equal to 0.50% per annum of the outstanding pool balance as of the first day of the related collection period, calculated on an actual/360 basis and payable monthly. The servicing fee is deducted first, "off the top," before the Available Funds flow through the priority-of-payments waterfall. This off-the-top deduction ensures that the sub-servicer's compensation is not subordinated to any other claim (other than the deduction itself), which is a standard structural feature in securitization transactions and is required to maintain Clearview's economic incentive to continue servicing the receivables in accordance with its contractual obligations.

B. Interest Waterfall (Monthly Distribution)

On each monthly payment date, interest distributions from Available Funds (after deduction of the servicing fee) are made in the following order of priority:

1. Indenture Trustee Fees and Expenses. First, to AFS, in its capacity as indenture trustee, paying agent, note registrar, and custodian, the monthly installment of the annual trustee fee ($12,500 per annum, payable in monthly installments of approximately $1,041.67), plus reimbursement of any reasonable out-of-pocket expenses incurred by AFS in the performance of its duties during the related collection period, subject to the expense caps set forth in Section 6.07 of the Indenture.

2. Owner Trustee Fees and Expenses. Second, to Keymark, in its capacity as owner trustee, the monthly installment of the annual owner trustee fee ($7,500 per annum, payable in monthly installments of $625.00), plus reimbursement of any reasonable out-of-pocket expenses incurred by Keymark in the performance of its duties during the related collection period.

3. Administration Fees and Expenses. Third, to SBF, in its capacity as administrator of the Trust, any administration fees and reimbursable expenses incurred during the related collection period. The administration fee is set at an annual rate to be finalized prior to closing, which is expected to be nominal and is intended to cover SBF's costs of preparing and filing SEC reports (if applicable), maintaining the Trust's books and records, and coordinating with AFS and Keymark.

4. Class A Note Interest. Fourth, to the holders of the Class A Notes, accrued and unpaid interest on the Class A Notes at the applicable Class A Note rate (target coupon range: 5.45%–5.65%) for the related interest accrual period, calculated on a 30/360 basis on the outstanding principal amount of the Class A Notes. At the midpoint coupon of 5.55% and an initial principal amount of $170,000,000, the monthly Class A interest payment would be approximately $786,250.

5. Class B Note Interest. Fifth, to the holders of the Class B Notes, accrued and unpaid interest on the Class B Notes at the applicable Class B Note rate (target coupon range: 6.75%–7.00%) for the related interest accrual period, calculated on a 30/360 basis on the outstanding principal amount of the Class B Notes. At the midpoint coupon of 6.875% and an initial principal amount of $22,000,000, the monthly Class B interest payment would be approximately $126,042.

6. Shortfall Carryover Amounts. Sixth, to the extent of any unpaid interest from prior periods (commonly referred to as "shortfall carryover amounts"), distributed first to Class A noteholders and then to Class B noteholders, in each case together with interest on such unpaid amounts at the applicable note rate. Shortfall carryover amounts accrue interest at the applicable note rate (i.e., Class A shortfalls accrue at the Class A rate and Class B shortfalls accrue at the Class B rate), compounding monthly.

C. Principal Waterfall (Monthly Distribution)

After all interest distributions have been made in accordance with the interest waterfall described above, any remaining Available Funds are applied to principal distributions in the following order of priority:

1. Class A Note Principal. First, to the holders of the Class A Notes, the scheduled principal distribution amount for the Class A Notes (as determined by reference to the amortization schedule set forth in the Indenture), plus any accelerated principal amounts allocated to the Class A Notes. The Class A Notes are structured as "sequential pay" — meaning that all principal is allocated to the Class A Notes first, until the Class A Notes are fully retired, before any principal is allocated to the Class B Notes. This sequential-pay structure is the primary mechanism through which subordination of the Class B Notes provides credit enhancement to the Class A Notes.

2. Class B Note Principal. Second, to the holders of the Class B Notes, the scheduled principal distribution amount for the Class B Notes. The Class B Notes receive principal payments only after the Class A Notes have been paid in full (during the normal amortization period). During the revolving period (if any), neither class receives principal distributions.

3. Reserve Account Deposits. Third, to the reserve account, to the extent necessary to replenish the reserve account to its required balance of $2,000,000 (1.00% of the initial pool balance).

4. Overcollateralization Account Deposits. Fourth, to the overcollateralization account, to the extent necessary to build or maintain the overcollateralization target of $7,000,000 (3.5% of the initial pool balance), or, after the Step-Down Date and provided the step-down conditions are satisfied, to the overcollateralization floor of $4,000,000 (2.00% of the initial pool balance).

5. Residual Interest Distribution. Fifth, any remaining amounts (representing excess spread after all senior obligations have been satisfied and credit-enhancement accounts have been funded to their required levels) are distributed to the residual interest holder, SkyLend Funding LLC (and thereby to SBF as the sole member of SkyLend Funding LLC).

D. Combined Waterfall — Complete Priority of Payments

For ease of reference, the complete priority-of-payments waterfall, combining both the interest and principal components set forth above, is presented below as a single sequential list of distribution steps. On each monthly payment date, Available Funds (after deduction of the servicing fee) are distributed in the following order of priority:

1. Servicing Fee (Off the Top): 0.50% per annum of the outstanding pool balance as of the first day of the related collection period, payable to Clearview (through SBF as servicer). Estimated at approximately $83,333 per month on the initial $200,000,000 pool balance, declining as the pool amortizes.

2. Indenture Trustee Fees and Expenses: Payable to AFS. Approximately $1,042 per month, plus reimbursable expenses.

3. Owner Trustee Fees and Expenses: Payable to Keymark. Approximately $625 per month, plus reimbursable expenses.

4. Administration Fees and Expenses: Payable to SBF as administrator.

5. Class A Note Interest: Accrued and unpaid interest on the Class A Notes at the applicable rate.

6. Class B Note Interest: Accrued and unpaid interest on the Class B Notes at the applicable rate.

7. Class A Note Principal: Scheduled and accelerated principal on the Class A Notes (sequential pay).

8. Class B Note Principal: Scheduled and accelerated principal on the Class B Notes (sequential pay, commencing after Class A retirement during normal amortization).

9. Reserve Account Replenishment: To the reserve account, to maintain or restore the required balance of $2,000,000.

10. Overcollateralization Account Replenishment: To the overcollateralization account, to build or maintain the applicable overcollateralization target (initially $7,000,000; reduced to $4,000,000 after step-down).

11. Residual Interest Distribution: Any remaining amounts (excess spread) distributed to SkyLend Funding LLC as holder of the Residual Interest.

Note regarding Early-Amortization Period: During an early-amortization period, the waterfall set forth above is modified as described in Section VII below. In particular, during an early-amortization period, all Available Funds (after payment of the servicing fee and trustee fees) are applied sequentially to principal on the Class A Notes and then the Class B Notes, and no distributions are made to the residual interest holder.

V. Overcollateralization Mechanics

A. Initial Overcollateralization Target

The overcollateralization ("OC") target for the transaction is set at 3.5% of the initial pool balance, which equals $7,000,000 (calculated as $200,000,000 × 3.5%). Overcollateralization is achieved when the aggregate outstanding pool balance (i.e., the total principal balance of the receivables held by the Trust) exceeds the aggregate outstanding principal amount of the Notes (Class A Notes plus Class B Notes) by at least the OC target amount. In other words, overcollateralization measures the extent to which the assets of the Trust (the receivables) exceed the liabilities of the Trust (the Notes), with the excess providing an additional layer of credit enhancement to noteholders.

At closing, the aggregate outstanding pool balance is expected to be $200,000,000 and the aggregate outstanding principal amount of the Notes is expected to be $192,000,000 (Class A: $170,000,000 + Class B: $22,000,000). The difference — $8,000,000 — represents the Residual Interest, which provides initial "built-in" overcollateralization equal to 4.0% of the initial pool balance. However, the Residual Interest is a structural feature of the capital structure rather than a funded overcollateralization account, and the OC target of $7,000,000 represents an additional requirement that must be built through the accumulation of excess spread in the overcollateralization account.

The initial overcollateralization level at closing is therefore zero in the funded overcollateralization account, and the OC target of $7,000,000 must be built from excess spread over the first several payment periods following the closing date. This build-up mechanism is described in subsection B below.

B. Overcollateralization Build-Up

Excess spread is the primary mechanism for building overcollateralization. In each month, after all interest and principal distributions have been made and the reserve account has been replenished to its required balance (steps 1 through 9 of the waterfall), any remaining Available Funds are deposited into the overcollateralization account (step 10) until the OC target is reached.

The estimated excess spread at pricing is approximately 2.85% per annum, calculated as follows:

On an initial pool balance of $200,000,000, an annualized excess spread of 2.85% translates to approximately $475,000 per month of excess spread available to build overcollateralization and/or to be released to the residual interest holder. However, the actual monthly excess-spread amount will vary depending on actual collections, prepayment rates, and loss experience.

Excess spread first flows through the waterfall to cover interest and principal shortfalls (if any), then to replenish the reserve account (if the reserve account has been drawn below its required balance), and finally to build the overcollateralization amount up to the OC target. Only after the OC target has been reached and the reserve account is at its required balance will excess spread be released to the residual interest holder.

Based on the estimated excess-spread level of 2.85% per annum and assuming moderate prepayment rates (15%–20% CPR) and net loss rates consistent with the 2022 vintage static pool experience (4.12% cumulative), the estimated time to reach the OC target of $7,000,000 is approximately 8 to 10 months from closing. This estimate is subject to significant uncertainty and will depend on actual pool performance. The deal team should prepare sensitivity analyses for the rating-agency presentations illustrating the OC build-up timeline under various stress scenarios (see Appendix D).

C. Overcollateralization Floor and Release Conditions

After the Step-Down Date (as defined in Section VIII below), the overcollateralization target may be reduced from 3.5% of the initial pool balance ($7,000,000) to an overcollateralization floor of 2.00% of the initial pool balance ($4,000,000), subject to the satisfaction of specified step-down conditions. This OC floor represents the minimum level of funded overcollateralization that must be maintained at all times, even after step-down.

Excess amounts above the applicable OC target may be released to the residual interest holder through step 11 of the waterfall only when all of the following conditions are satisfied:

(i) No early-amortization event (as defined in Section VII below) has occurred and is continuing;

(ii) The applicable OC target (whether $7,000,000 or $4,000,000, depending on whether step-down has occurred) has been maintained for at least three consecutive payment dates; and

(iii) The reserve account is at its required balance of $2,000,000.

These release conditions are designed to ensure that OC amounts are not prematurely released to the residual interest holder at a time when pool performance may be deteriorating or when other credit-enhancement features are below their required levels.

D. Interaction with Loss Rates

The level of funded overcollateralization is directly sensitive to actual versus projected net loss rates. As losses increase, excess spread decreases (because a larger portion of collections is consumed by losses, leaving less excess spread available to flow through the waterfall to the OC account). The relationship is approximately linear within the range of expected loss rates.

At the reported cumulative net loss rate of 4.12% for the 2022 vintage static pool, the OC build is well within projected parameters. The estimated excess spread of 2.85% per annum already assumes an annualized net loss rate of approximately 5.55%, which exceeds the 2022 vintage cumulative net loss rate and provides a conservative estimate for the initial pool. However, the 2022 vintage loss data reflects a specific origination cohort that may not be representative of the loans in the current pool, which include more recent originations that have not yet been fully seasoned.

If actual losses are higher than projected — for example, if the annualized net loss rate exceeds 7.00% — excess spread available for OC build-up would be materially reduced, potentially delaying achievement of the OC target or, in more severe scenarios, causing the OC amount to decline rather than grow. At an annualized loss rate of approximately 8.87%, excess spread would be reduced to zero, and no funds would be available for OC build-up. Loss rates above this level would result in interest and/or principal shortfalls on the Notes.

The early-amortization triggers discussed in Section VII below are designed to provide an additional layer of protection by accelerating the amortization of the Notes (and thereby reducing the aggregate outstanding principal amount relative to the pool balance) when pool performance deteriorates beyond specified thresholds. The interaction between loss rates, excess spread, overcollateralization, and early-amortization triggers is the core of the transaction's structural credit-enhancement framework.

VI. Reserve Account

A. Required Balance

The reserve account is established under the Indenture as an additional source of liquidity and credit enhancement for the benefit of the noteholders. The required balance of the reserve account is 1.00% of the initial pool balance, which equals $2,000,000 (calculated as $200,000,000 × 1.00%). The reserve account is funded at closing from the proceeds of the offering. The reserve account will be held by AFS, as indenture trustee, in a segregated interest-bearing account at a qualifying institution meeting the minimum credit-rating requirements specified in the Indenture.

The required balance of $2,000,000 remains fixed at 1.00% of the initial pool balance (rather than being calculated as a percentage of the then-outstanding pool balance). This "fixed-dollar" approach means that the reserve account requirement remains constant even as the pool amortizes, effectively increasing the reserve as a percentage of the outstanding pool balance over time. This provides additional liquidity protection in the later stages of the transaction, when the pool has seasoned and the remaining receivables may have higher proportional risk.

B. Permitted Uses

The reserve account may be drawn upon in the following circumstances and subject to the following limitations:

(i) Interest Shortfalls on Notes. The reserve account may be drawn to cover shortfalls in interest due on the Class A Notes and the Class B Notes, in that order of priority. If Available Funds (after deduction of the servicing fee and trustee/administrative fees) are insufficient to pay all accrued and unpaid interest on the Class A Notes in full, the indenture trustee shall draw upon the reserve account to cover the Class A interest shortfall. Only after Class A interest has been paid in full shall the reserve account be drawn to cover any remaining shortfall in Class B interest.

(ii) Servicing Fee Shortfalls. The reserve account may also be drawn to cover shortfalls in the servicing fee if Available Funds are insufficient to pay the servicing fee in full. This provision ensures that the sub-servicer continues to receive its contractual compensation even in periods of reduced collections, thereby mitigating the risk that the sub-servicer might reduce its servicing efforts or seek to terminate the sub-servicing relationship due to non-payment.

(iii) Limitations — No Principal Coverage. The reserve account may NOT be drawn to cover principal shortfalls on the Notes except upon the occurrence of an event of default under the Indenture and acceleration of the Notes. This limitation ensures that the reserve account functions primarily as a liquidity facility (covering temporary timing mismatches between collections and interest payments) rather than as a loss-absorption mechanism (which is the function of subordination, overcollateralization, and excess spread).

C. Replenishment. If the reserve account is drawn below the required balance of $2,000,000 in any period, it is replenished from Available Funds in priority step 9 of the waterfall — that is, after all note interest and principal distributions have been made but before the overcollateralization account is replenished and before any excess-spread distributions are made to the residual interest holder.

This priority of replenishment reflects the judgment that the reserve account serves a more immediate liquidity function than the overcollateralization account. The reserve account provides the first line of defense against short-term cash-flow disruptions (such as temporary increases in delinquency that reduce collections in a given period), while the overcollateralization account provides longer-term protection against cumulative credit losses. Accordingly, if both the reserve account and the overcollateralization account are below their respective targets in the same period, the reserve account is replenished first.

D. Release. Upon the payment date on which the aggregate outstanding principal amount of all Notes (Class A and Class B) is reduced to zero — whether through scheduled amortization, prepayments, or earlier redemption — any remaining reserve-account balance is released to the residual interest holder, SkyLend Funding LLC. This release occurs at final maturity or upon the earlier retirement of all Notes, and represents a return of excess credit enhancement that is no longer needed because all noteholder obligations have been satisfied.

Prior to the retirement of all Notes, no amounts may be released from the reserve account to the residual interest holder, even if the reserve account is above its required balance. Any investment earnings on amounts on deposit in the reserve account are included in Available Funds and flow through the waterfall in the ordinary course.

VII. Early-Amortization Events and Triggers

A. Definition and Consequence

An "Early Amortization Event" under the Indenture is an event that, upon its occurrence and (if applicable) the delivery of notice to the indenture trustee by the party responsible for providing such notice, causes the Trust to enter an "early-amortization period" (also referred to as an "accelerated amortization period"). The concept of early amortization is one of the most critical structural features of the transaction, as it represents the mechanism by which the Trust shifts from a normal amortization mode — in which excess spread may be released to the residual interest holder — to a wind-down mode in which all available cash flow is directed toward the rapid repayment of the Notes.

During an early-amortization period, the following modifications to the normal priority-of-payments waterfall take effect:

• All Available Funds (after payment of the servicing fee, indenture trustee fees, owner trustee fees, and administration fees) are applied sequentially to Class A Note principal, and then to Class B Note principal. Interest distributions continue to be made in their normal priority order (Class A interest first, then Class B interest), but all principal distributions are accelerated to reduce the outstanding principal amount of the Notes as rapidly as possible.

• No excess-spread distributions are made to the residual interest holder. All amounts that would otherwise have been distributed to the residual interest holder are instead applied to principal reduction on the Notes.

• The reinvestment period (if any) terminates immediately. During the reinvestment period (which, in this transaction, is not currently contemplated, as the pool is a static pool without a revolving feature), the Trust would ordinarily use principal collections to acquire additional receivables to maintain the pool balance. Upon the occurrence of an early-amortization event, this reinvestment activity ceases and all principal collections are used to pay down the Notes.

• The Trust enters a "wind-down" mode. Receivables are not replaced or substituted, and the pool is permitted to amortize naturally (through scheduled payments, prepayments, and liquidation of defaulted receivables) until the Notes are retired or the receivables are exhausted.

The practical effect of an early-amortization event is to accelerate the timeline for repayment of the Notes, thereby reducing the period during which noteholders are exposed to credit risk in the underlying receivables pool. The trade-off is that early amortization eliminates the residual interest holder's economic return from the excess spread, which provides a strong incentive to the sponsor (SBF) to manage the pool in a manner that avoids triggering early-amortization events.

B. Specific Early-Amortization Triggers

The draft Indenture provides for the following specific early-amortization triggers, each of which constitutes an Early Amortization Event upon its occurrence (and, where applicable, upon the expiration of any notice or cure period):

1. Delinquency Trigger. The three-month rolling average of 60+ day delinquencies exceeds 4.50% of the current pool balance. This trigger is measured monthly, based on the delinquency data reported by Clearview in its monthly servicer report. The trigger is automatic — that is, once the three-month rolling average exceeds 4.50%, the early-amortization period commences without the need for notice or any opportunity to cure.

2. Cumulative Net Loss Trigger. Cumulative net losses exceed specified thresholds in accordance with the following loss-trigger schedule:

This trigger is measured on a cumulative basis as of each payment date, using the net loss data reported by Clearview in its monthly servicer report. Like the delinquency trigger, this trigger is automatic and does not require notice or provide a cure opportunity. The trigger schedule reflects an expected loss curve for the pool, with higher thresholds at later dates to account for the cumulative nature of losses over time.

3. Excess-Spread Trigger. The three-month rolling average of annualized excess spread falls below 1.00%. This trigger is designed to identify situations in which the transaction's primary credit-enhancement mechanism (excess spread) has deteriorated to a level that may be insufficient to maintain the OC target and protect noteholders against further credit deterioration. The trigger is measured monthly and is automatic.

4. Overcollateralization Deficiency. The overcollateralization amount (i.e., the balance in the overcollateralization account) falls below the OC floor of 2.00% of the initial pool balance ($4,000,000) for two consecutive payment dates. The two-consecutive-period requirement provides a limited degree of tolerance for temporary fluctuations in the OC level, recognizing that the OC amount may temporarily dip below the floor due to timing differences in collections or one-time loss events before being replenished from excess spread. This trigger is curable — if the OC amount is rebuilt above the floor before two consecutive periods have elapsed, the trigger is not deemed to have occurred.

5. Servicer Default. A "Servicer Termination Event" occurs under the Sale and Servicing Agreement. Servicer Termination Events include, but are not limited to: (a) failure by the servicer or sub-servicer to remit collections to the Trust's collection account within the time periods specified in the Sale and Servicing Agreement; (b) failure by the servicer or sub-servicer to deliver monthly servicing reports within the time periods specified in the Sale and Servicing Agreement; (c) a material breach of the servicing standards set forth in the Sale and Servicing Agreement that is not cured within thirty (30) days after written notice; and (d) the insolvency of the servicer (SBF) or the sub-servicer (Clearview). This trigger is subject to a thirty (30) day cure period for most events (other than insolvency, which is not curable).

6. Seller/Originator Default. A breach of any representation or warranty under the Receivables Purchase Agreement that is not cured within the applicable cure period (sixty (60) days after written notice) and results in the repurchase obligation exceeding a specified dollar threshold. The RPA contains extensive representations and warranties by SBF concerning the receivables, including representations regarding the validity and enforceability of the receivables, compliance with applicable lending laws, and the accuracy of the data provided to the Trust. A breach of these representations triggers a repurchase obligation under which SBF must repurchase the affected receivables at their outstanding principal balance. If the aggregate repurchase obligation arising from uncured breaches exceeds the specified threshold, an Early Amortization Event occurs.

7. Reserve Account Deficiency. The reserve account balance falls below 50% of the required balance (i.e., below $1,000,000) for two consecutive payment dates. Like the OC deficiency trigger, this trigger includes a two-consecutive-period cure opportunity. If the reserve account is replenished above the 50% threshold before two consecutive periods have elapsed, the trigger is not deemed to have occurred.

8. Regulatory Event. Any change in law or regulation that makes the Trust's activities unlawful or that materially and adversely affects the Trust's ability to collect on the receivables. This trigger is broadly drafted and encompasses federal, state, or local legislative or regulatory changes that could impair the Trust's operations, including changes to consumer lending laws, usury restrictions, collection practices regulations, or tax laws affecting the Trust's tax status. This trigger has no cure period, although the Indenture provides that the determination of whether a regulatory change "materially and adversely" affects the Trust's ability to collect is to be made by AFS in its reasonable judgment, after consultation with the servicer and counsel.

9. Insolvency Event. The insolvency or bankruptcy of SBF, SkyLend Funding LLC, or any entity in the securitization chain. This includes the filing of a voluntary petition in bankruptcy, the entry of an order for relief in an involuntary case, the appointment of a receiver or custodian, or the making of a general assignment for the benefit of creditors by any such entity. This trigger is immediate and has no cure period.

C. Analysis of Trigger Levels Relative to Pool Characteristics

The trigger levels set forth above must be evaluated in the context of the actual and projected performance characteristics of the collateral pool. The following analysis identifies the key areas of concern:

Delinquency Trigger (60+ day, 4.50%, three-month rolling average). The reported 30+ day delinquency rate as of the proposed cut-off date is 3.21%, based on Clearview's servicing data. However, the trigger is based on 60+ day delinquency, not 30+ day delinquency. The current 60+ day delinquency rate has not been separately reported in the data provided to date, and we have requested that Clearview provide this breakdown in its next servicing report. Based on historical roll-rate analysis for SBF's loan portfolio (which indicates that approximately 35%–45% of loans that are 30+ days delinquent roll to 60+ days delinquent within the following 30-day period), we estimate the current 60+ day delinquency rate to be in the range of 1.1%–1.4% of the pool balance. This provides a cushion of approximately 310–340 basis points between the estimated current 60+ day delinquency rate and the 4.50% trigger level.

However, this cushion should be evaluated carefully in light of the pool's credit characteristics. The weighted average FICO at origination of 698 places the pool in the near-prime segment, where delinquency rates can escalate rapidly in an economic downturn. Moreover, a significant portion of the pool consists of loans with remaining terms of 36–60 months, which have not yet reached their peak delinquency periods. The deal team should model stress scenarios in which the 60+ day delinquency rate rises to 3.00%, 3.50%, and 4.00%, and evaluate the resulting impact on excess spread and overcollateralization.

Cumulative Net Loss Trigger Schedule. The 2022 vintage cumulative net loss rate of 4.12% provides a useful reference point, but it is important to note that this figure reflects a specific origination cohort that has already seasoned through its peak loss period. The current pool includes more recent originations (2023 and early 2024 vintages) that have not yet been fully seasoned and may exhibit different loss characteristics. The trigger schedule (5.00% by month 12, 7.50% by month 24, 9.00% by month 36) was set based on a multiple of approximately 1.2×–1.5× the projected base-case loss curve. We recommend confirming with the rating agencies that the trigger levels provide adequate protection to noteholders under their respective stress scenarios while not being set so tightly as to create undue risk of premature trigger breach, which could result in a downgrade or withdrawal of ratings.

Excess-Spread Trigger (1.00%, three-month rolling average). The estimated excess spread at pricing is 2.85% per annum, providing approximately 185 basis points of cushion above the 1.00% trigger level. This cushion is sensitive to changes in interest rates (which affect the note coupon), prepayment speeds (which affect the WAC of the pool as higher-coupon loans prepay faster), and loss rates (which directly reduce excess spread). A sensitivity analysis of excess spread under varying loss-rate and prepayment-speed assumptions is set forth in Appendix C.

General Observation. Any material deviation in actual pool performance from the metrics reported by Clearview as of the proposed cut-off date would significantly affect the trigger headroom analysis presented above. The deal team should ensure that the Broadleaf Analytics Group loan-level due diligence (discussed in Section X.C below) is completed and the results reviewed prior to the rating-agency presentations, as any material discrepancies between Broadleaf's findings and Clearview's reported data could necessitate revisions to the trigger levels or the credit-enhancement structure.

D. WDP Redline Issues on Early-Amortization Triggers

Whitfield, Drummond & Paige's March 22, 2024 redline of the draft Indenture, submitted on behalf of Halcyon as initial purchaser, proposed the following changes to the early-amortization trigger provisions:

i. Tightening the Delinquency Trigger from 4.50% to 3.75%. WDP proposed reducing the 60+ day delinquency trigger from 4.50% to 3.75% (three-month rolling average). This would reduce the cushion between the estimated current 60+ day delinquency rate (approximately 1.1%–1.4%) and the trigger level from approximately 310–340 basis points to approximately 235–265 basis points. C&H recommends resisting this change. The 4.50% trigger level is consistent with market practice for near-prime consumer loan ABS transactions and provides adequate protection to noteholders without creating undue risk of premature trigger breach. A trigger level of 3.75% would be unusually tight for a pool with these credit characteristics and could result in a trigger breach during a temporary period of elevated delinquency that is subsequently resolved through curing and collections. If WDP presses this issue, C&H recommends proposing a compromise of 4.25% as an alternative.

ii. Adding a 30+ Day Delinquency Trigger at 6.00%. WDP proposed adding a separate 30+ day delinquency trigger at 6.00% (three-month rolling average), in addition to the 60+ day trigger. This proposal has merit from an investor-protection perspective, as it provides an earlier warning signal of deteriorating pool performance. C&H recommends considering this proposal favorably, as the 6.00% level provides adequate headroom above the current 30+ day delinquency rate of 3.21% (approximately 279 basis points of cushion) and would not be expected to trigger prematurely under moderate stress scenarios. However, the deal team should confirm with Meridian and Carrollton that the addition of a 30+ day trigger would not change their rating-agency models or require adjustments to other structural features.

iii. Lowering the Excess-Spread Trigger from 1.00% to 1.25%. WDP proposed increasing the excess-spread trigger from 1.00% to 1.25% (three-month rolling average). This would reduce the cushion from approximately 185 basis points to approximately 160 basis points. C&H recommends resisting this change. The 1.00% level is standard for transactions of this type, and increasing the trigger to 1.25% would reduce the sponsor's ability to benefit from excess-spread distributions during periods of modest credit stress. If WDP presses this issue, C&H recommends proposing a compromise of 1.10% as an alternative.

iv. Adding a "Data-Integrity" Trigger. WDP proposed adding a new trigger that would be tripped if the servicer fails to deliver accurate monthly servicing reports for two consecutive months. The definition of "accurate" would require that the data in the monthly servicer report be materially consistent with the actual performance of the receivables, as verified by AFS or an independent party. This proposal is conceptually sound and addresses a legitimate risk (the structural dependence on sub-servicer data accuracy, which is discussed in detail in Section X.D below). However, the proposed formulation is problematic because it introduces subjectivity into the trigger mechanism — the determination of whether a report is "accurate" involves judgment that AFS may not be willing or able to exercise. C&H recommends accepting the concept in principle but proposing an alternative formulation that ties the trigger to objective criteria, such as the failure to deliver any monthly servicing report within the required time frame, or the identification of a material discrepancy (exceeding a specified dollar threshold) between the servicer's reported data and the data verified through the quarterly reconciliation process.

VIII. Step-Down Conditions

A. Step-Down Date Definition

The "Step-Down Date" is defined in Section 1.01 of the draft Indenture as the later of:

(i) the payment date occurring twelve (12) months after the closing date (the "Minimum Seasoning Date"); and

(ii) the first payment date on which the performance conditions set forth in Section 5.09 of the Indenture (the "Step-Down Conditions") are satisfied.

The Step-Down Date is the earliest date on which the overcollateralization target may be reduced from the initial level of 3.5% of the initial pool balance ($7,000,000) to the OC floor of 2.00% of the initial pool balance ($4,000,000). The twelve-month minimum seasoning period ensures that the pool has undergone at least one full year of performance history before any reduction in credit enhancement is permitted, providing the rating agencies and noteholders with a sufficient track record to evaluate the pool's credit quality.

Assuming a closing date in April 2024, the Minimum Seasoning Date would be the payment date in April 2025. If the Step-Down Conditions are satisfied as of that date, step-down would commence; if not, step-down would be deferred until the first subsequent payment date on which all Step-Down Conditions are satisfied.

B. Performance Conditions for Step-Down

All of the following Step-Down Conditions must be satisfied simultaneously as of the relevant payment date in order for step-down to occur:

1. No Early Amortiza

MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
From: Theodore Langston, Partner, and Simone Laroche, Associate, Calderwood & Harkness LLP
To: Deal File — SkyLend Receivables Trust 2024-1
Date: March 28, 2024
Re: Payment Waterfall Mechanics, Overcollateralization Triggers, Early-Amortization Events, and Reserve-Account Analysis under the Draft Indenture dated March 4, 2024
Matter No.: 1009-00005
Client: Skybridge Fintech Ltd.
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I. Purpose and Scope
This memorandum provides an internal analysis of the payment waterfall mechanics under the draft Indenture dated March 4, 2024 (the "Indenture"), between SkyLend Receivables Trust 2024-1 (the "Trust" or "SRT 2024-1"), as issuer, and Atlantic Fiduciary Services, Inc. ("AFS"), as indenture trustee, paying agent, note registrar, and custodian. The analysis is intended to assist the Calderwood & Harkness LLP ("C&H") deal team in evaluating the structural integrity and internal consistency of the waterfall provisions, identifying areas of potential concern, and preparing for upcoming rating-agency presentations and counterparty negotiations.
In addition to the Indenture waterfall itself, this memorandum addresses the interaction between the Indenture waterfall and the servicing-level payment-application waterfall set forth in the Sale and Servicing Agreement dated March 11, 2024 (the "Sale and Servicing Agreement" or "SSA"), among SkyLend Funding LLC (the "Depositor"), SRT 2024-1 (the "Issuer"), Skybridge Fintech Ltd. ("SBF" or the "Servicer"), and Clearview Loan Servicing, Inc. ("Clearview" or the "Sub-Servicer"), as well as the Master Servicing Agreement dated October 1, 2022 (the "Master Servicing Agreement" or "MSA"), between SBF and Clearview. The interaction between these two levels of payment-application priority — the loan-level waterfall and the Trust-level waterfall — is a critical structural component of the transaction, and any inconsistency or misapplication at either level could have material consequences for noteholders and other transaction participants.
This memorandum is prepared solely for internal C&H use and deal-team reference in connection with (i) the rating-agency presentations scheduled for April 8, 2024, to Meridian Credit Ratings, Inc. ("Meridian") and Carrollton Ratings Group LLC ("Carrollton"), and (ii) C&H's review of and response to the redline comments dated March 22, 2024, submitted by Whitfield, Drummond & Paige LLP ("WDP") on behalf of Halcyon Securities LLC ("Halcyon"), the initial purchaser. This memorandum does not constitute legal advice to any party other than the client identified herein, is protected by the attorney work-product doctrine, and should not be disclosed to any third party without the prior written consent of the undersigned.
The proposed offering that is the subject of this analysis consists of a Rule 144A / Regulation S private placement of $170,000,000 aggregate principal amount of Class A Asset-Backed Notes (the "Class A Notes") and $22,000,000 aggregate principal amount of Class B Asset-Backed Notes (the "Class B Notes" and, together with the Class A Notes, the "Notes"), plus $8,000,000 of subordinated residual interest (the "Residual Interest") retained by SBF through SkyLend Funding LLC, for an aggregate deal size of $200,000,000. The Notes will be secured by a pool of unsecured consumer installment loans originated by SBF through its proprietary SkyLend digital lending platform.
II. Transaction Overview and Capital Structure
A. Parties and Structure Summary
Set forth below is a summary of the principal parties to the transaction and their respective roles, together with relevant organizational and contact information:
Originator / Sponsor / Servicer: Skybridge Fintech Ltd. ("SBF"), a Delaware corporation with its principal executive offices at 1400 Market Street, Suite 1210, Wilmington, Delaware 19801. SBF's employer identification number is 84-3291076. SBF serves as the originator of the receivables, the sponsor of the securitization program, and the servicer of the receivables pool under the Sale and Servicing Agreement. In its capacity as servicer, SBF has delegated certain day-to-day servicing functions to Clearview pursuant to the Master Servicing Agreement, while retaining overall supervisory responsibility for the servicing of the receivables and oversight of the sub-servicer's performance.
Depositor: SkyLend Funding LLC ("SkyLend Funding" or the "Depositor"), a single-member Delaware limited liability company, the sole member of which is SBF. SkyLend Funding was formed on January 30, 2024, for the specific purpose of acquiring the receivables from SBF and depositing them into the Trust. Its employer identification number is 93-4187620. Danielle Prescott serves as manager of SkyLend Funding. SkyLend Funding has no employees, no material assets other than the receivables acquired from SBF and deposited into the Trust, and no liabilities other than those arising under the Receivables Purchase Agreement and the Sale and Servicing Agreement. SkyLend Funding is intended to be a bankruptcy-remote, special-purpose entity.
Issuer: SkyLend Receivables Trust 2024-1 ("SRT 2024-1" or the "Trust"), a Delaware statutory trust formed on February 14, 2024, pursuant to a Trust Agreement between the Depositor and Keymark Trust Company, N.A., as owner trustee. The Trust's employer identification number is 93-4201855. The Trust's sole purpose is to acquire the receivables from the Depositor, issue the Notes and the Residual Interest, and perform its obligations under the Indenture, the Sale and Servicing Agreement, and related transaction documents.
Owner Trustee: Keymark Trust Company, N.A. ("Keymark"), a national banking association. The primary contact for Keymark in connection with this transaction is Elaine Marchetti. Keymark's annual fee for serving as owner trustee is $7,500, payable in equal monthly installments from Available Funds in accordance with the Indenture waterfall.
Indenture Trustee / Paying Agent / Note Registrar / Custodian: Atlantic Fiduciary Services, Inc. ("AFS"), a Delaware corporation. AFS will serve in multiple fiduciary and administrative capacities under the Indenture. The primary contact for AFS in connection with this transaction is David Moynihan. AFS's fees are as follows: an acceptance fee of $15,000 (payable at closing) plus an annual fee of $12,500 (payable in equal monthly installments from Available Funds in accordance with the Indenture waterfall). In addition, AFS is entitled to reimbursement of reasonable out-of-pocket expenses incurred in the performance of its duties, subject to the caps and limitations set forth in the Indenture.
Sub-Servicer: Clearview Loan Servicing, Inc. ("Clearview"), an Ohio corporation. Clearview performs day-to-day servicing of the receivables pursuant to the Master Servicing Agreement, as supplemented by Amendment No. 1 dated March 18, 2024, and as further incorporated into the Sale and Servicing Agreement. The primary contact for Clearview in connection with this transaction is Meredith Sloane. Clearview's servicing account number for the SBF account is CLS-SBF-2022-0041. Clearview's sub-servicing fee is 0.50% per annum of the outstanding pool balance, which is estimated at approximately $1,000,000 in the first year of the transaction (based on an initial pool balance of $200,000,000). This fee constitutes the entirety of the "servicing fee" deducted from Available Funds off the top of the Indenture waterfall.
Initial Purchaser: Halcyon Securities LLC ("Halcyon"), a registered broker-dealer. Halcyon's deal reference for this transaction is HLC-ABS-2024-017. The primary contact for Halcyon in connection with this transaction is Rebecca Thornton. The underwriting discount is 1.00% of the aggregate principal amount of the Notes, equal to $2,000,000 (calculated as 1.00% × $200,000,000). The underwriting discount is payable from the proceeds of the offering at closing and is not a component of the ongoing waterfall.
Underwriter's Counsel: Whitfield, Drummond & Paige LLP ("WDP"), representing Halcyon. The primary attorneys at WDP working on this transaction are Harrison Whitfield III and Priya Subramanian. WDP submitted its initial redline comments on the draft Indenture on March 22, 2024, and those comments are discussed in the relevant sections of this memorandum.
B. Capital Structure
The capital structure of the transaction, as contemplated by the draft Indenture and the Preliminary Offering Memorandum, is as follows:
The Class A Notes represent 85% of the aggregate principal amount of the offering and are the senior tranche in the capital structure, entitled to first priority in both interest and principal distributions under the Indenture waterfall. The Class B Notes represent 11% of the aggregate principal amount and are the mezzanine tranche, subordinate to the Class A Notes in both interest and principal priority. The Residual Interest represents the remaining 4% of the aggregate principal amount and is retained by SBF through SkyLend Funding LLC. The Residual Interest is unrated and represents the "first loss" position in the capital structure.
The CUSIP prefix allocated for this transaction is 87165Q. Individual CUSIP numbers for the Class A Notes and Class B Notes will be assigned upon finalization of the offering terms and pricing.
The expected ratings reflect preliminary indications from both Meridian and Carrollton based on the information provided to date. Final ratings are contingent upon the rating agencies' completion of their respective analyses, including the April 8, 2024 presentations and review of final transaction documents. It should be noted that Meridian's expected rating of Aaa(sf) on the Class A Notes is one notch higher than Carrollton's expected rating of AA+(sf). This divergence reflects differences in the two agencies' proprietary loss-modeling methodologies and their respective assessments of the SBF/Clearview servicing platform. The deal team should be prepared to address this divergence during the rating-agency presentations.
C. Collateral Pool Summary (Proposed Cut-Off Date: March 31, 2024)
The collateral pool underlying the transaction consists of unsecured consumer installment loans originated through SBF's proprietary SkyLend digital lending platform. The following summary statistics are based on the preliminary pool data as of the anticipated cut-off date of March 31, 2024, subject to final pool selection and verification:
•  Number of Loans: Approximately 23,100 unsecured consumer installment loans
•  Aggregate Outstanding Principal Balance: $213,750,000 (gross, pre-selection). The final pool will be selected from this larger pool to achieve the target pool balance of $200,000,000. Selection criteria will include the eligibility requirements set forth in the Receivables Purchase Agreement (the "RPA") and the Sale and Servicing Agreement, including minimum FICO score, maximum single-obligor concentration, geographic diversification requirements, and delinquency exclusion standards.
•  Weighted Average Coupon (WAC): 14.82%
•  Weighted Average Remaining Term: 38.4 months
•  Weighted Average FICO at Origination: 698
•  Loan Size Range: $1,000 to $25,000; terms ranging from 12 to 60 months
•  Maximum Single-Obligor Concentration: 0.15% of the pool ($300,000)
•  Geographic Concentration Limit: No single state may exceed 20% of the aggregate pool balance
•  30+ Day Delinquency (as of Cut-Off): 3.21% (per Clearview servicing data as reported in its most recent monthly servicing report)
•  Cumulative Net Losses, 2022 Vintage Static Pool: 4.12% (per Clearview servicing data as reported in the historical performance tables provided to the rating agencies)
The weighted average FICO score of 698 positions the pool in the "near-prime" segment of the consumer credit spectrum. This is consistent with SBF's stated underwriting guidelines, which target borrowers with FICO scores generally ranging from 660 to 740. The WAC of 14.82% reflects the elevated coupon rates associated with near-prime unsecured consumer lending, and this coupon generates the excess spread that is the primary driver of the transaction's credit-enhancement mechanics.
The 30+ day delinquency rate of 3.21% as of the proposed cut-off date warrants careful monitoring. While this level is within the range typically observed for pools with similar credit characteristics, it is worth noting that the pool has not yet been subjected to the full seasoning period during which delinquency rates typically peak. The deal team should ensure that the historical performance tables presented to the rating agencies include sufficiently granular vintage-level data to allow the agencies to model expected loss curves with reasonable precision.
III. Loan-Level Payment-Application Waterfall (Servicing Level)
A. Contractual Payment-Application Priority
The loan-level payment-application waterfall governs how individual borrower payments received by the sub-servicer are applied at the loan level. This waterfall is set forth in Section 4.03 of the Master Servicing Agreement dated October 1, 2022, between SBF and Clearview, as confirmed and incorporated by Amendment No. 1 to the Master Servicing Agreement executed on March 18, 2024, and further incorporated by reference into the Sale and Servicing Agreement. The Amendment No. 1 was executed to confirm that the payment-application provisions of the MSA apply to the receivables that are the subject of the SRT 2024-1 securitization and to clarify certain reporting obligations of Clearview in connection with the securitization.
Pursuant to Section 4.03 of the Master Servicing Agreement, each payment received from a borrower is applied in the following order of priority:
1.  First, to accrued and unpaid interest;
2.  Second, to fees (including late fees, returned-payment fees, and other charges assessed under the applicable loan agreement); and
3.  Third, to principal (reducing the outstanding principal balance of the loan).
This payment-application waterfall governs the manner in which individual borrower payments received by Clearview, as sub-servicer, are applied at the loan level before collections are aggregated and remitted to the Trust's collection account. It is critically important to distinguish this loan-level payment-application waterfall from the Trust-level priority-of-payments waterfall set forth in the Indenture. The loan-level waterfall determines how each dollar received from a borrower is characterized — as an interest payment, a fee payment, or a principal payment — and this characterization is then carried forward into the Trust-level waterfall as the basis for computing Available Funds, excess spread, delinquency statistics, and other metrics.
The distinction between these two waterfalls cannot be overstated. The loan-level waterfall is a servicing-level function performed by Clearview on a loan-by-loan basis in the ordinary course of servicing. The Trust-level waterfall is an indenture-level function performed by AFS on a monthly basis in its capacity as indenture trustee. The inputs to the Trust-level waterfall are the outputs of the loan-level waterfall — that is, the aggregate collections remitted by Clearview to the Trust's collection account, classified by type (interest, fees, and principal), together with the servicing data reported by Clearview in its monthly servicer report.
B. Interaction with Servicing Reporting
The monthly servicing reports prepared by Clearview serve as the foundational data source for computing the delinquency, default, and loss statistics that drive the Trust-level waterfall calculations and the early-amortization trigger computations. These reports are delivered by Clearview to SBF (as servicer), AFS (as indenture trustee), and the rating agencies on or before the fifteenth (15th) calendar day of each month with respect to the preceding collection period.
The correct application of the Section 4.03 waterfall at the loan level is critical because it determines:
(i) Whether a loan is classified as current, delinquent, or in default. The delinquency status of a loan is determined by reference to whether interest and fees (applied first under the waterfall) have been brought current. If a borrower makes a partial payment, the payment is applied first to interest and fees; if the payment is insufficient to cover all accrued interest, the loan remains delinquent, even if the borrower has made some payment. Conversely, if payments were misapplied — for example, if principal were credited before interest — a loan that should be classified as delinquent might erroneously appear current.
(ii) The computation of cumulative net losses. Net losses are calculated based on the difference between the outstanding principal balance of a defaulted loan and the amount of principal recovered through liquidation or other collection efforts. If the payment-application waterfall is misapplied such that principal is credited prematurely (before all accrued interest has been satisfied), the reported principal balance of a loan may be lower than it should be, which would cause the net loss on that loan to appear smaller when the loan ultimately defaults.
(iii) The excess-spread and overcollateralization calculations at the Trust level. Excess spread is calculated based on, among other things, the gross portfolio yield (which depends on the amount of interest collected) and the net loss rate (which depends on the accurate computation of principal losses). Any misapplication at the loan level that distorts the classification of collections between interest and principal would propagate through to the excess-spread calculation, potentially overstating (or understating) the amount of excess spread available to build overcollateralization and protect noteholders.
The Sale and Servicing Agreement requires Clearview to apply collections in the contractual priority established by Section 4.03 of the Master Servicing Agreement and to certify its compliance with this requirement in each monthly servicer report. Specifically, Section 3.07(b) of the Sale and Servicing Agreement requires Clearview to include in each monthly servicer report a certification that all borrower payments received during the related collection period were applied in accordance with the payment-application waterfall set forth in Section 4.03 of the Master Servicing Agreement.
SBF, in its capacity as servicer under the Sale and Servicing Agreement, bears overall oversight responsibility for the sub-servicer's performance and is required to conduct quarterly data reconciliation against Clearview's sub-servicing records. This reconciliation process involves comparing Clearview's loan-level servicing data (including payment-application records, delinquency classifications, and loss calculations) against SBF's own records of loan origination, modification, and performance data. Any material discrepancies identified in the course of this quarterly reconciliation are required to be reported to AFS and resolved within thirty (30) days.
C. Significance for Trust-Level Waterfall
All amounts flowing into the Trust-level waterfall originate from the aggregation of loan-level collections as processed by Clearview. The Trust-level waterfall does not independently determine how borrower payments are characterized; rather, it accepts the characterizations (interest, fees, and principal) established at the loan level by Clearview's application of the Section 4.03 waterfall, and distributes the aggregate amounts in accordance with the priority of payments set forth in the Indenture.
This structural dependency means that any error in the loan-level payment application would propagate through to the Trust-level waterfall calculations, potentially affecting excess-spread estimates, overcollateralization levels, and early-amortization trigger computations. The magnitude of such an error would depend on its scope (i.e., whether the error affected a small number of loans or a large portion of the pool) and its direction (i.e., whether the error tended to overstate or understate delinquency and losses). In a worst-case scenario, systematic misapplication of the loan-level waterfall could cause the Trust-level waterfall to distribute amounts to subordinate claimants (including the residual interest holder) that should have been retained as credit enhancement, or could cause early-amortization triggers to fail to trip at the times when they would otherwise have been triggered.
The eligibility criteria schedule attached to the Receivables Purchase Agreement and the Sale and Servicing Agreement includes delinquency exclusion requirements — specifically, no loan that is 60 or more days delinquent as of the cut-off date may be included in the pool. The accuracy of these delinquency classifications at the time of pool selection depends entirely on Clearview's proper application of the Section 4.03 waterfall in the periods preceding the cut-off date.
IV. Trust-Level Priority of Payments (Indenture Waterfall)
A. Available Funds Definition
"Available Funds," as defined in Section 1.01 of the draft Indenture, means, for each payment period, the sum of all collections received on the receivables during the related collection period, including:
(a) scheduled principal and interest payments received from borrowers;
(b) prepayments (whether voluntary or involuntary) of principal on the receivables;
(c) liquidation proceeds received in connection with the disposition or charge-off of defaulted receivables;
(d) net recoveries on defaulted receivables (i.e., amounts recovered after a receivable has been charged off as a net loss, net of collection costs);
(e) late fees, returned-payment fees, and other charges collected on the receivables;
(f) any amounts deposited into the collection account from the reserve account or the overcollateralization account in accordance with the Indenture; and
(g) investment earnings on amounts on deposit in the collection account, the reserve account, and the overcollateralization account during the related collection period;
less the servicing fee, which is equal to 0.50% per annum of the outstanding pool balance as of the first day of the related collection period, calculated on an actual/360 basis and payable monthly. The servicing fee is deducted first, "off the top," before the Available Funds flow through the priority-of-payments waterfall. This off-the-top deduction ensures that the sub-servicer's compensation is not subordinated to any other claim (other than the deduction itself), which is a standard structural feature in securitization transactions and is required to maintain Clearview's economic incentive to continue servicing the receivables in accordance with its contractual obligations.
B. Interest Waterfall (Monthly Distribution)
On each monthly payment date, interest distributions from Available Funds (after deduction of the servicing fee) are made in the following order of priority:
1.  Indenture Trustee Fees and Expenses. First, to AFS, in its capacity as indenture trustee, paying agent, note registrar, and custodian, the monthly installment of the annual trustee fee ($12,500 per annum, payable in monthly installments of approximately $1,041.67), plus reimbursement of any reasonable out-of-pocket expenses incurred by AFS in the performance of its duties during the related collection period, subject to the expense caps set forth in Section 6.07 of the Indenture.
2.  Owner Trustee Fees and Expenses. Second, to Keymark, in its capacity as owner trustee, the monthly installment of the annual owner trustee fee ($7,500 per annum, payable in monthly installments of $625.00), plus reimbursement of any reasonable out-of-pocket expenses incurred by Keymark in the performance of its duties during the related collection period.
3.  Administration Fees and Expenses. Third, to SBF, in its capacity as administrator of the Trust, any administration fees and reimbursable expenses incurred during the related collection period. The administration fee is set at an annual rate to be finalized prior to closing, which is expected to be nominal and is intended to cover SBF's costs of preparing and filing SEC reports (if applicable), maintaining the Trust's books and records, and coordinating with AFS and Keymark.
4.  Class A Note Interest. Fourth, to the holders of the Class A Notes, accrued and unpaid interest on the Class A Notes at the applicable Class A Note rate (target coupon range: 5.45%–5.65%) for the related interest accrual period, calculated on a 30/360 basis on the outstanding principal amount of the Class A Notes. At the midpoint coupon of 5.55% and an initial principal amount of $170,000,000, the monthly Class A interest payment would be approximately $786,250.
5.  Class B Note Interest. Fifth, to the holders of the Class B Notes, accrued and unpaid interest on the Class B Notes at the applicable Class B Note rate (target coupon range: 6.75%–7.00%) for the related interest accrual period, calculated on a 30/360 basis on the outstanding principal amount of the Class B Notes. At the midpoint coupon of 6.875% and an initial principal amount of $22,000,000, the monthly Class B interest payment would be approximately $126,042.
6.  Shortfall Carryover Amounts. Sixth, to the extent of any unpaid interest from prior periods (commonly referred to as "shortfall carryover amounts"), distributed first to Class A noteholders and then to Class B noteholders, in each case together with interest on such unpaid amounts at the applicable note rate. Shortfall carryover amounts accrue interest at the applicable note rate (i.e., Class A shortfalls accrue at the Class A rate and Class B shortfalls accrue at the Class B rate), compounding monthly.
C. Principal Waterfall (Monthly Distribution)
After all interest distributions have been made in accordance with the interest waterfall described above, any remaining Available Funds are applied to principal distributions in the following order of priority:
1.  Class A Note Principal. First, to the holders of the Class A Notes, the scheduled principal distribution amount for the Class A Notes (as determined by reference to the amortization schedule set forth in the Indenture), plus any accelerated principal amounts allocated to the Class A Notes. The Class A Notes are structured as "sequential pay" — meaning that all principal is allocated to the Class A Notes first, until the Class A Notes are fully retired, before any principal is allocated to the Class B Notes. This sequential-pay structure is the primary mechanism through which subordination of the Class B Notes provides credit enhancement to the Class A Notes.
2.  Class B Note Principal. Second, to the holders of the Class B Notes, the scheduled principal distribution amount for the Class B Notes. The Class B Notes receive principal payments only after the Class A Notes have been paid in full (during the normal amortization period). During the revolving period (if any), neither class receives principal distributions.
3.  Reserve Account Deposits. Third, to the reserve account, to the extent necessary to replenish the reserve account to its required balance of $2,000,000 (1.00% of the initial pool balance).
4.  Overcollateralization Account Deposits. Fourth, to the overcollateralization account, to the extent necessary to build or maintain the overcollateralization target of $7,000,000 (3.5% of the initial pool balance), or, after the Step-Down Date and provided the step-down conditions are satisfied, to the overcollateralization floor of $4,000,000 (2.00% of the initial pool balance).
5.  Residual Interest Distribution. Fifth, any remaining amounts (representing excess spread after all senior obligations have been satisfied and credit-enhancement accounts have been funded to their required levels) are distributed to the residual interest holder, SkyLend Funding LLC (and thereby to SBF as the sole member of SkyLend Funding LLC).
D. Combined Waterfall — Complete Priority of Payments
For ease of reference, the complete priority-of-payments waterfall, combining both the interest and principal components set forth above, is presented below as a single sequential list of distribution steps. On each monthly payment date, Available Funds (after deduction of the servicing fee) are distributed in the following order of priority:
1.  Servicing Fee (Off the Top): 0.50% per annum of the outstanding pool balance as of the first day of the related collection period, payable to Clearview (through SBF as servicer). Estimated at approximately $83,333 per month on the initial $200,000,000 pool balance, declining as the pool amortizes.
2.  Indenture Trustee Fees and Expenses: Payable to AFS. Approximately $1,042 per month, plus reimbursable expenses.
3.  Owner Trustee Fees and Expenses: Payable to Keymark. Approximately $625 per month, plus reimbursable expenses.
4.  Administration Fees and Expenses: Payable to SBF as administrator.
5.  Class A Note Interest: Accrued and unpaid interest on the Class A Notes at the applicable rate.
6.  Class B Note Interest: Accrued and unpaid interest on the Class B Notes at the applicable rate.
7.  Class A Note Principal: Scheduled and accelerated principal on the Class A Notes (sequential pay).
8.  Class B Note Principal: Scheduled and accelerated principal on the Class B Notes (sequential pay, commencing after Class A retirement during normal amortization).
9.  Reserve Account Replenishment: To the reserve account, to maintain or restore the required balance of $2,000,000.
10.  Overcollateralization Account Replenishment: To the overcollateralization account, to build or maintain the applicable overcollateralization target (initially $7,000,000; reduced to $4,000,000 after step-down).
11.  Residual Interest Distribution: Any remaining amounts (excess spread) distributed to SkyLend Funding LLC as holder of the Residual Interest.
Note regarding Early-Amortization Period: During an early-amortization period, the waterfall set forth above is modified as described in Section VII below. In particular, during an early-amortization period, all Available Funds (after payment of the servicing fee and trustee fees) are applied sequentially to principal on the Class A Notes and then the Class B Notes, and no distributions are made to the residual interest holder.
V. Overcollateralization Mechanics
A. Initial Overcollateralization Target
The overcollateralization ("OC") target for the transaction is set at 3.5% of the initial pool balance, which equals $7,000,000 (calculated as $200,000,000 × 3.5%). Overcollateralization is achieved when the aggregate outstanding pool balance (i.e., the total principal balance of the receivables held by the Trust) exceeds the aggregate outstanding principal amount of the Notes (Class A Notes plus Class B Notes) by at least the OC target amount. In other words, overcollateralization measures the extent to which the assets of the Trust (the receivables) exceed the liabilities of the Trust (the Notes), with the excess providing an additional layer of credit enhancement to noteholders.
At closing, the aggregate outstanding pool balance is expected to be $200,000,000 and the aggregate outstanding principal amount of the Notes is expected to be $192,000,000 (Class A: $170,000,000 + Class B: $22,000,000). The difference — $8,000,000 — represents the Residual Interest, which provides initial "built-in" overcollateralization equal to 4.0% of the initial pool balance. However, the Residual Interest is a structural feature of the capital structure rather than a funded overcollateralization account, and the OC target of $7,000,000 represents an additional requirement that must be built through the accumulation of excess spread in the overcollateralization account.
The initial overcollateralization level at closing is therefore zero in the funded overcollateralization account, and the OC target of $7,000,000 must be built from excess spread over the first several payment periods following the closing date. This build-up mechanism is described in subsection B below.
B. Overcollateralization Build-Up
Excess spread is the primary mechanism for building overcollateralization. In each month, after all interest and principal distributions have been made and the reserve account has been replenished to its required balance (steps 1 through 9 of the waterfall), any remaining Available Funds are deposited into the overcollateralization account (step 10) until the OC target is reached.
The estimated excess spread at pricing is approximately 2.85% per annum, calculated as follows:
On an initial pool balance of $200,000,000, an annualized excess spread of 2.85% translates to approximately $475,000 per month of excess spread available to build overcollateralization and/or to be released to the residual interest holder. However, the actual monthly excess-spread amount will vary depending on actual collections, prepayment rates, and loss experience.
Excess spread first flows through the waterfall to cover interest and principal shortfalls (if any), then to replenish the reserve account (if the reserve account has been drawn below its required balance), and finally to build the overcollateralization amount up to the OC target. Only after the OC target has been reached and the reserve account is at its required balance will excess spread be released to the residual interest holder.
Based on the estimated excess-spread level of 2.85% per annum and assuming moderate prepayment rates (15%–20% CPR) and net loss rates consistent with the 2022 vintage static pool experience (4.12% cumulative), the estimated time to reach the OC target of $7,000,000 is approximately 8 to 10 months from closing. This estimate is subject to significant uncertainty and will depend on actual pool performance. The deal team should prepare sensitivity analyses for the rating-agency presentations illustrating the OC build-up timeline under various stress scenarios (see Appendix D).
C. Overcollateralization Floor and Release Conditions
After the Step-Down Date (as defined in Section VIII below), the overcollateralization target may be reduced from 3.5% of the initial pool balance ($7,000,000) to an overcollateralization floor of 2.00% of the initial pool balance ($4,000,000), subject to the satisfaction of specified step-down conditions. This OC floor represents the minimum level of funded overcollateralization that must be maintained at all times, even after step-down.
Excess amounts above the applicable OC target may be released to the residual interest holder through step 11 of the waterfall only when all of the following conditions are satisfied:
(i) No early-amortization event (as defined in Section VII below) has occurred and is continuing;
(ii) The applicable OC target (whether $7,000,000 or $4,000,000, depending on whether step-down has occurred) has been maintained for at least three consecutive payment dates; and
(iii) The reserve account is at its required balance of $2,000,000.
These release conditions are designed to ensure that OC amounts are not prematurely released to the residual interest holder at a time when pool performance may be deteriorating or when other credit-enhancement features are below their required levels.
D. Interaction with Loss Rates
The level of funded overcollateralization is directly sensitive to actual versus projected net loss rates. As losses increase, excess spread decreases (because a larger portion of collections is consumed by losses, leaving less excess spread available to flow through the waterfall to the OC account). The relationship is approximately linear within the range of expected loss rates.
At the reported cumulative net loss rate of 4.12% for the 2022 vintage static pool, the OC build is well within projected parameters. The estimated excess spread of 2.85% per annum already assumes an annualized net loss rate of approximately 5.55%, which exceeds the 2022 vintage cumulative net loss rate and provides a conservative estimate for the initial pool. However, the 2022 vintage loss data reflects a specific origination cohort that may not be representative of the loans in the current pool, which include more recent originations that have not yet been fully seasoned.
If actual losses are higher than projected — for example, if the annualized net loss rate exceeds 7.00% — excess spread available for OC build-up would be materially reduced, potentially delaying achievement of the OC target or, in more severe scenarios, causing the OC amount to decline rather than grow. At an annualized loss rate of approximately 8.87%, excess spread would be reduced to zero, and no funds would be available for OC build-up. Loss rates above this level would result in interest and/or principal shortfalls on the Notes.
The early-amortization triggers discussed in Section VII below are designed to provide an additional layer of protection by accelerating the amortization of the Notes (and thereby reducing the aggregate outstanding principal amount relative to the pool balance) when pool performance deteriorates beyond specified thresholds. The interaction between loss rates, excess spread, overcollateralization, and early-amortization triggers is the core of the transaction's structural credit-enhancement framework.
VI. Reserve Account
A. Required Balance
The reserve account is established under the Indenture as an additional source of liquidity and credit enhancement for the benefit of the noteholders. The required balance of the reserve account is 1.00% of the initial pool balance, which equals $2,000,000 (calculated as $200,000,000 × 1.00%). The reserve account is funded at closing from the proceeds of the offering. The reserve account will be held by AFS, as indenture trustee, in a segregated interest-bearing account at a qualifying institution meeting the minimum credit-rating requirements specified in the Indenture.
The required balance of $2,000,000 remains fixed at 1.00% of the initial pool balance (rather than being calculated as a percentage of the then-outstanding pool balance). This "fixed-dollar" approach means that the reserve account requirement remains constant even as the pool amortizes, effectively increasing the reserve as a percentage of the outstanding pool balance over time. This provides additional liquidity protection in the later stages of the transaction, when the pool has seasoned and the remaining receivables may have higher proportional risk.
B. Permitted Uses
The reserve account may be drawn upon in the following circumstances and subject to the following limitations:
(i) Interest Shortfalls on Notes. The reserve account may be drawn to cover shortfalls in interest due on the Class A Notes and the Class B Notes, in that order of priority. If Available Funds (after deduction of the servicing fee and trustee/administrative fees) are insufficient to pay all accrued and unpaid interest on the Class A Notes in full, the indenture trustee shall draw upon the reserve account to cover the Class A interest shortfall. Only after Class A interest has been paid in full shall the reserve account be drawn to cover any remaining shortfall in Class B interest.
(ii) Servicing Fee Shortfalls. The reserve account may also be drawn to cover shortfalls in the servicing fee if Available Funds are insufficient to pay the servicing fee in full. This provision ensures that the sub-servicer continues to receive its contractual compensation even in periods of reduced collections, thereby mitigating the risk that the sub-servicer might reduce its servicing efforts or seek to terminate the sub-servicing relationship due to non-payment.
(iii) Limitations — No Principal Coverage. The reserve account may NOT be drawn to cover principal shortfalls on the Notes except upon the occurrence of an event of default under the Indenture and acceleration of the Notes. This limitation ensures that the reserve account functions primarily as a liquidity facility (covering temporary timing mismatches between collections and interest payments) rather than as a loss-absorption mechanism (which is the function of subordination, overcollateralization, and excess spread).
C. Replenishment.  If the reserve account is drawn below the required balance of $2,000,000 in any period, it is replenished from Available Funds in priority step 9 of the waterfall — that is, after all note interest and principal distributions have been made but before the overcollateralization account is replenished and before any excess-spread distributions are made to the residual interest holder.
This priority of replenishment reflects the judgment that the reserve account serves a more immediate liquidity function than the overcollateralization account. The reserve account provides the first line of defense against short-term cash-flow disruptions (such as temporary increases in delinquency that reduce collections in a given period), while the overcollateralization account provides longer-term protection against cumulative credit losses. Accordingly, if both the reserve account and the overcollateralization account are below their respective targets in the same period, the reserve account is replenished first.
D. Release.  Upon the payment date on which the aggregate outstanding principal amount of all Notes (Class A and Class B) is reduced to zero — whether through scheduled amortization, prepayments, or earlier redemption — any remaining reserve-account balance is released to the residual interest holder, SkyLend Funding LLC. This release occurs at final maturity or upon the earlier retirement of all Notes, and represents a return of excess credit enhancement that is no longer needed because all noteholder obligations have been satisfied.
Prior to the retirement of all Notes, no amounts may be released from the reserve account to the residual interest holder, even if the reserve account is above its required balance. Any investment earnings on amounts on deposit in the reserve account are included in Available Funds and flow through the waterfall in the ordinary course.
VII. Early-Amortization Events and Triggers
A. Definition and Consequence
An "Early Amortization Event" under the Indenture is an event that, upon its occurrence and (if applicable) the delivery of notice to the indenture trustee by the party responsible for providing such notice, causes the Trust to enter an "early-amortization period" (also referred to as an "accelerated amortization period"). The concept of early amortization is one of the most critical structural features of the transaction, as it represents the mechanism by which the Trust shifts from a normal amortization mode — in which excess spread may be released to the residual interest holder — to a wind-down mode in which all available cash flow is directed toward the rapid repayment of the Notes.
During an early-amortization period, the following modifications to the normal priority-of-payments waterfall take effect:
•  All Available Funds (after payment of the servicing fee, indenture trustee fees, owner trustee fees, and administration fees) are applied sequentially to Class A Note principal, and then to Class B Note principal. Interest distributions continue to be made in their normal priority order (Class A interest first, then Class B interest), but all principal distributions are accelerated to reduce the outstanding principal amount of the Notes as rapidly as possible.
•  No excess-spread distributions are made to the residual interest holder. All amounts that would otherwise have been distributed to the residual interest holder are instead applied to principal reduction on the Notes.
•  The reinvestment period (if any) terminates immediately. During the reinvestment period (which, in this transaction, is not currently contemplated, as the pool is a static pool without a revolving feature), the Trust would ordinarily use principal collections to acquire additional receivables to maintain the pool balance. Upon the occurrence of an early-amortization event, this reinvestment activity ceases and all principal collections are used to pay down the Notes.
•  The Trust enters a "wind-down" mode. Receivables are not replaced or substituted, and the pool is permitted to amortize naturally (through scheduled payments, prepayments, and liquidation of defaulted receivables) until the Notes are retired or the receivables are exhausted.
The practical effect of an early-amortization event is to accelerate the timeline for repayment of the Notes, thereby reducing the period during which noteholders are exposed to credit risk in the underlying receivables pool. The trade-off is that early amortization eliminates the residual interest holder's economic return from the excess spread, which provides a strong incentive to the sponsor (SBF) to manage the pool in a manner that avoids triggering early-amortization events.
B. Specific Early-Amortization Triggers
The draft Indenture provides for the following specific early-amortization triggers, each of which constitutes an Early Amortization Event upon its occurrence (and, where applicable, upon the expiration of any notice or cure period):
1. Delinquency Trigger. The three-month rolling average of 60+ day delinquencies exceeds 4.50% of the current pool balance. This trigger is measured monthly, based on the delinquency data reported by Clearview in its monthly servicer report. The trigger is automatic — that is, once the three-month rolling average exceeds 4.50%, the early-amortization period commences without the need for notice or any opportunity to cure.
2. Cumulative Net Loss Trigger. Cumulative net losses exceed specified thresholds in accordance with the following loss-trigger schedule:
This trigger is measured on a cumulative basis as of each payment date, using the net loss data reported by Clearview in its monthly servicer report. Like the delinquency trigger, this trigger is automatic and does not require notice or provide a cure opportunity. The trigger schedule reflects an expected loss curve for the pool, with higher thresholds at later dates to account for the cumulative nature of losses over time.
3. Excess-Spread Trigger. The three-month rolling average of annualized excess spread falls below 1.00%. This trigger is designed to identify situations in which the transaction's primary credit-enhancement mechanism (excess spread) has deteriorated to a level that may be insufficient to maintain the OC target and protect noteholders against further credit deterioration. The trigger is measured monthly and is automatic.
4. Overcollateralization Deficiency. The overcollateralization amount (i.e., the balance in the overcollateralization account) falls below the OC floor of 2.00% of the initial pool balance ($4,000,000) for two consecutive payment dates. The two-consecutive-period requirement provides a limited degree of tolerance for temporary fluctuations in the OC level, recognizing that the OC amount may temporarily dip below the floor due to timing differences in collections or one-time loss events before being replenished from excess spread. This trigger is curable — if the OC amount is rebuilt above the floor before two consecutive periods have elapsed, the trigger is not deemed to have occurred.
5. Servicer Default. A "Servicer Termination Event" occurs under the Sale and Servicing Agreement. Servicer Termination Events include, but are not limited to: (a) failure by the servicer or sub-servicer to remit collections to the Trust's collection account within the time periods specified in the Sale and Servicing Agreement; (b) failure by the servicer or sub-servicer to deliver monthly servicing reports within the time periods specified in the Sale and Servicing Agreement; (c) a material breach of the servicing standards set forth in the Sale and Servicing Agreement that is not cured within thirty (30) days after written notice; and (d) the insolvency of the servicer (SBF) or the sub-servicer (Clearview). This trigger is subject to a thirty (30) day cure period for most events (other than insolvency, which is not curable).
6. Seller/Originator Default. A breach of any representation or warranty under the Receivables Purchase Agreement that is not cured within the applicable cure period (sixty (60) days after written notice) and results in the repurchase obligation exceeding a specified dollar threshold. The RPA contains extensive representations and warranties by SBF concerning the receivables, including representations regarding the validity and enforceability of the receivables, compliance with applicable lending laws, and the accuracy of the data provided to the Trust. A breach of these representations triggers a repurchase obligation under which SBF must repurchase the affected receivables at their outstanding principal balance. If the aggregate repurchase obligation arising from uncured breaches exceeds the specified threshold, an Early Amortization Event occurs.
7. Reserve Account Deficiency. The reserve account balance falls below 50% of the required balance (i.e., below $1,000,000) for two consecutive payment dates. Like the OC deficiency trigger, this trigger includes a two-consecutive-period cure opportunity. If the reserve account is replenished above the 50% threshold before two consecutive periods have elapsed, the trigger is not deemed to have occurred.
8. Regulatory Event. Any change in law or regulation that makes the Trust's activities unlawful or that materially and adversely affects the Trust's ability to collect on the receivables. This trigger is broadly drafted and encompasses federal, state, or local legislative or regulatory changes that could impair the Trust's operations, including changes to consumer lending laws, usury restrictions, collection practices regulations, or tax laws affecting the Trust's tax status. This trigger has no cure period, although the Indenture provides that the determination of whether a regulatory change "materially and adversely" affects the Trust's ability to collect is to be made by AFS in its reasonable judgment, after consultation with the servicer and counsel.
9. Insolvency Event. The insolvency or bankruptcy of SBF, SkyLend Funding LLC, or any entity in the securitization chain. This includes the filing of a voluntary petition in bankruptcy, the entry of an order for relief in an involuntary case, the appointment of a receiver or custodian, or the making of a general assignment for the benefit of creditors by any such entity. This trigger is immediate and has no cure period.
C. Analysis of Trigger Levels Relative to Pool Characteristics
The trigger levels set forth above must be evaluated in the context of the actual and projected performance characteristics of the collateral pool. The following analysis identifies the key areas of concern:
Delinquency Trigger (60+ day, 4.50%, three-month rolling average). The reported 30+ day delinquency rate as of the proposed cut-off date is 3.21%, based on Clearview's servicing data. However, the trigger is based on 60+ day delinquency, not 30+ day delinquency. The current 60+ day delinquency rate has not been separately reported in the data provided to date, and we have requested that Clearview provide this breakdown in its next servicing report. Based on historical roll-rate analysis for SBF's loan portfolio (which indicates that approximately 35%–45% of loans that are 30+ days delinquent roll to 60+ days delinquent within the following 30-day period), we estimate the current 60+ day delinquency rate to be in the range of 1.1%–1.4% of the pool balance. This provides a cushion of approximately 310–340 basis points between the estimated current 60+ day delinquency rate and the 4.50% trigger level.
However, this cushion should be evaluated carefully in light of the pool's credit characteristics. The weighted average FICO at origination of 698 places the pool in the near-prime segment, where delinquency rates can escalate rapidly in an economic downturn. Moreover, a significant portion of the pool consists of loans with remaining terms of 36–60 months, which have not yet reached their peak delinquency periods. The deal team should model stress scenarios in which the 60+ day delinquency rate rises to 3.00%, 3.50%, and 4.00%, and evaluate the resulting impact on excess spread and overcollateralization.
Cumulative Net Loss Trigger Schedule. The 2022 vintage cumulative net loss rate of 4.12% provides a useful reference point, but it is important to note that this figure reflects a specific origination cohort that has already seasoned through its peak loss period. The current pool includes more recent originations (2023 and early 2024 vintages) that have not yet been fully seasoned and may exhibit different loss characteristics. The trigger schedule (5.00% by month 12, 7.50% by month 24, 9.00% by month 36) was set based on a multiple of approximately 1.2×–1.5× the projected base-case loss curve. We recommend confirming with the rating agencies that the trigger levels provide adequate protection to noteholders under their respective stress scenarios while not being set so tightly as to create undue risk of premature trigger breach, which could result in a downgrade or withdrawal of ratings.
Excess-Spread Trigger (1.00%, three-month rolling average). The estimated excess spread at pricing is 2.85% per annum, providing approximately 185 basis points of cushion above the 1.00% trigger level. This cushion is sensitive to changes in interest rates (which affect the note coupon), prepayment speeds (which affect the WAC of the pool as higher-coupon loans prepay faster), and loss rates (which directly reduce excess spread). A sensitivity analysis of excess spread under varying loss-rate and prepayment-speed assumptions is set forth in Appendix C.
General Observation. Any material deviation in actual pool performance from the metrics reported by Clearview as of the proposed cut-off date would significantly affect the trigger headroom analysis presented above. The deal team should ensure that the Broadleaf Analytics Group loan-level due diligence (discussed in Section X.C below) is completed and the results reviewed prior to the rating-agency presentations, as any material discrepancies between Broadleaf's findings and Clearview's reported data could necessitate revisions to the trigger levels or the credit-enhancement structure.
D. WDP Redline Issues on Early-Amortization Triggers
Whitfield, Drummond & Paige's March 22, 2024 redline of the draft Indenture, submitted on behalf of Halcyon as initial purchaser, proposed the following changes to the early-amortization trigger provisions:
i. Tightening the Delinquency Trigger from 4.50% to 3.75%. WDP proposed reducing the 60+ day delinquency trigger from 4.50% to 3.75% (three-month rolling average). This would reduce the cushion between the estimated current 60+ day delinquency rate (approximately 1.1%–1.4%) and the trigger level from approximately 310–340 basis points to approximately 235–265 basis points. C&H recommends resisting this change. The 4.50% trigger level is consistent with market practice for near-prime consumer loan ABS transactions and provides adequate protection to noteholders without creating undue risk of premature trigger breach. A trigger level of 3.75% would be unusually tight for a pool with these credit characteristics and could result in a trigger breach during a temporary period of elevated delinquency that is subsequently resolved through curing and collections. If WDP presses this issue, C&H recommends proposing a compromise of 4.25% as an alternative.
ii. Adding a 30+ Day Delinquency Trigger at 6.00%. WDP proposed adding a separate 30+ day delinquency trigger at 6.00% (three-month rolling average), in addition to the 60+ day trigger. This proposal has merit from an investor-protection perspective, as it provides an earlier warning signal of deteriorating pool performance. C&H recommends considering this proposal favorably, as the 6.00% level provides adequate headroom above the current 30+ day delinquency rate of 3.21% (approximately 279 basis points of cushion) and would not be expected to trigger prematurely under moderate stress scenarios. However, the deal team should confirm with Meridian and Carrollton that the addition of a 30+ day trigger would not change their rating-agency models or require adjustments to other structural features.
iii. Lowering the Excess-Spread Trigger from 1.00% to 1.25%. WDP proposed increasing the excess-spread trigger from 1.00% to 1.25% (three-month rolling average). This would reduce the cushion from approximately 185 basis points to approximately 160 basis points. C&H recommends resisting this change. The 1.00% level is standard for transactions of this type, and increasing the trigger to 1.25% would reduce the sponsor's ability to benefit from excess-spread distributions during periods of modest credit stress. If WDP presses this issue, C&H recommends proposing a compromise of 1.10% as an alternative.
iv. Adding a "Data-Integrity" Trigger. WDP proposed adding a new trigger that would be tripped if the servicer fails to deliver accurate monthly servicing reports for two consecutive months. The definition of "accurate" would require that the data in the monthly servicer report be materially consistent with the actual performance of the receivables, as verified by AFS or an independent party. This proposal is conceptually sound and addresses a legitimate risk (the structural dependence on sub-servicer data accuracy, which is discussed in detail in Section X.D below). However, the proposed formulation is problematic because it introduces subjectivity into the trigger mechanism — the determination of whether a report is "accurate" involves judgment that AFS may not be willing or able to exercise. C&H recommends accepting the concept in principle but proposing an alternative formulation that ties the trigger to objective criteria, such as the failure to deliver any monthly servicing report within the required time frame, or the identification of a material discrepancy (exceeding a specified dollar threshold) between the servicer's reported data and the data verified through the quarterly reconciliation process.
VIII. Step-Down Conditions
A. Step-Down Date Definition
The "Step-Down Date" is defined in Section 1.01 of the draft Indenture as the later of:
(i) the payment date occurring twelve (12) months after the closing date (the "Minimum Seasoning Date"); and
(ii) the first payment date on which the performance conditions set forth in Section 5.09 of the Indenture (the "Step-Down Conditions") are satisfied.
The Step-Down Date is the earliest date on which the overcollateralization target may be reduced from the initial level of 3.5% of the initial pool balance ($7,000,000) to the OC floor of 2.00% of the initial pool balance ($4,000,000). The twelve-month minimum seasoning period ensures that the pool has undergone at least one full year of performance history before any reduction in credit enhancement is permitted, providing the rating agencies and noteholders with a sufficient track record to evaluate the pool's credit quality.
Assuming a closing date in April 2024, the Minimum Seasoning Date would be the payment date in April 2025. If the Step-Down Conditions are satisfied as of that date, step-down would commence; if not, step-down would be deferred until the first subsequent payment date on which all Step-Down Conditions are satisfied.
B. Performance Conditions for Step-Down
All of the following Step-Down Conditions must be satisfied simultaneously as of the relevant payment date in order for step-down to occur:
1.  No Early Amortiza

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